How Influencers Make Money

0:07Hello, and welcome to The Debrief from the Business of Fashion, where each week we delve into our most popular BOF professional stories with the correspondents who created them. I'm executive editor Brian Baskin. And today we're talking about influencers. For most of us, the image that comes to mind is of a young person dancing on TikTok or posting impossibly perfect selfies on a brand sponsored trip to some exotic destination. But that stereotype is increasingly outdated. Today, the most successful influencers host shoppable live streams and intimate group chats and publish daily newsletters on Substack.

0:42They're independent operators in a way that wasn't possible even a few years ago. At the same time, they haven't entirely broken free of the whims of the algorithm. With me to discuss all of this is senior news and features editor Diana Pearl, who has followed the changes sweeping the influencer world closely. Hi, Diana. Welcome to the Debrief podcast. Hi, Brian. Thanks for having me. So before we dig into the ins and outs of affiliate links and Substack economics, Tell me what fascinates you about influencers. I have followed the influencer world before influencer was even like a word in our cultural vernacular.

1:17I first started following then bloggers when I was in college. So this was around like 2010, 2011. And at the time it was a totally different space. Most people weren't making money off of it. Instagram didn't exist. Instagram didn't exist. You know, bloggers were just starting to go to fashion week. So you had, you know, the early like fashion bloggers like a Brian Boy or Chiara of the Blonde Salad. But then you also had people like Rachel Parcell of Pink Peonies, who is a mom, wife, now clothing brand owner in Utah, or Julia Engel of Gal Means Glam, who just showed their life. And it was all very casual and off the cuff.

1:56And I think it really just either exposed people to a world that they weren't familiar with. You know, like I'm not a Mormon in Utah, so I was interested in learning more about what their lives might be like. Or, you know, gave people a peek at something that was aspirational to them. Like I followed when I was in college a lot of people who were, you know, out of school and living in New York and doing what I wanted to be doing in a few years. And then as the industry evolved and people started gaining an audience, they realized, oh, I can maybe like make some money off of this. That's where affiliate links first came into play with the launch of RewardStyle in 2011.

2:29then Instagram launched and people started using Instagram as the primary platform to connect with people. And that really brought on that era of the 2010s influencer where everything was very perfect and professional photos and it was all very curated. And then with TikTok at the end of the 2010s, early 2020s, that really just broke the whole world wide open. I think that's what really took it from being this more like niche thing into something that felt a little bit more broad. I guess you also had YouTube and the 2010s and the vloggers and all that sort of thing. But TikTok, I do think pushed it to a different level of mainstream consciousness.

3:04And now we have Substack. And it's sort of like coming all the way back around, back to this long form content, the written content. But I just find it so interesting. A, you get like a real peek into people's lives that you never would have before. And you can develop a personal connection with someone who's offering you shopping recommendations or beauty product tips or things like that. in a way that you just couldn't with like a magazine editor where it feels a little bit more faceless. So I think that's why it's really like held such a cultural fascination, you know, and for a lot of people, myself included.

3:37And it's just a world that continues to evolve and change and has really interesting personalities attached. So I think it's like this perfect recipe of things that are interesting. You hinted at this a bit in your answer, but on the one hand, these influencers are offering a peek into their lives, but the way that they're doing that is clearly being shaped by the platform that they're on and then the economics of those platforms. So the perfect Instagram photo was driven by what brands were willing to pay people for and what was driving engagement through Instagram's algorithm. And then TikTok comes along and there's this much more quote unquote authentic feel, you know, a little looser, a little more off the cuff.

4:17And now we have Substack and other new formats that are again, reshaping how influencers interact with their followers. So why don't you walk us through how that works and how influencers are making money today? Let's start with affiliate links. You mentioned those. What are those? Yeah. Okay. So affiliate links, let's say an influencer recommends a sweater. You click on that link. It takes you to the website and you're like, I love this sweater. I want to buy it. That influencer will then get a cut of the purchase and it can range anywhere from as little as, you know, three to 5 % to up to, you know, 20, 25%.

