What is the real ROI of influencer marketing?

Every other day, this question nags at you, or it pops up in team meetings: "Are we truly maximizing our investment in influencer marketing, especially when stacked against channels like email, SEO, or ads?"

It's a legitimate question.

While some studies claim a massive ROI, the answer is not as simple as a plain number eg: ROI is 4x, 11x, or 20x, and so on.

Many of these figures seem inflated. It's easy to stumble upon tools that celebrate an influencer-driven success for one brand and then paint a rosy picture for all.

It's true that when executed with the right mindset, influencer marketing can definitely outshine traditional channels, offering tangible, impactful returns.

But how much is the exact return you can expect?!

There's no fixed number. That's the honest answer. If anyone tells you otherwise, they likely have some other/selfish motive.

But finding 'how much ROI' shouldn't be your goal. Your goal is to judge whether you're making more revenue after influencer marketing vs before.

This is all you need to justify to your bosses or yourself is whether you should continue doing influencer marketing or not.

There are two reasons for discouraging you to get fixated on a number for your ROI.

Rarely do people purchase a product immediately after an influencer mentions it. Instead, they come across the brand in various spaces. Consider your own purchasing journey for something you purchased:

• Maybe you've scrolled past a Facebook ad, only to ignore it.
• Spotted the product at a local store but walked by.
• But after seeing a few influencers discuss it, you remember the brand name.
• One day you really needed it, so you searched for it, clicked on a google ad and purchased…

In this case, Google gets the attribution for that final sale, but the path leading to that was through multiple interactions. Influencers added massive social proof. We don't know if the person would've purchased from your brand or just went with their regular go-to option.

Every touchpoint, even those not directly leading to a sale, is crucial.

Our point being — Don't get fixated on the outdated funnel model & try to attach every influencer campaign to the sales. Influencers lead to sales, they may not be directly attributable.

🛒 Influencer marketing isn't a direct sales channel

If you want immediate sales, influencer marketing might not be for you. But if you want incremental sales, even if they can't be attributed to a source, then influencer marketing is great.

"Okay, if influencer marketing doesn't get immediate sales… what does it do then?"

Here's how influencers help your brand —

🔍 Discovery phase: They introduce audiences to your product.

🔥 Decision phase: Their posts can nudge followers towards a purchase, tapping into the powerful 'fear of missing out' sentiment.

While tools like affiliate links can track some sales, the overall impact of influencers remains elusive. And that's okay!

The DTC industry has been pampered with lots os attribution data from BigTech ad platforms. But times are changing. The emphasis is shifting from immediate sales to brand-building and influential social selling. Because that is what works.

Now that you know these two things, let's unwrap the 'investment' part of the return-on-investment (ROI) of influencer marketing.

💰 What's your investment?

The major cost is the fee paid to the influencer. The entire investment is more intricate than that. Let's break down where your money is likely going with influencer marketing:

1. Influencer compensation:

a) Flat Fee: A set amount agreed upon with the influencer for their promotional work.

b) Affiliate Commissions: A percentage given to influencers for every sale made through their unique link or code.

c) Content Creation Fee: Some influencers might charge extra for creating specialized content, especially if they produce videos, high-quality photos, or other unique materials.

2. Product costs:

a) Free Products: Sending samples or items to influencers for reviews or showing to their audience.

b) Shipping & Handling: Costs related to delivering the product to the influencer. This can be packaging, postage, and if applicable, international customs or duties.

4. Platform & tools:

a) Influencer marketing platform: Subscriptions to platforms or databases that help brands find and engage suitable influencers. If you're looking for something that doesn't break your bank or lock you in with long-term contracts, try SARAL .

5. Additional campaign elements:

a) Giveaways & contests: If you're partnering with influencers for giveaways, this includes the cost of the prizes and the logistics involved.

b) Travel & events: If influencers are invited to brand events, product launches, or trips, there are associated travel, accommodation, and event organization costs.

c) Licensing: Costs for repurposing influencer content in ads or other marketing avenues.

6. Administrative Costs:

a) Agency fees: If you collaborate with an agency to run your influencer marketing efforts, they'll have hefty charges. To save this cost, consider switching to a platform like SARAL that helps you automate your influencer marketing.

b) Contract & legal: Costs related to the formulation, review, and finalization of contracts and agreements with influencers. We usually don't recommend this for small and medium brands.

b) Training & Onboarding: Occasionally, there might be expenses associated with acquainting influencers with your brand's narrative, products, or specific campaign objectives.

