Mastering the Art of Influencer Marketing
Many of my content ideas for this newsletter come from questions we receive from clients, new business conversations, or the various productions and influencers we work with, and direct responses to this newsletter. Which brings me to today's response...
Question: "What is the ideal way to structure an influencer marketing deal for a start-up. Since I don't have a lot of additional cash to spend, I was thinking of giving away a small amount of equity and profit sharing with these influencers. How would you guys recommend structuring deals?" In this blog, Hollywood Branded is going to answer all your questions regarding the ideal way to structure an influencer marketing deal for a start-up.
Mastering the Art of Influencer Marketing
In this digital era, influencer marketing has erupted as a potent strategy to expand your brand's reach. The magic of influencer marketing lies in its ability to foster brand awareness and credibility in a blink. This form of marketing is particularly appealing for startups due to its potential to build brand awareness and credibility quickly. But what happens when you are tight on cash?
Influencer marketing leverages the power of social media and online personalities to promote products, services, or even ideas. However, startups face unique challenges in implementing influencer marketing strategies. Notably, limited cash resources can make it difficult to attract influencers who often require upfront payment. In response to these financial constraints, some startups have explored creative solutions like offering equity or profit shares to influencers. But what does such an arrangement look like, and how can startups navigate its complexities?
Equity Deals Decoded
Equity in a company is a slice of ownership in the business. When you offer equity to influencers, they become part owners, meaning they have a stake in your startup's future. This stake could translate into significant financial gains if your startup takes off. The negative here is that you are stuck with them as a partner for life through thick and thin or until a legal breakup. In my opinion, the influencer needs to be REALLY contributing to your business's growth and success for a brand even to consider an equity partnership.
While this is a go-to for some brands, most seem to jump in without truly understanding what they may lose out on by giving up a piece of their baby (I mean business). When an influencer has equity, depending on how you create the deal, the brand may be giving up too much. Many brand marketers are also under the impression that the influencer will choose to overperform. I'm going to nip that belief in the bud right now. It's the rare influencer who will invest extra time outside of the black-and-white letter of the contract. While the ideal is to get a 'partner' - it's not so easy to find. It's like any business relationship. If you were to offer equity to an employee or potential business partner, you will need to define expectations of actions taken and performance results very specifically.
Profit Sharing Deals Decoded
Equity doesn't typically make sense for more established brands with easier access to marketing dollars. Profit-sharing, on the other hand, involves giving influencers a piece of your company's profit pie. This deal can act as a powerful motivator, driving influencers to amplify their promotional efforts - without tying them to your brand at any level of ownership.
Your go-to thought might be perfect! Affiliate codes it is. But a lot of influencers are extremely aware that 'instant' purchases often are not driven by influencer marketing. In fact, anyone thinking that influencer marketing will lead to immediate sales overnight will likely be disappointed. Unless your brand is a magic diet tea or hot beauty maker, most brands treat influencer marketing similarly to other advertising campaigns - as part of the marketing plan. In fact, most influencer marketing is really a brand awareness and perception driver - a very top-of-the-funnel marketing tactic that may take some time before leading to the sale. This means that when that sale is finally made, it may not be directly attributable to that original influencer posting that the consumer saw, which triggered the sale's end result.
.png?width=1200&height=675&name=top%20white%20rectangle%20%20with%20black%20link%20(1).png)
It's Challenging For Both The Brand And the Influencer
While both approaches can be alluring to brands, they come with their own challenges. Distributing ownership or profits for your startup can eat into your future financial gains.
The inverse is that for influencers, the value of equity or profit shares is uncertain and hinges on the success of your startup - making a partnership with the brand a bit risky.
Crafting the Perfect Deal: Spotting the Ideal Influencers
Just as you wouldn't cast anyone in a leading role, brands must choose influencers carefully. Identify individuals who command a robust social media following and align with your brand ethos. Their audience relevance and engagement rates are crucial to effectively reaching your target market.
Balancing Equity and Profit-Sharing Percentages
Once you've found the influencers who fit your brand, the next step is to decide what equity or profit share they'll receive. Negotiations are par for the course here. Ensure the share reflects the influencer's potential contribution to your startup's growth - including some elbow grease in content creation and time investment with everything very spelled out.
Legality and Paperwork
Don't underestimate the power of having a legal eagle on board. They can navigate the complex legal implications of such agreements, prepare all necessary documentation, and protect all parties involved. Either work through an agency or hire a lawyer familiar with influencer marketing deals.
Equity doesn't typically make sense for more established brands with easier access to marketing dollars. Profit-sharing, on the other hand, involves giving influencers a piece of your company's profit pie. This deal can act as a powerful motivator, driving influencers to amplify their promotional efforts - without tying them to your brand at any level of ownership.