4:49It just depends on the retailer and the affiliate platform. Those really started taking a stronghold in the influencer industry with the launch of RewardStyle, like I said, in 2011, which is now referred to as LTK, has grown into this giant behemoth. They do a lot more than just affiliate links. They also orchestrate brand deals, which I would say brand deals are the most prominent way that influencers get paid. It's the most obvious. That's hashtag SponCon, hashtag sponsored. So when a brand basically enlists a particular influencer to essentially just run an ad for their product or their brand on their platform, whether it's a series of Instagram stories or a TikTok or a post in their Instagram feed, there's all sorts of ways that that can kind of come to life.

5:32But that's definitely how influencers, I'd say for most of the history of the influencer marketing industry, have made most of their money. And then now we're also seeing the rise of subscriptions. This is something that's really taken a hold in the last year. It's been great for influencers because it allows them a little bit more control. They don't have to be quite as reliant on brand deals. And it offers them the chance to connect with their most loyal fans, the people who are really invested in them, so invested that they're willing to pay them$5 to$10 a month for extra shopping recommendations or even personal details about their life.

6:04That's a popular thing to keep these more personal things behind a paywall now. And I think it gives influencers also the confidence to put that sort of thing out because they don't feel like it's going out to people who could then hate on them or slam their DMs with hate. Although it sounds like what they're doing is returning to that initial format you talked about, the blog post. I mean, isn't that what a Substack newsletter is in the end? Yeah, basically, basically. And I think that, honestly, like the original Blogspot, if you remember that with like the little orange logo, operates similarly in some ways to Substack.

6:35Blogspot would have this banner at the top of the page where you could hit like next blog and it was really good for discovery. And Substack is the same way. It always is recommending you other Substacks based on what you subscribe to. And it's sort of like a community within a community. It's not like you just have a website existing on the internet that isn't related to anything else. It links you to all these other sites. But I do think it speaks to this desire for longer form content, having that deeper relationship with your followers, but also for the followers, having a deeper relationship with the influencer and really getting inside their head in a way that only I think long form can do.

7:10And for the influencer, having control over their following and the type of content they produce and what those followers see must be very important as well, because they're not relying on an algorithm to serve up their content to random people who may or may not follow them and may or may not pay attention. 100%. I think that that has been one of the biggest difficulties of influencers really moving from blogs to social media platforms was just you're completely at the whim of the algorithm. And when Instagram decides to make some sort of change, we're going to prioritize videos now, or we're going to change a feature so you can't swipe up anymore or what have you.

7:47It just means that they have to completely rethink their business. whereas Substack is very much like your followers pay, they subscribe, they're getting that in their inbox. It's a little bit more reliable. And I think influencers really want to be less reliant on social media platforms and less reliant on brands. They want that freedom to just create the content that their followers like because that's ultimately what gets them to stick around. And it seems like that mentality is migrating over to the world of affiliate links and brand deals as well. You mentioned LTK or formerly Rewards Style before And that was very much a product of that Instagram early TikTok era when influencers really were kind of at the mercy of the algorithm.

8:26But you wrote earlier this year about a new rival to LTK that seems to really be embracing this idea that influencers should be the ones calling the shots to a degree, at least. Tell us about ShopMy. Yeah. So ShopMy is a company that launched four years ago, and they do a lot of what LTK does. The primary thing they do is offer influencers affiliate links. So the chance to make money off of the products they share, but they do it in a very different way than LTK. So LTK has really zeroed in their focus on building their own app. And they try to encourage their creators and all the creators in their network to use their app as their primary place of posting and primary area to connect with followers.

9:06ShopMy doesn't do that. All you do with ShopMy is you make your shop where you link to all your different products, you know, my skincare routine or my fall wardrobe essentials, what have you. And then it's just a link. So you can just, it's really meant to be shared. It's not meant to be like a home base in itself. It's meant to be shared on your Instagram, shared on your sub stack, that sort of thing. They also have new, they rolled out a feature called opportunities earlier this year, which is sort of their approach to the sponsored post. And with that, a brand can pay an influencer a set fee for a set number of Instagram mentions over the course of a month.

