Why Paying Celebrity Influencers $500,000 for a #Sponsored Video Ad May Not Give You the Best ROI – Advertising Week 2017
On Monday, I attended several sessions at Advertising Week, including #Sponsored and The Rise of Celebrity Influencers for Subscription & E-Commerce Marketing. If you want the read the top news stories from Advertising Week, I can recommend Adweek’s coverage of the event. But, you already know that Tubular Insights is no longer reporting news. Instead, we are focusing on delivering strategic insights, critical data, tactical advice, and trends in the digital video marketing business. And the biggest epiphany that I experienced while listening to panelists talk about #Sponsored content and the value of celebrity influencer marketing for small businesses, subscription boxes and services, and e-commerce was the answer to this question: “Is it worth paying Kim Kardashian West $ 500,000 for a #sponsored #ad?”
Celebrity Influencers & Sponsored Content
Now, no one actually mentioned Kimberly Kardashian West during the sessions that I attended. But, none of the influencers on any of the panels that I attended disclosed how much they get paid by brands to create a sponsored video. But in the session moderated by Ashley Iaconetti, a reality TV personality who first appeared on ABC’s The Bachelor, it became clear why Paul Desisto, a senior talent agent at Central Entertainment Group (CEG), Jolie Jankowitz, the Director of Influencer Marketing for FabFitFun, and Caitlin McLarnon, the Growth Marketing Manager of the US division of HelloFresh, have all worked with Ashley before and would love to work with her again.
Yes, Iaconetti is a fan favorite because she is very open with her emotions. But, CEG’s clients, FabFitFun, and HelloFresh are all trying to leverage influencers to improve their company’s bottom line. And Iaconetti provides a better return on marketing investment (ROMI) than Kardashian West, who is also a reality television personality, would. Wait! How do I know that? Nobody even mentioned Kim Kardashian West during the session on The Rise of Celebrity Influencers for Subscription & E-Commerce Marketing. And nobody mentioned what they had paid or would pay Ashely Iaconetti, either. But, we do know what the Kardashians ask for.
According to “This Is How Much the Kardashians Get Paid for One Instagram Post,” by Sarah Karmali in Harper’s Bazaar UK, Michael Heller, the CEO of digital-marketing firm Talent Resources – the company that arranges many of the reality-TV family’s deals – told US Weekly that some companies have been known to pay up to $ 500,000 to get access to Kim Kardashian’s (103.3 million) Instagram followers, while sisters Khloé and Kourtney can earn up to $ 250,000 a post.” (They have 69.1 million and 58.7 million followers respectively).
So, there you have it: You could call it the Kardashian Standard. But, it should come with the following warning: This is what you’d have to pay if you measure influencers on only one dimension: Reach.
Engagement: The Influencer Metric That Matters
But, Desisto, Jankowitz, and McLarnon don’t use any of the Kardashians. But, they all use Iaconetti. Why? Because they measure more than reach; they also measure engagement. And based on my analysis of what they did and didn’t say during the session, they know how to calculate ROMI.
Now, return on marketing investment (ROMI) is calculated using a different formula than the typical return-on-investment (ROI) formulas that most chief financial officers (CFOs) use. It’s different because ROMI measures operational expenditures (OPEX), while ROI measures capital expenditures (CAPEX). But, the amount spent on marketing is typically expensed in the current period (quarter); it isn’t “tied up” in plants and inventory. So, when most CFOs ask their chief marketing officers (CMOs) to report the ROI of an influencer marketing campaign, they’re asking for the wrong measure of success.
Here’s the formula for calculating ROMI: / Marketing Spending ($ ).
So, Kim Kardashian West charges brands $ 500,000 for a single Instagram video post like this one. It appeared Aug. 22, 2016, and got more than 16 million views.
Well, SugarBearHair, the sponsor of Kim’s Instagram post, charges $ 79.99 for a 3-month supply of Gummy Hair Vitamins. And, let’s say that SugarBearHair’s contribution margin is 50%. This is a scientific wild ass guess (SWAG). So, Kim’s #ad needed to generate over 25,000 orders to deliver $ 2 million in incremental revenue – ($ 2 million * 50% – $ 500,000) / $ 500,000 – for SugarBearHair to get an ROMI of 1. In plain English, Kim’s Instagram post needed to generate $ 2 million in orders for SugarBearHair to see $ 1 in profit for every $ 1 it spent on her sponsored content. Usually, marketing spending will be deemed as justified if the ROMI is positive.
But, what if Desisto, Jankowitz, and McLarnon had identified 10 micro-influencers who didn’t have Kim’s reach, but had an even greater impact on the purchase decisions of their followers. And let’s say they paid these micro-influencers an average of $ 25,000 apiece to generate $ 3 million in orders. Do the math and you’d get ($ 3 million * 50% – $ 250,000) / $ 250,000 = an ROMI of 5. In other words, they got $ 5 in profit for every $ 1 they spent on sponsored content. Yes, it took more work to find 10 micro-influencers with above average engagement rates, but that effort resulted in more revenue and higher profits.
That’s the strategic insight that I had while listening to panelists talk about #Sponsored content and the value of celebrity influencer marketing for small businesses, subscription boxes and services, and e-commerce. That’s the biggest takeaway that I’ve had so far from Advertising Week. Let me know what you think about my big epiphany. Share your thoughts on Facebook or Twitter.