Document your investments

Create a dedicated spreadsheet specifically for influencer marketing expenses. Make columns for every expense.

Set a fixed day every week, perhaps every Friday afternoon or Monday morning, to review and update this sheet. This regularity helps in not only monitoring your current expenditures but also in forecasting potential future costs. Over time, you'll start noticing patterns, allowing you to allocate budgets more effectively.

📈 MER (Marketing Efficiency Ratio)

MER answers the question — “For every dollar I spent on marketing, how much revenue did I generate?”

It will help you judge whether influencer marketing helped you, harmed your sales or simply didn't have any impact. If you generate more revenue for every dollar you spend, after you started influencer marketing, it's obvious to continue doing that.

How to calculate MER:

• Before influencer marketing: Look back at a time before you started using influencer marketing. Find out how much money you made (that's your revenue) and how much you spent on marketing.
• After influencer marketing: Now, check a time when you were using influencer marketing. Again, find your revenue and what you spent on marketing.
• Make the comparison: Take your revenue, divide it by what you spent on marketing, and there you have it - your MER.

For example:

Before using influencers:

• Money made: $100,000
• Money spent on marketing: $30,000 MER = 3.33 (Every marketing dollar brought in $3.33)

With influencers:

• Money made: $150,000
• Money spent on marketing: $40,000 MER = 3.75 (Now, every marketing dollar brought in $3.75)

This hike from 3.33 to 3.75 in MER shows that influencers are adding to your revenue.

📉 Reduced CAC

The basic formula for ROI is —

ROI=(Net Profit / Cost of Investment)×100

If your CAC goes down, the denominator (Cost of Investment) in your ROI calculation is reduced. A smaller denominator, all else being equal, leads to a higher ROI.

So, a reduced CAC can directly boost your influencer marketing ROI.

Compare CAC before and after influencer marketing (assuming everything else remains almost the same.) This should give you an idea if influencer marketing is helping your brand or not.

Why your CAC will (most likely!) reduce after influencer marketing:

• Customers brought in through influencers often stick around. They don't just make a one-off purchase; they become fans. They're more likely to come back, & spread the word. This will also reduce your CAC over time.
• With more influencers talking about you, more people might start searching for your brandname directly and come to your site organically (without any extra marketing spend!)

🛍️ Calculate direct sales

If you want to accurately measure sales from influencer marketing, use unique links or coupon codes for each influencer and track the sales associated with them.

Example of Loop Earplugs giving coupon code to influencers--

Every time the link or coupon is used, you have a direct sale linked to the influencer's promotion.

Once you have the sales data through unique links and coupon codes, compare the influencer's fee and any additional costs to the revenue generated from their referrals. This direct comparison provides a clear ROI figure.

Note that sales might not happen immediately. Some users might click on the link or note the coupon code and make a purchase days or even weeks later. Define a reasonable attribution window for each campaign.

📸 Influencer-generated Content

While professionally produced ads are polished, they can also be expensive and may not always resonate with the target audience.

Influencer-generated content often feels more genuine, relatable, and less "scripted" than traditional ads, potentially leading to better sales.

Magic Spoon uses influencer generated content in their ads:

This impacts your ROI, positively boosting the numerator in the ROI formula ROI=(Net Profit / Cost of Investment)×100.

Hiring an ad creative agency usually involves high costs because of specialized professionals, equipment, and extensive processes.

When influencers create content for a campaign, they often handle the ideation, production, and editing, etc. by themselves. You get the content at a fraction of the cost you would have incurred with an agency.

By repurposing influencer content across different platforms and ad campaigns you can get more value from a single piece of content.

Final Thoughts

To truly boost your ROI from influencer marketing, you need tools that not only help you carry out effective strategies but also guide you to the best ones.

👉 One such tool is SARAL — all-in-one influencer marketing platform specifically built for DTC brands.

With SARAL you can:

• Quickly find the ideal influencers for your brand. No more endless Instagram scrolling, which means reduced time and resource wastage, positively impacting your ROI.
• Send products to multiple influencers at once, generate tracking links, and monitor the effectiveness of your campaigns.
• Track actual sales and profit with our Shopify + GoAffPro integrations. Better tracking means better data, leading to more informed decisions and a boosted ROI.

🎉 You can get started with all these features and more without paying a dime upfront. Dive into our free 7-day trial and witness a positive ROI on influencer marketing.

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