9:41So let's say, influencer gets paid$2 ,000 a month and there's five guaranteed Instagram story mentions for the month. And it's supposed to really encourage this organic posting. They don't want it to feel like it's all just dictated by a creative brief that has been handed down by a brand, which is something that influencers have really been pushing back against recently. They come at it from the perspective of, we know our audience, we know what content resonates with them, but if you hand us this sort of really detailed brief and are expecting us to act like a traditional ad agency and creating a commercial that just hits every single box, it's just not going to come off as authentic.

10:19It's not ultimately going to get what you want to get out of this, which is selling your product. And has this been a friendly rivalry between LTK and Shopmai? Not really. Earlier this year, I broke the story that LTK sued Shopmai for false advertising. That suit has since been dropped, but it really spoke to the fact that there was this new tension in the industry. And LTK invented this category, really, of paying influencers and giving them a commission for the products that they recommend. But they have kind of gone unchallenged for the past decade plus in the space. There have been smaller players.

10:58There was one called ShopStyle that sort of made some inroads in the 2010s, and they paid per click versus paying by commission. But no one has ever really given LTK a true challenge. They've been the dominant player in this space for so long. And I think that people were hungry for a different option. They wanted something that didn't rely so much on LTK's app. They wanted something with more data. Brands would only have access to a certain level of data unless they ran a paid campaign with a specific influencer, which could cost upwards of$50 ,000, some of my sources told me. they held back on investing in influencer marketing because they didn't feel like they had the data to back up for their investment.

11:40But ShopMy gives a lot of data. You can see exactly which influencers are driving sales for you, even if they're not running a paid campaign with them. It's just a lot more transparency. And it's very easy with the ShopMy platform to send influencers product. And you can see how much sales are they driving? What products are they driving sales for? When you have that sort of level of transparency, it makes it easier to be like, okay, this is something that works for our brand. It gets people to shop. Let's invest more. So the lawsuit has since been dropped. Shopmite stopped using the false advertisement.

12:14So I think both parties agreed it wasn't worth all the legal bills. But it's definitely interesting to see a new player in this space come in and give both brands and influencers more options in a space where there's really been kind of only one real option for so long. And this is at a time when influencer marketing is becoming more and more important for brands, right? Definitely. Definitely. I think especially, you know, as Gen Z gets older and comes into their spending power, this is how they shop. And I think for a lot of millennials too, I look at my peers and my friends and that's how we shop.

12:46Like I get a lot of, I'm wearing a sweater right now that I got recommended by an influencer. Like it's the way people connect with consumers. And I think a lot of people underestimate how much sway some of these people have over their audiences. And they can just make products sell out within an hour. It's kind of crazy. Although at the same time, I do wonder with this move towards subscriptions and paywalls, how big a market is there for this? I mean, how many influencers is the typical person going to be willing to pay to see their content? Yeah, it's interesting. I wonder the same thing about subscriptions of like if we're going to hit a ceiling because it just feels like you have to pay for so much nowadays.

13:24And I personally feel like I can't be paying for someone to tell me how to spend more money, you know, and that's just my personal thing. But I'm also someone who enjoys shopping. I could see if you're not a shopper by nature why it would be helpful to maybe, OK, I'll pay five dollars a month and then I can get someone whose taste I trust and they'll tell me exactly what to buy this fall. that does hold value. I think that the rise of the micro influencer has been sort of a trend and it's been happening for a while. And I think that people have realized that influencers with smaller follower counts really are the ones with those engaged audience.

13:58Once you get so big and you've got millions and millions of followers, you can't have that deep of a relationship with 5 million people the way you kind of can with a hundred thousand, at least on the internet. And obviously it's a parasocial relationship, but it feels a little bit more real. So I think we're going to see more influencers of that size. And those are going to be the ones that really are successful with this. And maybe that means that, okay, they're going to make some other money through subscriptions, but they're never going to have all hundred thousand other Instagram followers paying for a subscription.

