The question is how does tiktok make money? The platform emerged as a multi-billion dollar company fueled by adverts, in-app purchases, subscriptions, and even eCommerce.
How Does Tiktok Make Money?
Being still in its infancy, TikTok has not yet revealed much about its particular system of monetization.
Nevertheless, the answer to how does tiktok make money is that TikTok earns money via the following revenue types: advertising, in-app purchases, eCommerce services, Subscriptions & TikTok Series, and AI-powered revenues.
What does TikTok monetize?
TikTok Advertising
TikTok earns most of its money through TikTok Ads in a year. It has a multiplicity of ways of advertising that includes:
In-Feed Ads: TikTok-looking Ads
You know you have seen these. In-Feed Ads appear when you scroll them down and they basically look almost the same as organic posts. They are autoplay, it is possible to like them, share, and comment and they tend to have an unmistakable call to action such as Shop Now or Install. How then can one be successful? Make it seem like that is something you do not mind watching.
Brand Takeover: Visibility in a Second
Brand Takeover advertisements are to be had when you open the app. They are complete screen, high impact, and they capture attention.
It can be a simple picture or a brief video but in any of these forms, the thinking behind it is purely brand awareness and that is why it works.
Top View Ads: Quality Real Estate
Brand Takeover is an improvement of Top View Ads. They are displayed several seconds after the opening of the app, start automatically with sound, and can be as long as 60 seconds.
It is the most premium ad position in TikTok and can be used by campaign stories that require time to stick.
Branded HashTag Challenge: Going Viral on Purpose
Who could forget the GuacDance or EyesLipsFace challenge? Those were not trends; these were branded hashtag campaigns.
Brands produce a challenge, culminate it with music or effects, and allow users to participate. It is organic, and fun, and it attracts an enormous number of interactions. TikTok assists in advertising them with feature placements and influencers.
Branded Effect: Filters That Sell
Brands can also develop their AR filters and effects on TikTok. Consider custom stickers, lenses, or interactive tools that a user can incorporate into his/her video.
Such effects tend to stay on the TikTok Effects panel for approximately 10 days. Brands then enjoy massive exposure in that window, and the users enjoy having their say by making up their versions of it.
Spark Ads: Making Organic Posts Paid Machines
This is among the best ad formats on TikTok. The Spark Ads system enables brands to place their brand right below one of their posts or existing content by creators (with their permission).
It is similar to advertising an existing video that is doing well. The interaction remains visible (likes, comments, shares), so it seems genuine as it is.
TikTok relies on TikTok ads to monetize by charging advertising companies and organizations that use its platform to market their merchandise or services.
The way the brands pay for advertising is flexible through TikTok as long as it can achieve the anticipated purpose:
- CPM (cost per 1,000 impressions): good at visibility
- CPC ( cost per click ) traffic is good:
- oCPM or CPA (optimized cost per action): ideal to fulfill performance objectives
On the one hand, TikTok algorithms are constructed in a way that, backstage, they rely on machine learning to distribute the ads to the correct individuals at the appropriate time to ensure optimal performance and revenues.
Consequently, it is a win-win, as now users remain entertained, the advertisers target their audience, and TikTok does not lose its investment.
TikTok in-App Buy
It may sound incredible, but advertising may not be the largest slice of the pie in TikTok’s revenues. The application TikTok earns revenue directly from its users, especially through purchases within the app, primarily in the form of TikTok Coins.
Again, in case you have ever tuned in to TikTok LIVE and have seen somebody send a Rose or a Galaxy, it is done this way.
After getting coins, coins can be used to make virtual gifts and sent to creators when they are hosting their live streaming as a means of encouraging them. It is a micro-economy; it is not a playing situation. Here’s how:
- A consumer will purchase a hundred coins at approximately 0.99 dollars.
- They also make a gift in a live broadcast (each gift has a coin rate).
- This is given to the creator, and he can cash it into real money.
- TikTok does not allow that deal to go without any changes.
TikTok likes to claim up to fifty percent of what a creator cashes out. And therefore, when a creator receives or gets a 100 dollars of gift, they may only get a $50 payout. The rest? That is to TikTok.
This may seem high, but it is a normal format when it comes to websites that have fan tipping. TikTok will offer the devices, as well as the audience, and creators will use the content.
TikTok Coins
By 2025, innovators will have to fulfill several prerequisites before being able to profit from in-app purchases:
- Be more than 18 years of age
- Be followed by at least 1,000 people
- Host live streams regularly (gifting transpires during the Livestream)
- Comply with TikTok’s community and monetization rules
This model has aided in the popularity of TikTok LIVE content, particularly in such places as Southeast Asia and the Middle East, where fan gifting is off the charts.
E-Commerce Offerings
One of the ways of how does tiktok make money of using its e-commerce services. Which include encouraging businesses to sell their products directly to an in-app audience via offers like TikTok Shop and shoppable ads.
These tools allow brands to provide their users with a smooth shopping experience. And they do so by allowing visitors to look around, see something, and buy it without leaving their platform.
TikTok also makes income through commissions when a sale is made because of the e-commerce aspect.
In this case, I would like to say more about the TikTok shop. As explained by TikTok, as TikTok Shop was initially created. It was initially meant to serve small businesses that have not yet opened a physical store because of the large cost of investment.
Nonetheless, the surge in the effectiveness of TikTok and TikTok Shop makes small businesses and large companies eager to participate in the competition.
TikTok Shop
Brands sell by two ways on TikTok Shop:
- Come directly to market and sell their products: in the form of live streaming or short videos where product links are built into the messages. When the customer clicks on the product then he/she is taken to the product detail page. Under this option, the brands will be tasked with creating and publishing content of their own.
- With Tik Tok Affiliate system: In case a brand chooses to participate in the affiliate program, they will be able to develop promotion programs and invite the TikTok content creators to promote their products at the cost. The service would ensure that influencers can receive commissions on their sales-enabling activities more easily.
By the year 2025, the transaction charge in most areas and countries, such as Malaysia, will be approximately 3.78 percent of all the order costs, inclusive of delivery charges.
Also, TikTok Shop imposes a commission fee that depends on the size of a sale or seller. The category of goods sold, and others and is between 2 and 8 percent.
Such charges make a substantial contribution to the total revenue that TikTok derives from its e-commerce businesses.
Conclusion: How Does Tiktok Make Money?
This distinctiveness of how does tiktok make money has the superiority to become the best social media platform of the last few years and even in the future.
TikTok has introduced a new level of interactivity where brands can reach out to clients using the TikTok For Business service. Which is bound to bring your business higher provided you understand how.
Being an agency serving TikTok, we are well aware of how to make you stay competitive in the game and not run out of the pack with our TikTok Account Renting Business, TikTok Ads Services, and more.
It makes us proud to mention that we are in a position to offer the best insights to our clients in order to improve their campaigns.
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