Question

Option 1 Hire a large group of micro-influencers (<10k followers) to promote your new line on instagram. You will pay your micro-influencers an average of €1000 each in a given year. You expect each micro influencers to generate €2,000 in cash flow from sales. The number of micro-influencers in your program will be as follows: • Year 1 - 120 micro influencers • Year 2 - Increase to 175 micro influencers total • Year 3 - Increase to 275 micro influencers total

Option 2 Hire a select group of mega influencers (>100k followers) to promote the new line on instagram. You will pay each mega-influencers an average of €7,500 each in a given year. You expect each mega-influencer to generate €20,000 in cash flow from sales. The number of mega-influencers in your program is as follows: • Year 1 - 10 mega-influencers • Year 2 - Increase to 15 mega influencers total • Year 3 - Increase to 25 mega influencers total

For both options, assume all cash flows occur at the end of the year Interest Rates on Spanish government bonds 3 yr - 3% 5 yr - 4% 10 yr - 6% 30 yr - 9% Interest Rates on U.S. government bonds 3 yr - 4% 5 yr - 5% 10 yr - 7% 30 yr - 10% Which option will you recommend to your manager? Why? What are three specific pieces of information that would make you change your decision?

Answer 1

Option 1
Year	1	2	3
Number of Influencers	120	175	375
Total cost @ 1000/influencer	120000	175000	375000
Total cashflow @2000/influencer	240000	350000	750000
Net Cashflow	120000	175000	375000

The NPV at 3% 624,637.26 euros

Option 2
Year	1	2	3
Number of Influencers	10	15	25
Total cost @ 7500/influencer	75000	112500	187500
Total cashflow @20000/influencer	200000	300000	500000
Net Cashflow	125000	187500	312500

The NPV at 3% 584,077.72 euros

The first option should be considered as the NPV is higher.

The cost per influencer, cashfflow generated per influencer and the number of influencers hired each year can change the desicion.