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There’s no doubt about it—influencer marketing budgets are on the up. According to the Influencer Marketing Hub, the total value of the influencer market is expected to hit $21.2 billion in 2023. That’s well over a tenfold increase from $1.7 billion in 2016, just seven years earlier.
So, what’s going on?
Why is influencer marketing getting more expensive?
Well, there are a number of factors at play. The first is simply that the market is still relatively young as an advertising channel. This means that it’s been going through an early rapid growth phase, as both marketers and influencers themselves have adjusted to new business realities.
If you’ve been following the market for a number of years, you may have noticed that it’s not necessarily a cut-price option these days. There was a time when most influencers would be happy to form partnerships for free products. Although many still are, you can no longer rely on it. Influencers know their worth, and they’re increasingly professional about demanding it.
Certainly, if you’re planning your influencer marketing budget, you should count on putting down cold hard cash. Exactly how much will vary, depending on which platforms you want to use and what kind of influencers you’re interested in working with.
Around two-thirds of marketers say they’re planning to bump up their influencer marketing budgets in 2023. But how much should you be planning to spend?
As a rule of thumb, it makes sense to earmark around 15% to 20% of your total marketing budget for your influencer marketing campaign. That may seem like a lot until you remember that there are multiple costs involved.
Factors that affect your influencer marketing budget
When you look at recent ecommerce marketing trends, it’s obvious that influencer marketing is here to stay. The ability to target a specific niche audience with precision is a huge selling point. But any campaign is limited by the budget available, and it’s crucial to consider all the costs involved.
Many factors can affect your budget, but we run through the most important ones below.
First of all, the obvious one: how much will you be paying your influencers?
There are four basic models for influencer compensation:
One-off fee: Straightforward transaction for a short campaign.
Product-only: Less common now, but still an option, particularly for smaller influencers.
Performance-based: Payment according to conversions achieved; good for measuring ROI, but unpredictable.
Revenue sharing: The influencer gets a slice of the profit from each conversion; again, excellent for accountability, and keeps the influencer engaged because they have skin in the game.
Although many influencers now expect to be paid in cash, it’s often possible to negotiate a mixed package. If you can throw in sweeteners that have a significant value to the influencer, it can help keep your costs down. Examples include:
- Brand event passes
- Exclusive access to new products
- VIP experiences
Bear in mind that content creators need to keep their audiences happy and engaged. That’s in your interest as well, if you’re going to partner with them. So it doesn’t hurt to offer a discount code or even some free products for your influencers to pass on to their followers.
Legal compliance fees
When you’re negotiating a partnership with an influencer, it’s important to have a watertight contract—and that means paying legal fees. There may be other documents as well. It’s not unusual for influencers to sign non-disclosure or content rights agreements, for example.
If you’re planning a long-term partnership, some of the legalities can get very complex. It’s crucial that both sides have a clear understanding of the goals of the campaign before it begins. That’s particularly the case if you want an exclusive contract because that will mean the influencer cannot do business with anyone else, which will limit their income potential.
Another point to consider is whether you want to be able to share their content on your own media channels. You can’t simply assume that’s the case. It’s one thing for an influencer to shout out a referral code for you on their own platform, and quite another for you to re-share their work on yours. Make sure everyone knows what to expect in advance, to avoid problems cropping up further down the line.
Company marketing budget
The harsh reality of business is that you have to make the most of whatever budget you’re given. Influencer marketing is only one part of a full marketing campaign, of course. In most cases, it pays to combine influencer marketing with a wider social media element to get the best bang for your buck.
But there are always options, no matter how limited your budget is. That’s the beauty of the influencer world.
Influencer marketing software
For larger or longer-lasting campaigns, you may want to consider investing in influencer marketing software. These solutions allow you to take better control of your campaign and plan more effectively.
Typically, they’ll help with tasks such as finding appropriate influencers, approaching them, sending briefs, submitting payments, and tracking performance. In short, they save your marketing team a huge amount of time.
Tips to plan your budget for influencer marketing
So let’s get down to the details. You’ve got a set budget and you want to make the most of it. How do you nail the brief?
1. Create a realistic goal
Step one is to create a goal that’s ambitious but realistic. You may dream of hiring Charli D’Amelio or Logan Paul, but they’re most likely out of your price range.
Instead, start by thinking of the overall marketing aims. What will conversions mean here and what are the KPIs for the project? Are you looking to increase sales or optimize customer retention, for example? That’s going to matter when you decide what kind of package to offer.
Starting like this will stand you in good stead later when it comes to measuring how successful the campaign has been. It will also point you in the right direction when it comes to selecting and approaching the perfect influencers.
2. Determine the type of influencer you want
Who is the target audience for your campaign? Establish which social media platforms they’re likely to follow first, then go looking for potential partners.
If you’re selling to Gen Z, for example, you should be thinking about TikTok, since it’s a firm favorite with younger consumers. On the other hand, if you want to target people who enjoy growing flowers, you’ll probably be better off with a gardening channel on YouTube.
You don’t necessarily need to partner with influencers who have a huge following. There are upsides and downsides to working with any kind of influencer. For a particularly niche product, it can actually be better to work with a micro-influencer who has under 50,000 followers. That’s because although you won’t reach very many people, the ones you do reach are likely to be interested.
3. Consider the taxes involved with influencer gifting
Exercise caution with product gifting. In many cases, compensating an influencer will trigger a tax liability. It depends on which jurisdictions are involved, and it can get quite messy.
In the US, independent contractors like influencers will generally be sent 1099-NEC or 1099-K forms when they've received non-employee compensation of at least $600. But the value of any product changing hands as part of a remuneration package also has to be declared to the IRS.
The tax position in many other countries is similar. Since July 1, 2022, all UK-based influencers have been obliged to declare products gifted to them for promotional purposes on their tax returns. This comes at a time when the rules around filing taxes are changing too.
Soon, any self-employed worker in the UK making over £50,000 a year will have to follow the Making Tax Digital process. A lot is changing, and it may have an impact on the deals your influencers will accept. In some cases, they previously had more of an incentive to accept product-only deals. Now, it’s a less attractive option.
4. Choose a compensation package that works for you
Influencers vary just as much as people do. Some will be easily persuaded, and others will try to drive a hard bargain. Never forget that any deal you make has to work for you.
Some influencer marketing deals can end up being quite complex. This can be a challenge, particularly if you’re doing most of the management yourself. Make sure you have good accounting software in place to manage invoices, make payments, and keep track of cash flow.
If you’re aiming for a short campaign, it may well be best to stick to a single-fee package. That keeps things very simple, although it can make measuring the success of the campaign difficult.
On the other hand, you may need much more accountability. If you’re working with influencers at scale, you’ll certainly want to know that you’re getting value for money. That applies whether you’re finding your influencers yourself or through an agency. In that case, some kind of performance-related structure is a better choice.
The great thing about influencer marketing is how versatile it is. There are thousands of content creators out there who will be very happy to partner with you.
This gives you a lot of flexibility when it comes to planning your budget. So it pays to take the time to consider all your options carefully. And you never know—you could end up talking to your favorite Instagram star!