How Much Should You Invest In Influencer Marketing? - Issue 128

Should you invest in influence marketing to grow your product? What is the expected ROI? Here’s some math behind.

A few weeks ago I read Virality is a myth (mostly) from Lenny's Newsletter, where Lenny Rachitsky raises a few interesting topics across virality, word of mouth, and the importance of consistent one-to-many broadcasts (influencers, TV, etc.) He makes a point that you are probably under-investing in influencers and that you need to “keep reigniting your viral spread” to sustain growth.

I couldn’t stop thinking about it. In my post-mortem manifesto (published hopefully not too soon), which I will dedicate to my greatest grand grandchildren-analysts, the 14th rule of profitable growth is not paying influencers a dime to promote your chocolate cake bakery. 

Jokes aside, investing in influencer marketing has always made me raise an eyebrow because (1) the math in my head doesn’t add up, and (2) I have never seen these rapid spikes of new signups convert (and more importantly retain) any better than users coming from ads, emails, notifications, or other types of good old-fashioned marketing campaigns.

While Lenny’s points were made through the lens of breaking down virality (for types of products that are well-suited for virality), today I wanted to slightly shift the focus to prove if investing in one-to-many broadcasts is a good move financially for your business to increase growth and revenue. 

I decided to run a few simulations (apparently I have too much free time) for different types of products, as well as some web and app subscription products. I will use signup-to-paid, signup-to-trial, and trial-to-paid conversions from 2022 benchmark reports, and the most recent influencer organic reach and engagement rates to demonstrate the following: there is no data or good math to prove that investing in influencer promotion has good ROI.