Why Tik Tokers Are BROKE

9.2 million followers, 70 million likes, 100 million plus, right? It's just how much I've made. This is KSI, massive content creator, huge following, partially owns Prime, which just became the UFC's official drink, among other things. Despite its massive following and big numbers, the reality is a little bit different: 3000 pounds, that's mad. Let us explain.

Welcome to Alux. Now, before diving into this topic, we need to start with the Creator economy. Now, to start any kind of economy, you need three basic elements: production, distribution, and consumers. Production means someone creates something, like a fisherman waking up every morning to set out his nets to gather fish. Distribution is a way for the fishermen to put all of his fish in a position where they can be easily bought, for example, going to the local market, opening up his own shop, and selling it to someone who will then resell it to a larger market, maybe in a different town. And the consumers are of course those who buy the fish.

As long as a trade is being made, you've got an economy. Now, of course, the bigger and more complex the economy is, the more systems you need to make sure that things run smoothly. Systems like regulations, taxes, contracts, and so on. But for the purpose of this video, this is all that's important. So, with this in mind, let's take a look at the Creator economy. For one, you've got production, or in this case, content creators. They write blogs, shoot videos, they've got podcasts, and so on. For distribution, you've got platforms like YouTube, Instagram, Facebook, TikTok, from which these producers are distributing what they've made. And the consumers are the audience, those who consume the content being made.

We produce this video, distributed it on YouTube, and you are consuming it right now. All the basic elements of an economy are here, but you see one thing is missing, and that's trade. You're not paying anything to watch this video; it's completely free. There's no trade of value being made yet, and as we established earlier, if there's no trade, there's no economy. So, what needs to happen before this can turn into an economy?

Well, after spending about a year focusing on the growth of the platform, back in 2007 YouTube changed its focus on the answer to the question we just asked: advertising. Once there was a way for people creating the content to make money, the Creator economy started to take shape. So, essentially, the Creator economy has the same elements as we talked about before, but with three ads in the middle. The difference is the trade is not being made between the producer and the consumer, but between producer and producer, or in other words, between a brand and the content creators.

And this turned out to be one of the most efficient ways to advertise products and services. That's because it's easier and more effective to sponsor a video that generates a million views. For example, for the 2023 Super Bowl, you had to pay seven million dollars for a 30 second ad. And like Mr. Beast said, if you want to reach 100 million people, there are cheaper ways to do it. On top of this, more and more people become content creators. Adobe found that since 2020, more than 165 million people joined the Creator economy. Lego did a survey and found out that kids are three times more likely to want to become YouTubers rather than astronauts these days.

So, this begs the question: why do so many people want to become content creators? Well, I mean, who wouldn't want to be paid for posting pretty pictures and memes online? Sounds like a perfect job for most people. But people are looking at the one percent of the one percent of scenarios. Kylie Jenner reportedly asks between five hundred thousand and one million dollars for an Instagram post. It creates the illusion of money and fame from being a content creator, but it's because people don't really know how creators make money. So, let's talk about it.

How do content creators actually make money? Well, there are three major ways creators make money from their content. Well, technically, there are four, but the last one's a little bit special. So, first we have ads. As we talked about earlier, the internet runs on ads; it's the bread and butter of online monetization. YouTube is one of the earliest players that made monetization possible for creators through the introduction of display ads.

Now, before you can start getting paid by YouTube, a couple of things need to happen. First, your channel needs to have 1,000 subscribers, that can take from a couple of weeks to a couple of months, depending on a few factors. Secondly, you need four thousand valid public watch hours in the last 12 months. This means your content needs to keep people on the platform for at least four thousand hours before you can start getting paid. After that, as long as you keep posting videos and people keep watching them, you will make money from ads.

Now, not all ads are created equal; different industries pay more money than others. For example, the finance sector has one of the highest CPMs at around 35 USD. This means they pay 35 US dollars for every 1,000 views of the ad. This is also the reason why you're seeing all of those new finance channels popping up now. Out of that revenue, YouTube takes 45, and you get the rest. As a general rule of thumb, you get around one thousand dollars for every 100,000 views after YouTube's cut, but the numbers vary a lot depending on the type of video you make, how many ads you have on it, the length, and so on.

As of now, this is by far the best deal you'll ever get on a platform. You also get to place the ads within the video wherever you like. For example, here's an ad. Now, if you had Adblock or if YouTube decides to demonetize this video or no advertiser wants to spend money on it, then there would have been no ad. Let us know in the comments if you got one or not; we're pretty curious. So, this is the main way YouTubers make money and also the main way these platforms make money. But this system, although great, has a couple of problems.

For one, you are not the one in control. If YouTube decides to demonetize the channel, all of your revenue is gone. If you use other people's content, again, all your revenue is gone or a split between you and the original creator. And if people stop watching your videos or if you stop posting, again, revenue is gone. It's also not a type of recurring revenue, meaning you don't make the same money every month, and the amount you make can be unpredictable. So, that's the thing with ads.

Second, we have community support. This is where you engage your community to directly support you through a monthly subscription or donation. Patreon is a great example of this type of revenue. People directly support your work through different tiers of subscription, and you as a creator give them certain perks like bonus content, getting content earlier, and behind-the-scenes footage. Patreon takes about five to twelve percent of a cut from the revenue you make from your community.

