Do small or big social media influencers sell better?

Several aspects make it increasingly difficult for marketers to advertise on the internet. For example, users have become so accustomed to online display ads that they tend to see them less and less. This is called banner blindness. At the same time, changes in regulations and increasing privacy concerns make it more difficult to personalise ad content for users, undermining the ad’s effectiveness. The swiftly evolving digital marketing landscape came up with a solution leveraging the fact that more and more time is spent on social media: Influencer Marketing. 

We discovered that while the influencer marketing industry is expanding rapidly, with increasingly more companies starting to employ influencers for marketing purposes, there remains a significant gap in understanding the true return on investment of these campaigns incorporating both the achieved immediate revenue and the related cost. Our study aimed to shed light on this aspect, helping companies identify influencers who drive ROI.

The complete influencer marketing funnel

Our Journal of Marketing article titled “Revenue Generation Through Influencer Marketing” (co-authored with Maximilian Beichert, Andreas Lanz, and Jacob Goldenberg) delves into the realm of influencer marketing, a sector that has ballooned to a $17.4 billion industry. Focusing on this burgeoning domain, we have uncovered pivotal insights about the effectiveness of paid influencer endorsements. For the first time, we illuminate the entire influencer marketing funnel (i.e., from followers on Instagram, to reached followers, to engagement with the sponsored posting, and to actual revenue). 

‘Brands should consider leveraging nano-influencers, especially for campaigns with a sales focus’

Nano-influencers outperform macro-influencers

Our investigation led us to an intriguing conclusion: nano-influencers, those with a smaller following, are more cost-effective in revenue generation compared to their macro counterparts. This finding challenges the prevalent industry norm that places a higher value on influencers with larger audiences. We found that the engagement between influencers and their followers plays a crucial role in this dynamic. In essence, a more intimate connection between nano-influencers and their audiences leads to more effective marketing outcomes. We find that around 1.5% of the usual nano-influencer’s followers would convert to buying, while it is only 0.2% for a macro-influencer. 

The attribution of sales to each influencer 

We employed a combination of secondary revenue data and field studies. We analysed data from one of Europe's leading direct-to-consumer firms, which included influencer-specific discount codes shared on Instagram linked to nearly 1.9 million sold products, amounting to over €17 million in revenue. Further, the results are confirmed also for YouTube and TikTok with additional data. Our analysis was complemented by three distinct field studies with 319 paid nano- and macro-influencers on Instagram. 

The proposed mechanism 

A key aspect of our study was examining the level of engagement on an influencer’s profile before a sponsored post. We followed social capital theory, which suggests that influencers with more followers might encounter lower engagement levels with their followers. And indeed, secondary data confirms this notion. We also used language style matching (LSM) on more than 0.5 million comments and replies to delve deeper into the relationship between influencers and their followers. Our findings indicated that nano-influencers align more closely with their followers’ communication styles, enhancing their relatability and effectiveness in influencer marketing. 

Implications for companies

These insights hold significant implications for firms and marketers. The industry's focus on macro-influencers needs a re-evaluation in light of our findings. Brands should consider leveraging nano-influencers, especially for campaigns with a sales focus. This approach not only promises higher ROI but also fosters a more authentic connection with audiences. Nowadays, this is easily feasible through influencer marketing tools that provide the infrastructure to manage hundreds of influencers at scale and automate processes such as ‘The Cirqle’, an ROI-Driven Influencer Marketing Platform does, founded by Erasmus alumnus Steven Lammertink. In conclusion, our research suggests that firms and marketers should consider the powerful impact of nano-influencers and the significant engagement they foster with their audiences. By doing so, they can unlock new potentials in influencer marketing, ensuring that their investments yield higher returns.