The Economics of a TikTok Creator
“The Creator Economy” is the buzzword of the past year that has consumed the investing community, specifically venture capital. The VC community is focused on tools that can support the emerging class of small businesses and platforms that can accelerate their attention capture and monetization opportunities.
For those paying less attention to the space, it is a foreign concept that someone could make a full-time living making TikTok videos. From the outside, most assume TikTok is all dance videos and lip-synching, but in reality numerous subtopics have developed, each with their own niches and stars with loyal followings.
This ranges from cooks who utilize ASMR and snappy editing to generate millions of likes on recipe videos to visual artists who showcase their creative process and in doing so marketing their work to comedians who create novel, short-form, traditional content (i.e. a recurring character mini-series with 59-second episodes) to build their audience.
We’ll follow TikTok creator Jack Usher as a case study of a rising small business owner in this modern digital landscape. Jack has spent the past several years working at talent agencies and management companies, all while pursuing his true passion for comedy on nights and weekends. At the beginning of the COVID lockdown, he downloaded TikTok and experimented with uploading a video documenting an online first date with someone he had matched with on a dating app. That project snowballed into a dating chronicle series that earned him 250k followers (and his now-girlfriend). Since then he has put out several short-form fictional series that has put his following over 780k. His mini-series “NPC” has generated over 25 million views.
So how does Jack make money? With multiple revenue streams that have co-evolved with his growth in followers. Below is Jack’s monetization chronology with the rough percentage breakdown of income generated:
As Jack’s followers grew over 50k, brands and apps started reaching out to him via Instagram and TikTok direct messages to see if he would post a TikTok promoting their app or product. He would receive a payout per each install he was able to generate via a unique link. Jack did this one time for a social gaming app, but saw little success generating off-TikTok traffic. (0% of income)
One of Jack’s videos went viral, which prompted a media company to reach out to him regarding licensing the content with a revenue share split for exploitation of the content. Zero revenue has been generated to date on the licensing arrangement. (0% of income)
As Jack’s followers grew, largely due to the popularity of his NPC series, his opportunities expanded, including an invitation by TikTok to participate in the TikTok Creator Fund, which pays out on a per-view basis on his videos. As Jack’s viewership has grown, this has become a steady source of income, but can fluctuate greatly due to the uncertain virality of the TikTok algorithm. (17% of income)
In addition to the Creator Fund, Jack was invited onto the Creator Marketplace, a self-service platform for brands and ad buyers to find creators who fit their ethos. Creators can set a pay-rate but most inquiries that Jack has received have pay-rates to be negotiated (generally a sign that the payout will be lower than the market) and are for brands or apps that do not align with his page. This highlights a core struggle for creators: finding authentic ways to earn money, without alienating their fanbase. (0% of income)
One monetization opportunity that felt authentic for Jack was helping launch a TikTok page and series for a media company. The company reached out cold and offered Jack an attractive economic package to create and post a video based on high-level guidelines from the company, with incentives for viewership over certain thresholds. (16% of income)
E-commerce has grown in popularity amongst creators as a means of generating revenue from a loyal audience. Jack began offering a hat which was a reference to his NPC series that he is dropshipping from a hat supplier. He is selling the hats via an Etsy store-front (linked to via Snipfeed), which earns a small margin per hat. (1% of income)
Jack’s most lucrative channel for monetization has been through a digital marketing consultancy with a focus on TikTok creator brand deals that reached out to Jack cold. Through that relationship, Jack has been able to engage several brands which have been the most lucrative of any of his work to-date. The main issue with this form of monetization is that as a creator you have to disclose when a video is an ad, which precludes the video from making it onto the ‘For You’ Page, TikTok’s user-specific video recommendation algorithm, where the real viral potential exists. For example, the ‘For You’ Page traffic ranges anywhere from 20% all the way up to 90% of the viewership on some of Jack’s videos. If the creator is getting paid on a per-impression basis, the upside is limited unless the ad is not disclosed. (66% of income)
Now Jack is represented by both a professional management firm that guides him on a broader creative career path as well as by a digital marketing consultant who helps pair Jack with brands that have mutual thematic alignment. For creators with more naturally built-in monetization opportunities, such as skincare influencers, self-representation is easier with plenty of sponsorship opportunities coming inbound from brands as well as affiliate-link revenue opportunities for the recommendation and sale of products.
As brands have migrated to TikTok and become more comfortable with the platform, the advertising dollars have naturally followed.
Perhaps the defining moment for the platform last year was a creator who filmed himself drinking Ocean Spray cranberry juice while skateboarding and lip-synching to ‘Dreams’ by Fleetwood Mac. The ripple effect was real for the video that generated over 80M views, inspiring different members of Fleetwood Mac to create TikTok accounts to replicate the video and resulting in his feature in an advertisement with Snoop Dogg. Even the CEO of Ocean Spray created his own rendition of the original video.
Advertising rates have increased on TikTok’s platform, falling closer to more established social media platforms (i.e. Snapchat, Instagram, Facebook). Right now, we are seeing a rate between $5 - $7 CPM (or cost per thousand impressions), which is significantly higher than what we saw last year on TikTok. While the discount value proposition of advertising via TikTok is narrowing, the viral attention and specific audience (younger skew than the other platforms), is drawing brands to invest more advertising dollars in TikTok creators.
Every creator will have a different story and revenue mix, but monetizing a following is not straightforward. Creators often just want to focus on their core competency which is creating content, so now more than ever, finding the right tools and partnerships is critical to generating a stable income.
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