14:28I think that's fine. Subscriptions are one piece of the puzzle. It's just a way to diversify their income. And I think it all at the end of the day is in the name of like not relying so much on one source, not having to rely so much on Instagram and the algorithm, not having to rely so much on affiliate links, which the retailer that you link to the most can change what their commission is, and that could cut your income. Not having to rely so much on brand deals. It's really all just about diversification. We'll be right back after this with more of The Debrief.

15:01You wrote a fascinating article recently about these different types of influencers. And you started to get into it now with macro influencers and micro influencers, but there's also this whole other category you identified of creators who I kind of always thought about as the same thing. As you remember when you pitched the story to me, I said, aren't those the same thing? And actually there's a huge difference there and brands and consumers have really started to pick up on that and treat them differently. Yeah. I think that, and this is something that sort of just came to me and, you know, having conversations with sources and talking to people in the industry.

15:36And I feel like now you think about now compared to even 2018, there are just so many more people who are working as creators or influencers. And some of that's due to TikTok, to Substack, due to it just becoming a more like visible part of our culture. There's some stat that always gets thrown around that like 80 % of high schoolers want to grow up to be an influencer. And I think with that growth, it makes sense that the industry has become more nuanced and has more buckets now that these sort of people can fall into people who make money by creating content online. And to me, a creator is someone who creates content and that is their primary job.

16:13That is what they do. So you look at someone like a Crystal Bick, who she's a longtime creator in this space, and she makes beautiful imagery, like imagery that looks like it could run in a luxury brand campaign. And that's really, I feel like her expertise, that's her strength. Or you have someone like Delaney Rowe. She's a very popular TikToker. She does these spoofs of like movie trailers. They're very funny. She's a creator. And you hire someone like that because you love their point of view. You love their approach to creating content. Versus then there are people like some of the hot influencers of the moment, like a Lily Sisto, a Mallory Goldman, a Courtney Groh, all three people I follow.

16:53They have influence. They can sell out product. People follow them for their style. They trust their taste. They can turn products into like a phenomenon, maybe within a smallish audience. I think both all of them have like around 100 ,000 followers, give or take a few tens of thousands. And influence is really about the investment in the person and the ability to sell product. And those are the people where you're like, I want to drive sales. That's who you want to hire. Versus if you want a particular aesthetic to an ad or you want UGC, a creator is a better fit. But I think that influencers really, even though there's historically been some stigma with the term influencer, I think that's why so many people have embraced this term creator because it feels a little bit more neutral.

17:38But I think in calling yourself a creator, when you're really an influencer, you're almost like diminishing the thing that I think brings the most value to brands and makes you an attractive partner for them because it's your influence at the end of the day. And influence is something that you can translate to any platform. You can take it from Instagram to TikTok to Substack. At the end of the day, that's the most valuable commodity in this business is influence. Although, do you think these platforms, Instagram, TikTok, even Substack, I mean, do they need both types of these creators and influencers to succeed?

18:11I just wonder, I think about what I look at on TikTok, and I like having a mix of both. I'm not sure if I was only seeing influencers pitching me products, I would enjoy that. I think they're both are 100 % essential, especially as we're just getting more and more of our entertainment on social media. And I think that TikTok really is more of an entertainment platform in a lot of ways than it is a social media platform. If you don't have creators creating engaging content, and that's not to say influencers don't create engaging content too, it's just different. And it's a lot more off the cuff, it's a lot more casual, and it's really more about are you invested in that person.

18:46If you're not invested into that person and their life, it might not be as fascinating or engaging. But yes, I think you need that balance of both. And I think brands also need that balance of both. Supporting a creator who makes great content is a great way to connect with a different audience or just get great user-generated content that you can then run as social media ads. There's a lot of ways to use both different types of creator slash influencer. And I think brands just need to be smart about what are your goals? What's the right type of person to achieve these goals or right type of partner?