Your go-to thought might be perfect! Affiliate codes it is. But a lot of influencers are extremely aware that 'instant' purchases often are not driven by influencer marketing. In fact, anyone thinking that influencer marketing will lead to immediate sales overnight will likely be disappointed. Unless your brand is a magic diet tea or hot beauty maker, most brands treat influencer marketing similarly to other advertising campaigns - as part of the marketing plan. In fact, most influencer marketing is really a brand awareness and perception driver - a very top-of-the-funnel marketing tactic that may take some time before leading to the sale. This means that when that sale is finally made, it may not be directly attributable to that original influencer posting that the consumer saw, which triggered the sale's end result.
.png?width=940&height=788&name=Untitled%20design%20(33).png)
Tips to Nail Equity and Profit-Sharing Deals
In the world of pop culture marketing, transparency is king. Your influencers should be made aware of your business plans and more importantly, the potential risks.
Crystal-clear performance expectations can also help. The influencer should understand what they are expected to do to earn their equity or profit share, such as posting a certain number of promotional posts or achieving specific performance targets. Regular check-ins and updates are necessary to keep everyone on the same page along with calendar timelines.
And remember, passion is infectious. If your influencers genuinely believe in your brand, their audience is more likely to respond positively.
Success Stories Abound
If influencer marketing did not help brands - it would not be such a burgeoning marketing practice. An influencer really is a production house if you consider what they are bringing to the table. You have them typically starring as the Talent, plus director, producer, photographer or videographer, stylist, writer, editor and on TOP of that - media platform. That's a lot in one individual. And influencers who are truly dialed in are a mega find for content creation that can be much more appreciated by your target consumer than what your brand might produce inhouse.
A success story that comes to mind is the fitness apparel brand, Gymshark. By offering equity deals to fitness influencers, the company grew rapidly and reached a valuation of over £1 billion.
Then there's the beauty startup, Glossier. The company provided influencers with an affiliate link and offered them a percentage of the profits generated through sales. This strategy gave Glossier a strong online presence and a dedicated customer base.
These stories prove that equity and profit-sharing deals can be a game-changer for startups. But, careful planning, negotiation, and continuous communication are key.
These case studies illustrate that equity and profit-sharing deals can effectively promote startups and foster strong, mutually beneficial relationships with influencers. However, they also highlight the importance of careful planning, negotiation, and ongoing communication in structuring and managing these deals.
Sophie Richie Using Glossier
Photo Credit: Screenshot From Glossier Instagram
More To Consider
Influencer marketing can be an invaluable tool for startups aiming to establish their brand and broaden their reach. Yet, traditional influencer marketing tactics may not be feasible when working with limited financial resources. Alternatively, providing influencers with equity or profit shares can create an advantageous solution. These arrangements not only incentivize influencers with a stake in the startup's success but could also offer significant financial returns for the influencer.
However, arranging and managing such deals necessitate meticulous planning, extensive research, and transparent communication. Legal aspects are of utmost importance in these agreements, making it vital for startups to seek expert legal counsel. By executing these strategies conscientiously, startups, even those strapped for cash, can harness the potential of influencer marketing effectively.
While creating equity or profit-sharing agreements with influencers can be intricate, it's also a potent tactic for budget-constrained startups eager to capitalize on the influence of influencer marketing. By grasping the core principles, common pitfalls, and recommended practices detailed in this guide, startups can assuredly navigate the process of building and overseeing influencer marketing agreements.
The intricacy of these deals and the requirement to proactively manage them to preclude issues underscores the rationale behind hiring an agency to assist.
And with that said, let's delve deeper into ten frequently asked questions we often encounter about constructing equity and profit-sharing agreements with influencers.
.png?width=940&height=788&name=Untitled%20design%20(31).png)
Frequently Asked Questions
Here are some commonly asked questions about structuring equity and profit-sharing influencer marketing deals:
Q: Can brands offer both equity and profit shares to influencers?
A: Absolutely, a brand can offer a mix of equity and profit shares to influencers. However, these types of arrangements require careful planning and proper legal advice to ensure all parties understand the implications and potential outcomes.
Q: What happens if the influencer doesn't meet their promotional obligations?
A: The influencer's obligations should be clearly laid out in the contract. If the influencer fails to meet their responsibilities, the contract could contain provisions for reducing or revoking the influencer's equity or profit share. It's crucial for brands to communicate their expectations clearly from the start and ensure that these terms are included in the contract.
Q: Can a brand take back the equity or profit share they've given to an influencer?
A: Equity and profit shares are typically not easy to revoke once granted. However, contracts can be structured with clauses allowing for such measures under certain circumstances, such as the influencer breaching their contractual obligations. Legal advice is essential when structuring these types of deals.
Q: How does a brand determine how much equity or profit share to give an influencer?
A: Brands need to evaluate several factors when deciding how much equity or profit share to offer an influencer. These factors may include the influencer's reach and engagement rates, the projected value the influencer can add to the brand, and the current value of the startup. This decision often requires negotiation between the brand and the influencer.
Q: How does a profit-sharing agreement with an influencer work?
