The Returns on TikTok Ads Don’t Match the Hype Just Yet
Despite TikTok’s booming popularity and lower cost compared to Instagram, brands and experts say the return on ad spend doesn’t yet match more-established platforms, though that doesn’t mean brands can ignore it either.
- Brands with limited budgets that need to show a return on every ad dollar may find that TikTok doesn't yet offer the best value, in part because it's ad platform is still maturing.
- Even so, TikTok is becoming a vital part of marketers long-term strategies and brands need to begin testing to see how to reach shoppers on the platform.
- Today brands need to have robust marketing funnel working across several channels, and short-form video is an increasingly important part of the mix.
TikTok may be overtaking Instagram as fashion’s new favourite app, but the returns from advertising on the platform don’t match the hype just yet, brands and experts say.
“It’s horrible,” said Tony Drockton, founder and self-proclaimed “chief cheerleader” of handbag brand Hammitt, of TikTok’s return on ad spend. “We’re not shifting more dollars into TikTok until we can figure it out.”
At the same time, everyone BoF spoke to, including Drockton, agreed brands shouldn’t — and really can’t — ignore TikTok either. Its popularity is booming, and the company is working to make itself more attractive to advertisers by building out tools to help them better connect with shoppers.
TikTok’s rise is one more issue complicating the calculus for brands determining how to spend their advertising budgets online. The privacy changes Apple implemented in the iPhone last year made it harder for companies to target ads and measure their performance. The end of the pandemic-fueled e-commerce boom and now economic issues like inflation and the threat of recession have also created uncertainty about how worthwhile ads will be if shoppers aren’t buying.
Companies with limited budgets must now also figure out whether TikTok is suddenly a better bet than the other social platforms they’ve relied on for reaching new shoppers. In June, ads on TikTok cost an average of $9.46 per thousand impressions, compared to $14.12 for Facebook and Instagram, according to analytics platform Measured, which collects data from customers such as Hammitt, Savage x Fenty, Rothy’s and several others. But for every $1 those brands spent on TikTok that month, they saw a median return of $0.52, versus $1.56 on Facebook and Instagram. Measured uses a testing methodology to calculate the incremental sales brands see from the digital ads they run across different channels.
TikTok’s expanding audience, which it said surpassed 1 billion users last September, and algorithmic addictiveness would seem to make it a perfect place to hook customers. Young consumers in particular report that TikTok has an influence on their purchases — a sentiment summed up by the popular hashtag #TikTokMadeMeBuyIt.
But its ad platform is still maturing, according to Nick Stoltz, Measured’s chief operating officer
“How Facebook decides to serve you an ad, and then once they serve you an ad, how they facilitate you buying off that ad, those are two very sophisticated mechanisms they’ve been building for a decade,” he said. “TikTok is building that out as we speak, and they’re doing it very quickly, but they’re still behind.”
The Next Big Thing?
That’s not to say TikTok doesn’t have its place.
“It’s a brand-awareness play,” said Calla Murphy, vice president of digital strategy and integrated marketing at Belardi Wong, a marketing strategy and creative services firm with a number of fashion clients. “Because Facebook is getting so expensive, where do you get the impression volume or the brand awareness volume? That’s where a lot of clients are turning to TikTok.”
The brands Belardi Wong works with don’t see TikTok driving conversions yet, but they do notice other benefits. One client said when they run ads for a specific product on TikTok, they’ll see more search impressions for that product and then bid on those search terms.
Brand managers also generally need to think beyond immediate returns and build with one eye looking several years down the line. From that perspective, Stoltz said, it would be a mistake not to be spending some amount on TikTok now. Multinational giants that don’t need to worry about a specific return and just want to get in front of as many shoppers as possible have already flooded in.
“You don’t want to miss the next big platform,” Stoltz said. “If you’re a DTC brand and you have to show payback and conversions, that’s where you can argue: is it 3 percent [of your spend], 5 percent, 10 percent? But you should be there.”
Testing the Waters
One reason Stoltz believes returns on TikTok ads remain low for many brands is that marketers haven’t figured out the right formula for advertising on it, unlike other platforms where they have years of experience and experts to draw on. Belardi Wong’s clients are in a testing phase now, Murphy noted. Drockton said the same for Hammitt. It’s posting content and working with influencers to understand what works and what doesn’t before running large paid campaigns on the platform.
In a statement to BoF, TikTok pointed out that several brands have run successful ad campaigns on its platform, citing examples such as Aerie and Ray-Ban. It added that it’s constantly developing tools to help brands and creators connect with shoppers, such as its recently introduced shopping ads, which give advertisers new ways to highlight products.
“All in all, the brands that have found success on TikTok are the ones that think beyond traditional, antiquated marketing tactics, and instead make the most of the opportunity to leverage the participatory, engaging, and diverse nature of the TikTok community,” a spokesperson said.
While TikTok and Instagram are powerful advertising platforms for fashion brands, they aren’t the only ones.
YouTube, in fact, beat out both of those as the one most US teens said they use in a recent study by the Pew Research Center. Though Stoltz said YouTube’s advertising returns have been spotty for Measured’s brand clients, in part because you can’t click through to purchase directly from ads. For pure brand reach, however, it delivers a large audience.
Hammit has also found success running ads on streaming services and sees TV screens being an important channel in the years ahead. Amazon and Walmart have built strong advertising networks of their own, prompting more retailers like Nordstrom to follow their lead and launch their own. And there are all the usual digital options, including search, which Measured’s data finds still provides a good return on ad spend.
“You have to do the entire marketing mix,” Murphy said. “It can’t just be TikTok. It can’t just be Meta. It can’t just be Google. It can’t just be email. It can’t just be SMS. You really have to have a robust digital marketing funnel across all channels.”
One trend that’s clear across TikTok, Instagram and other platforms is that short-form video is set to dominate a greater share of the content on social media. Despite the recent backlash against Instagram pushing Reels, Adam Mosseri, the head of Instagram, made clear that users can expect to see more video in the app. Fashion, which for decades has relied on exquisite still imagery to sell its fantasies, may have to adjust, wherever it advertises online.
“Video has been a huge transition this year,” Drockton said. “[Fashion is] still about that beautiful photo shoot. If you’re watching the data, the social networks, it’s over. You have to leverage video in order to get back into the algorithm’s good graces.”