19:18And who should we go with from there? So let's step back a bit and look at all the ways that influencers are different today than they were five years ago. What stands out the most to you? What has changed the most since, let's say, 2019? Oh, that's a good question. I mean, I think about 2019, it was Instagram reigns supreme. I don't even know if Reels existed yet or it wasn't really about Reels. I think TikTok really changed everything. Like I said, it just created a lot more people working in this space as creators or influencers. And Substack, I think, has been another huge force in the industry.

19:52It's A, allowed influencers a little bit more control over their incomes through subscriptions, but also given influencers a chance, especially influencers who maybe came up in the Instagram era, who never had the blog, who never had that way to connect in a more deep, meaningful way with their followers. It's given them an opportunity to tap into that. But generally, I think that influencers and creators today have a lot more control. You think about an influencer in 2019, if they wanted to use affiliate links, they essentially had to use LTK. Instagram was basically the only platform they could use to connect with their followers, which meant that they were completely at the whims of its algorithm.

20:31And what if your account gets hacked? And then it's like your entire business is gone. Today, influencers have realized slash creators have realized that they need to diversify. They need to be on multiple platforms. They need to be connecting with their followers, you know, in multiple ways. They need to have a deeper relationship with their followers. That's why we've seen Instagram's broadcast channel feature do so well. I did a story about that earlier this year as well. And, you know, it's sort of like a group chat and they can be off the cuff and casual and really have that relationship that feels like you're in a group chat with your followers and it feels very intimate.

21:04So I think that it's really just about income diversification, a little bit less reliant on social media platforms, a little bit less reliant on brand deals and having these big brand deals that will really just you view as being the bulk of your income. Now people want to be a little bit more diversified in how they make money. And, yeah, just a little bit more power. And I think that we, you know, whether it's power in terms of power over their own careers or their power in the marketplace. I think that even five years ago, there were people who didn't really take this industry very seriously and didn't realize the difference they could make for their brand.

21:40And I just think now it is impossible to ignore. And I think that will only continue to be the case as time goes on. And I think having that connection to your followers and independent revenue streams could be especially important if in two months TikTok is actually banned in the U.S. and that platform goes away entirely. Yeah. I mean, if it goes away entirely, that's going to be just such a huge shakeup because especially on TikTok, there are so many creators that were able to get a lot of followers really fast who I don't think have necessarily managed to translate that influence or that following to other platforms.

22:17So it's going to be a slightly rude awakening for some of those people if that happens. But TBD. Yeah, I just was watching a video from someone who was, I think, a middle school teacher. And he said, I just quit my job so I can do TikTok full time. And I was like, boy, you have interesting timing, buddy. Yeah, that's a choice. That's a choice. Yeah, I think it's interesting. And I still do think that Instagram, even though it's not where the trends are set, I think a follower on Instagram is still like worth more than a follower on TikTok. Also because the platform's fate is not, you know, in jeopardy.

22:47But it's a little harder, I think, to get people to hit follow on Instagram. So if you can do that, I think it's worth a little bit more. Although I imagine in the end, having a Substack follower who's paying you$5 a month automatically, it's probably the most valuable follower of all. Oh, 100%. 100%. If you can get someone to pay, especially when you think about how many influencers there are out there right now, like if someone is that invested in you, that they are willing to fork over, you know, even$5 a month, that says so much. And I really think that brands should be looking more at Substack, especially as a place to put their advertising dollars.

23:20Like that's where audiences are really engaged. They're willing to spend time with the influencer and like read, you know, a whole thousand word post. And that's where you're going to find the most engaged audiences. And I think we will see more brands start to tap into that as an advertising channel. And I think we can leave things there. Diana, thank you so much for joining us today. Thank you for having me. Please be sure to check out Diana's articles, The Widening Gap Between Influencers and Creators, the fight for influencer marketing dollars heats up, and what's driving the influencer subscription boom.

23:55These and other stories can be found at businessoffashion.com and are available to BOF professional subscribers only. Speaking of people who pay monthly to get people's content. You can find these links in the episode notes. You've been listening to The Debrief, produced and edited by Olivia Davies, mixed and mastered by Eric Bria, and I'm Brian Baskin. we'll be back next week with a new episode thank you so much for joining us and be sure to follow us wherever you get your podcasts