A: In a profit-sharing agreement, the influencer receives a predetermined percentage of the profits generated by the company. This could be overall profits, or more commonly, the profits generated from the sales the influencer helps create. The specifics of how these profits are calculated should be clearly defined in the contract.
Q: How can brands legally protect themselves when offering influencers equity or profit shares?
A: Brands should seek legal counsel to ensure that all contracts are legally sound and protect the brand's interests. The contract should clearly state the equity or profit share terms, the influencer's obligations, and the conditions under which the deal can be modified or terminated.
Q: Are equity or profit-sharing deals suitable for all types of influencers?
A: Not necessarily. These types of deals are typically better suited to influencers who have a strong commitment to the brand and a genuine interest in its success. It's essential for the influencer to believe in the product or service they're promoting to make the partnership successful.
Q: How can a brand ensure that an influencer is genuinely interested in promoting their product or service?
A: Brands can look at the influencer's past work and the types of products or services they've promoted before. Having candid conversations with potential influencers can also be beneficial to gauge their interest and commitment.
Q: What are the tax implications for influencers receiving equity or profit shares?
A: The tax implications can vary greatly depending on the structure of the deal and the tax laws in the influencer's country of residence. Generally, influencers must declare the value of the equity or profit shares as income. It's essential for influencers to seek advice from a tax professional to understand their obligations fully.
Q: What happens to an influencer's equity or profit share if the company is sold or goes public?
A: If a company is sold or goes public, the influencer's equity or profit share outcome depends on the initial agreement's terms. In case of a sale, the influencer could be entitled to a portion of the sale proceeds corresponding to their equity share. If the company goes public, the influencer's equity could convert into public shares that can be sold on the open market. It's crucial that these scenarios are covered in the initial contract to protect both parties interests.
Q: How do we measure an influencer's impact on the success of our startup?
A: Measuring an influencer's impact can involve a combination of various metrics, such as engagement rates, sales conversions, increases in follower counts, and the quality of user-generated content. You can also look at factors like brand sentiment and audience reach.
Q: What if the influencer's public image changes negatively? How would that impact our equity or profit-sharing deal?
A: Changes in an influencer's public image can certainly affect your brand. If you're concerned about this, you could include clauses in your contract to protect your company in the event of negative publicity or scandal. It happens. It's better to be safe with a plan in place. People drive drunk. Say the wrong thing nowadays. Get in fights with significant others that become public. Influencers are... people. And sometimes they have a fall from grace. The goal is to make sure your brand is not impacted if it does happen. It's also why having multiple influencers as partners instead of just a single one helps balance the risk.
Q: What happens to an influencer's equity if they pass away?
A: An influencer's equity would usually pass on to their heirs or as directed by their will. However, discussing these scenarios upfront and including relevant clauses in the contract can be beneficial to ensure clarity and avoid disputes.
Q: Can we set performance benchmarks for influencers in equity or profit-sharing deals?
A: Absolutely, performance benchmarks can be a beneficial part of these deals. Benchmarks provide clear goals for influencers and offer a way to measure their contributions to your company's growth.
Q: Can influencers sell or transfer the equity they receive from our startup?
A: The terms of the contract will determine whether equity can be sold or transferred. If you want to restrict this ability, you should specify it in the agreement.
Equity and Profit-Sharing Deals: The Takeaway
In an evolving marketing landscape where influencers play a significant role, equity and profit-sharing deals can offer an innovative way to foster mutually beneficial partnerships. Though complex and requiring careful planning and legal oversight, these arrangements can open up significant opportunities for influencers and brands.
By understanding the answers to these common questions, brand marketers can approach these deals with more confidence and awareness, increasing the likelihood of successful partnerships with influencers. These agreements offer a unique way to capitalize on the power of influencer marketing, enabling cash-strapped startups to compete in a crowded market and secure a stronger foothold in their respective industries.
Remember, like any strategic business decision, engaging in equity and profit-sharing deals with influencers necessitates due diligence, transparent communication, and an alignment of values and expectations. By embracing this approach with a well-informed strategy, brands can certainly make the most of these modern marketing methodologies.
.png?width=940&height=788&name=Untitled%20design%20(32).png)
Eager to Learn More?
Remember, like any strategic business decision, engaging in equity and profit-sharing deals with influencers necessitates due diligence, transparent communication, and an alignment of values and expectations. By embracing this approach with a well-informed strategy, brands can certainly make the most of these modern marketing methodologies.
For further guidance on how to use influencers effectively, check out more of our articles.
- 3 Brands Show How To Market Mobile Apps Using Influencers
- 3 Insights To Create Affordable Influencer Marketing That Sells
- 5 Signs Why Influencer Marketing Will Work For Your Brand
- 8 Step Guide To How Much To Spend On Social Influencer Marketing
- 7 Steps To Secure The Right Celebrity To Post For Your Brand
Want to stay in the know with all things pop culture? Look no further than our Hot in Hollywood newsletter! Each week, we compile a list of the most talked-about moments in the entertainment industry, all for you to enjoy!