This sounds like a greater deal when you compare it to YouTube's 45 cut, but what you're missing here is community. It's extremely hard to build and sustain a healthy community. OnlyFans, for example, is doing a great job at this, but that's a different type of community. As a matter of fact, OnlyFans is the leading platform when it comes to activating your community. Twitch falls into the same category through donation or monthly subscription. Now, Twitch used to have a 70/30 split with its streamers but recently decided to bring it down to 50/50 because apparently, server costs are too high for Amazon.

That's another story though, but ultimately the best way to do this kind of community support is through your own platform, where you get to keep one hundred percent of the revenue and no one can delete your account. Corridor Digital here on YouTube has this kind of model through their website, and we know because we actually are subscribed to them because we like the content. The drawbacks to this model are the fact you need to have a community willing to support you. As you'll see later, building a community is a different type of beast. The upside is you have recurring revenue. If 100 people decide to support you for 12 months, you can predict what revenue you'll make for this year or at least part of it.

And lastly, you have sponsorship and brand deals. So, this is when companies pay you directly to use or mention their products. This is the dream of every wannabe content creator, and this is also when the dream comes with certain conditions. So, first of all, there are three main things that brands care about before going forward with a sponsorship, and no, it's not subscribers, nor followers, nor how many likes you have on a photo. It's about reach, relevance, and conversion rate. If you want to be a content creator and want to start taking things seriously, write these things down.

Reach means how many people are eager to hear from you. This is why people buy followers and views, trying to fool the system. Remember that Mr. Beast tweet from earlier? That's reach in all its glory. Relevance means if people actually care about what you're saying or if they trust you, and if you're still well-relevant in their eyes. That's why some people post 18 times a day or why some people, let's say, jump on all the trends when their thing dries out.

Conversion rate means how many people are willing to buy what you sell them. That's why some Instagram influencers spam you with weight loss tea. This is the holy trinity of brand deals. If you hit all three of them, you're golden. But, Alux, if people are artificially inflating their numbers, doesn't that hurt the brands? Glad you asked, imaginary voice in my head. Yes, about 15 to 20 percent of the revenue brands spend on influencers is wasted money because people are buying followers, likes, and views.

But despite this, it's still more profitable than traditional ads, hence brands are still throwing their money around. We mentioned that there's one fourth way content creators can make money: it's when they start building their own products for their own community. For example, we have built courses and the Alux app, which you can check out at alux.com. You can do this when you have a big enough community, you know what you're doing, you know what's valuable to your community, and you fully commit. At this point, you become an entrepreneur first and a content creator second.

And this finally brings us to TikTok. You see, from all of the things that we mentioned, TikTok has almost none of them. There are ads on TikTok, but they cannot be attributed to a particular video. Imagine having to watch a five second ad in a 15 second lip sync video. Since that can happen, they made a poll which all creators are paid, but first you need to hit some specific metrics, some pretty high metrics we might add. You need at least 10,000 followers and at least one hundred thousand views in the last 30 days. Also, you need to be from the US, UK, France, Germany, Spain, or Italy.

Secondly, out of that pool, you're being paid pennies. So, massive right now and most likely for the foreseeable future as well. TikTok ad revenue is irrelevant. And in case you’re wondering, yes, YouTube Shorts monetization works in the same way. So what about building a community? You see, it's really hard to build a community in 15 seconds among millions of other 15-second videos that are pretty much all the same. People get the smallest snippet possible of who you are; they don't really care about you for the most part; they care about their 15-second dopamine rush.

And yes, they added TikTok Live, which is pretty much like a Twitch and OnlyFans had a baby, but somehow they still don't know who the father is. This leads us to sponsorship and brand deals. Now for TikTok, brands usually look at numbers because they don't have any other analytics. The general rule is that you need upwards of 100,000 views on every post regularly to get a deal that will pay for more than just a weekend of McDonald's Happy Meals.

Now, on average, views are about 10 percent of your following. So, you need around 1 million followers to hit 100,000 views regularly on every post. This is a general rule of thumb; it varies a lot depending on the niche and type of content. There are one billion active TikTok accounts; out of them, 0.24 have more than one million followers, which means you have to be the one percent of the one percent.

Secondly, numbers don't mean jack if you can't sell. Conversion rate still applies. Brands don't care about exposure; they care about sales. If your followers don't buy from you, your numbers are irrelevant. And lastly, your content can't just be sponsored posts; you still need to produce daily content to keep those numbers up. That's why TikTok houses are a thing; they need to farm content non-stop to stay relevant. All of these things push TikTok to be a mix of walking billboards and people begging for money.

And on top of this, the US government keeps trying to ban TikTok due to its shady back-end shenanigans. So, are all TikTokers broke? Well, mostly those who make a good living out of it need to go to, let's say, great lengths to make it happen. So, if you want to become a content creator, should you avoid TikTok at all costs? No, after all, it is free real estate. It can be a good launching pad for a career in entertaining the same way that Vine was. But know the quality of your content and your ability to convert will be the factors deciding your trajectory.

In the end, people often get blinded by the illusion of money and fame. TikTok also taps your first few posts so you can get some more views than your content actually deserves. If you want to be a content creator, focus on the content first. Content is king; the rest will follow on its own. We hope you learned something here today. Alux, let us know in the comments what stories you have with TikTok. We're interested to see what you've experienced, and if you found this video valuable, write "content is king" in the comments. We'll see you back here tomorrow.