There’s No Cost To Join, So How Does TikTok Make Money?

TikTok earned approximately $23 billion in revenue last year, an increase of almost 50% over the previous year. Since TikTok users don’t have to pay to use the social media platform, where did all of that money come from?

Advertising, for the most part, but the company also generates revenue from in-app purchases.

It’s not known how profitable TikTok is since it’s just one of several platforms owned by the private Chinese company ByteDance. However, ByteDance reported profits of more than $40 billion in the most recent year for which numbers are available, and most observers believe TikTok contributed significantly to those earnings.

Let’s take a deeper dive into where the money comes from.

TikTok Advertising

Companies can spend their money on quite a few social apps, but TikTok is the #1 option for advertisers who want to reach the app’s primarily young demographics. Approximately 77% of TikTok’s revenue comes from ads that run on the app.

TikTok uses the same basic advertising model as most other online platforms and ad services. Companies are charged per 1,000 views (CPM) or per click (CPC) for basic ads in TikTok feeds, with the actual prices dependent on two factors: the demographic audience that advertisers want to reach, and the competitiveness of their product category.

On average, TikTok advertisers pay about $1.00-$3.00 per thousand views, or between 25¢ and $4.00 per click. They have to commit to a minimum $500 ad campaign and spend between $20 and $50 per day, depending on the specific ads they run.

Those prices are only for in-feed, “native” ads, though. Pricier alternatives can cost anywhere from $50,000 to $300,000 per campaign.

• Top-View Ads: Run at the top of every user’s For You page (FYP).
• Brand Takeover Ads: Show a three-second ad to every user that opens the app and then show ads in the first FYP position. These run for a full day and only one is sold per day.
• Branded Hashtag Challenges: Sponsorship of one of the app’s signature challenges, with lots of advertising exposure across the platform.
• Branded Lenses: Sponsorship of a special, exclusive TikTok filter for as many as ten days.

Those sales make up the bulk of TikTok’s revenue, but the platform earns money in other ways, too.

In-App purchases and Commissions

Most TikTok account owners who participate in the real-time sessions on TikTok Live enjoy watching their favorite influencers and content creators hosting Q-and-A’s, demonstrations, and free-wheeling, fun discussions.

Attendees realize that the users hosting Live streams earn revenue when they’re given virtual “gifts,” the platform’s name for tips that can be contributed to stream hosts while they’re live. What most probably don’t know, though, is that TikTok has established an entire proprietary economy based on TikTok gifts.

Those gifts, which can cost users less than a penny and as much as $562 apiece, can only be purchased with TikTok coins sold in users’ TikTok profiles and the live streams. Since the app’s coins aren’t tangible, the sales produce significant profits for TikTok.

Here’s why. When people use the coins to buy virtual gifts, recipients don’t get their full value; TikTok keeps approximately 50%. For example, if a user pays $562 to buy coins and then uses those coins to purchase a “TikTok Universe” for a host, the host only gets about $275. The app keeps the rest. The transactions don’t produce as much revenue as ads, but it’s still big money.

TikTok takes in additional commissions, too. They keep as much as 50% of the revenue users pay to subscribe to a content creator’s exclusive features, and they earn commissions of 5-20% on everything sold in the TikTok shop.

So, the next time you surf your TikTok feed, share content with friends, or have fun in a Live session, thank the advertisers and customers who pay for the platform to operate and make money. Without them, TikTok would be out of business.