Are you wondering how to make money on social media? If so, you need to learn more about how social media companies make money first. Some people might be wondering, how does Facebook make money? Or, you might be wondering, how does Instagram make money?
There are a lot of people who are wondering how social media companies make money because it appears that they offer all of their services for free. Of course, some people who have been asking, “how does Twitter make money,” have probably heard about the company charging for the blue checkmark. While Twitter might make some extra money through this option, there are other ways that this company can generate revenue as well.
If you want to make money on social media, you might want to start by learning more about how these companies make money on their own.
A Few Quick Points To Note
Before diving into the details, there are a few important points you should keep in mind. They include:
- The vast majority of social media companies will make money by selling advertising opportunities.
- There are numerous other companies that have generated a significant amount of money by selling advertising, including radio companies and TV stations, but social media companies have certainly capitalized on this.
- Social media companies are able to generate more revenue through advertising because they have millions, or even billions, of active users. This makes their advertising opportunities particularly valuable.
With these important points in mind, it is time to take a closer look at how social media companies can make so much money.
If The Product Is Free, You Are The Product
Even though this is not exactly a unique take, it is an important one to keep in mind. If the product is free, then you are the product. What exactly does this mean in the world of social media?
Regardless of whether you want to create an account on Facebook, Twitter, Instagram, Snapchat, or YouTube, you have probably seen that creating an account is free. If you are not paying to use the product, then there is a high likelihood that you are the actual product.
In essence, you are not conducting a transaction with a social media company. Instead, the social media company is conducting a transaction with advertisers, giving them an opportunity to rent your eyeballs while making a profit on it.
Yes, this is a very straightforward transaction in the world of social media, but it is certainly not a new one. For example, you probably have a TV show that you love, and you may have even watched it for years. The media company is not creating a new TV show every week just because you asked for it. They are creating these TV shows in an effort to keep their advertisers happy. Media companies only make money when other companies pay to air their commercials during their TV shows, so these advertisers are paying for an opportunity to get their products and services in front of your eyes.
Social media companies are doing the same thing, but they are simply doing it slightly differently.
How Much Money Can Social Media Companies Make Through Advertising?
So, given that social media companies can make a significant amount of money by asking people to pay to advertise on their platforms, how much money can these social media companies make?
Of course, the answer is that it depends on a number of factors. In general, the more people the company can get its products and services in front of, the more money it is willing to pay to advertise on that specific platform.
For example, a company is probably not going to pay you to advertise its products if you can only get its products in front of a handful of people. On the other hand, if a company believes that it can get its products and services in front of billions of people on social media, then it might be willing to spend a significant amount of money on that opportunity because it may think that it can generate more customers.
What are a few of the factors that determine the cost of an ad on social media?
1. The Total Number of Users on the Platform
One of the first factors to keep in mind is that the more users the social media company has, the more expensive the advertising space will be. This makes sense because you have an opportunity to get your products and services in front of more people, so it only makes sense that the advertising will cost more.
As a social media platform continues to grow, you should expect the average cost of advertising on that platform to go up. Of course, the social media platform is probably going to have multiple opportunities available, so you can customize your advertisement to meet your needs. On average, the cost of an ad will go up as more people sign up to use that social media platform because you have more opportunities to generate customers.
2. What Type of Ad You Want To Show
Next, the type of ad you want to show will also influence how much money you will end up paying for that advertisement. For example, if a company simply wants to show a small advertisement on the side of the page, then it might not cost that much money. On the other hand, if the company wants to show a video on YouTube that the user cannot skip, this is probably going to be more expensive because the advertiser is going to have a captive audience.
This is why many social media companies have different types of advertising opportunities available. Companies can decide for themselves how much money they want to spend and what type of advertisement they want to air.
3. The Time of Day
This may come as a bit of a surprise, but the time of day will also have a significant impact on how much the advertisement will cost. Remember that the company’s goal is to get its products and services in front of as many eyeballs as it possibly can. Social media companies often have live pricing, and the pricing operates via supply and demand.
Depending on the type of product or service the company wants to advertise, the advertisement might do better early in the morning, during lunch, or late at night. For example, a company that sells food might want to air an advertisement during mealtimes, but a company that focuses on nightlife might want to air an advertisement during the evening.
Therefore, the cost of that advertisement could vary depending on the time of day.
4. The Number of Users The Ad Is Targeting
The specific number of users the ad is targeting can also influence the cost of the ad. On a large social media platform, such as Facebook, an advertiser is not going to want to target billions of people because this is not the most effective use of its advertising dollars.
Instead, the company will want to maximize its conversion rate by targeting a very narrow subset of the user base. Remember that social media platforms collect a tremendous amount of information, and companies can use that information to target their advertisements accordingly.
For example, if a company sells insulin, it may want to use its advertisements to target people on the platform who have diabetes. Based on the information the social media platform has, a company might be able to help companies target its advertisements to that specific demographic.
If that demographic is particularly large, then the advertisement might be a little bit more expensive.
5. The Location The Ad Is Targeting
When you use the internet, it is possible for someone to figure out your location because of your IP address. You might be able to use an app that can scramble your IP address, such as a VPN, but if you do not use one, companies and social media platforms will be able to figure out where you are located.
Then, certain companies, particularly those that have a brick-and-mortar location, might want to target users in a specific geographic area. If there are a lot of users in a specific geographic area, then advertising in that area might be a bit more competitive, which can drive up the cost of the advertisement.
In general, these are just a few of the biggest factors that will determine how much money a social media company can make from its advertising. On the other hand, this is not the only way that social media companies can make money.
Social Media Companies Can Also Harvest User Data
As alluded to above, social media companies can make a significant amount of money based on the information that their users provide. For example, when you use social media, do not be surprised if you realize that social media companies are tracking your movements across numerous apps and platforms. Based on how you use the internet, social media companies can learn a tremendous amount of information about you. Some of the most obvious examples include:
- Your age
- Your gender
- Where you live
- Your interests
- Your occupation
- Where you go to school
- How much money you make
- How you like to spend money
Based on all of this information, social media companies can provide this information to other companies that might be able to use it to target you with specific products and services.
This might seem a bit scary, but think about how much time you spend on social media and how much information you share with those platforms. It isn’t hard for these companies to find out a tremendous amount of information about you.
Social media companies track every click you make, every share you complete, and every like you press. They can even figure out how much time you spend looking at certain images.
Even though much of this information can be used by advertisers to understand what advertisers to show you, there are other ways social media companies can use this information as well. For example, social media companies can sell this information in bulk, as Twitter has already done.
Now, social media companies have privacy policies, so they do not share identifiable information. This could be considered a crime depending on the jurisdiction, and that means that your email address, home address, and phone number are typically redacted. On the other hand, social media companies can still sell anonymous, aggregate data to analytics companies. For example, analytics companies can use this information to figure out if there are certain geographic locations that like certain pages more than others. These companies can also use this information to figure out what types of information are more popular in certain countries.
This information can be very useful for business purposes, but it can also be useful for political purposes as well. Therefore, social media companies harvest a tremendous amount of data on a daily basis, and they can make significant amounts of cash selling this data to other companies. For those who are wondering, how does TikTok make money, this is one of the best examples.
Social Media Companies and Venture Capital
Social media companies can also make a significant amount of money through venture capital. Now, this is not necessarily a way for social media companies to generate revenue directly, but it can help them generate significant returns on their investments.
Venture capital means that social media companies are going to take the money they have, which could be hundreds of millions of dollars, and provide it to a private equity firm that will invest that money on their behalf. This is not necessarily something that is limited to social media, as any company that has large amounts of money will work with private equity firms to generate a return on the cash they have right now.
Imagine a large company, such as Facebook, giving $100 million to a private investor, such as Goldman Sachs, HIG, or Greenhill. These financial firms are going to take that money and invest it on behalf of Facebook. Then, several years down the line, that $100 million could become $1 billion. In exchange for its services, the financial company is going to take a substantial commission, such as 20 percent of that money. Then, Facebook will get the rest of the money back.
You can see how social media companies and other corporations can make a tremendous amount of cash with these investments. The major difference is that these financial firms are not necessarily investing their money in the stock market. Instead, they are taking this money and investing it in smaller companies. These companies are private, but with the right research, financial firms can figure out which startup companies are going to take off in the future, providing them with a significant investment opportunity to generate a massive return on their investment. This is one of the best ways for large corporations, including social media companies, to grow their fortunes significantly.
Can You Make Money on Social Media as a User?
So, given that there are plenty of ways that social media companies can generate a significant amount of cash, are there ways for users to make money as well?
If you consider yourself to be an expert on social media, there are plenty of ways you can make money as well. Some of the best ways you might be able to make money include:
1. Sign Up To Advertise for a Specific Brand
One of the first options you might want to consider is signing up to advertise a specific brand. The brand is going to pay you to advertise its products and services on your social media profile.
If you want to have success, keep in mind that brands are looking for:
- A tremendous amount of personal experience with a specific product or service
- Content that comes across as authentic
- Accounts that have a lot of followers
- Accounts with followers that match the right demographic
If you feel like you check all of these boxes, then you might be able to make a significant amount of money advertising specific products and services for a brand.
2. Join an Affiliate Program
Another option is to join an affiliate program. Affiliate marketing is one of the best ways to make money on social media. Essentially, you are going to sign up for an affiliate program that is run by a specific company. Then, you are going to try to recommend those products and services to your followers, trying to convince them to purchase those products and services from the company.
Then, you will be paid a commission on every product or service you sell. For example, if you advertise cosmetic products through an affiliate program, you might get a 30 percent commission on every cosmetic product you sell. You will need to place the links on your social media profile and ask your followers to buy those products and services through those links so that the company can track the number of sales you make.
3. Sell Your Items Directly
If you have products you want to sell, you may want to sell them directly on your social media profile. For example, if you consider yourself to be great with your hands, you may want to sell some arts and crafts. Or, if you love computers, you might be able to make some extra money selling computer parts and even full computers on social media. If you have a lot of followers, you might be able to generate a significant amount of money selling your items directly on your social media profile.
4. Offer Social Media Marketing Services To Others
If you have a tremendous number of followers on social media, you may be able to generate some extra cash by offering social media marketing coaching. You can use your social media profiles and advertise your social media marketing services, and you may be able to show people just how many followers you have on your profile as evidence of the quality of your services. There are plenty of people out there who might be looking for help selling their items, enjoying success with an affiliate program, or simply trying to curate their social media profiles a bit better. You might be able to charge for your social media coaching services.
Take Advantage of Everything That Social Media Offers
It is true that social media companies make a tremendous amount of money using various revenue streams, but you can also use social media to make money on your own. Consider trying out a few of the ideas above if you have a lot of followers on social media.
