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How do YouTube ads work, and what will it cost me?

Written by
Luke Marthinusen

YouTube is an entertainement platform that was launched in early 2005. It's quickly become one of the most popular websites in the world thanks to it's ability to focus tons of information into one singular platform - much like Google, but for videos.

Over the years, YouTube has gained a lot of traction, and it's experienced a lot of growth. The latest insights into Youtube's statistics will show you why this platform should never be overlooked when it comes to marketing. With a major spike in website traffic during the Covid-19 pandemic, it's quickly become the second most popular social media platform. YouTube now ranks second only to Google in terms of average daily traffic.

What's even better is that YouTube collects data about their audience on the platform. These insights will allow advertisers to reach their audience demographic through highly focused targeting.

YouTube is constantly analysing what people are watching, the types of websites they are looking at, the apps they are using, and how they are interacting with other YouTube ads. YouTube also collects information about their inferred gender, age, demographics and their geographic location.

What are YouTube Ads?

With the platform becoming so popular, it's a good idea to look into investing YouTube marketing. But how exactly do YouTube ads work?

YouTube Ads are paid advertisements that run on the YouTube website. The ads come in a variety of formats including banner-type ads and video ads. These ads can show up at the beginning of a video, during the course of a video, or at the end of a video. 

The exact timestap for ads is determined by the content creator, but for the most part, ads are shown at the start of a YouTube video. These ads often require the viewer to wait a few seconds before being able to skip the ad, so those first few moments are crucial if you want to get the viewer hooked.

Luckily though, Youtube gathers a lot of information about their users, so finding the right hook is all about understanding your audience and marketing to the right people.

So, who is watching YouTube?

Understanding your audience is important. If you're marketing to the wrong audience, they're, likely to just skip straight past your ads and get into the video they want to watch. But, if your YouTube ad gets the audience hooked in those crucial first few seconds, they're likely to give your ad a short amount of time before they watch their video.

There are a lot of myths surrounding who is really watching YouTube, and recent studies done by YouTube in conjunction with global research giant, Nielsen, have been able to disprove these myths. 

Myth 1: Only Millennials love YouTube

Fact: Time spent on YouTube tripled amongst people over 55 in recent years.

Fact: YouTube reaches 95% of online adults over 35 years old in an average month.

Myth 2: The average YouTube user is a young, single male

Fact: More than 50% of YouTube users are female.

Fact: YouTube users are more likely to have children than people who are not using YouTube.

Moreover, the recent release of YouTube statistics release has given us a lot more insight into the YouTube audience - specifically following the COVID-19 pandemic. Here are a few key details that might interest you:

  • 2.6 billion people worldwide use YouTube at least once a month.
  • The second largest search engine after Google among B2B decision-makers with 50.9% users.
  • YouTube is the second most popular social media platform.
  • Every day, people watch over a billion hours of video and generate billions of views.
  • YouTube’s global advertising revenues in 2021 were estimated to be around $28.84 billion.
  • In 2021, YouTube Premium and YouTube Music together have more than 50 million subscribers around the world.
  • Most YouTube users fall in the age group of 15-35.
  • More than 70% of YouTube watch time comes from mobile devices.
  • The top genre watched by YouTube users is comedy (77% users).
  • In 2020, the biggest advertiser on YouTube was Apple Inc, having spent $237.15 million.
  • YouTube accounts for around 25% of global mobile traffic.
  • With 74% of adult users, YouTube is the most popular online platform in the US.
  • 80% of parents in the US, with children aged 11 or under, say their child watches YouTube videos.
  • Of the top 100 searches on YouTube, 20% are related to music. 
  • In 2020, viewers spent 100 billion hours watching gaming content on YouTube. 

Marketing opportunities

1. Just from looking at these statistics we can already see plenty of marketing opportunity when it comes to YouTube ads. Here's two great examples of how we can implement these statistics into our marketing campaigns.

The first is that 77% of users watch comedy channels, making it the most popular genre on the platform. Everyone loves a good laugh, so how do you get people hooked into an in that 10 second window? WeBuyCars pulled this off perfectly with their recent YouTube ad.

By using a popular social media influencer that is known for his comedic value, viewers were instantly drawn into the advert within the first couple of seconds. Rather than skipping the advert, they would choose to give up 50 seconds of their time to see how this story unfold.s

The advert is short enough for interest to be held, and it provides the comedic value that viewers are looking for - with over 2.2 million views in just over three months, this has been a successful marketing campaign. The message was delivered quickly, and in a way that it will stick in the audience's memory for months on end.

2. The latest statistics show that 20% of the top 100 searches are related to music. With smart TVs and the latest in YouTube applications on mobile devices, we can take advantage of this statistic.

It's likely that viewers are using YouTube to play music through their devices - such as their smart TVs for example - while completing daily tasks such as cleaning the house, or to play background music while they have guests over.

Your targeted ads could be playing in the background in between each song. As long as your ads are short enough, viewers likely won't be inclined to skip past them while they're busy. This allows you to passively market your products or services to people while they're in the comfort of their own homes and busy with their daily tasks.

What type of companies should be running YouTube Ads?

YouTube is not just the digital real estate of big brands. Owing to huge amounts of audience data and very flexible budgeting options, small businesses are also flourishing in this field. The medium of video offers small business owners an opportunity to amplify their voice in the markets and reach potential customers in the key stages of their search process.

YouTube has recently launched Director onsite which offers small businesses a free-video creation service when they spend $150. This enables small to medium size businesses to share their business story in an authentic and personal way with the people who care most about their message.

Even small YouTube channels, celebrities, and influencers can create ads for YouTube. If you're a regular YouTube user you may have come across one of these ads before. However, oftentimes they're not great, with full length YouTube videos from their own channel being used, it's very likely that the viewer will skip straight past this ad once they get a chance.

How much budget do I need to run a YouTube campaign?

YouTube campaigns are a very cost-effective way of advertising your brand online since you only pay for the views you receive. What you will end up paying takes into account:

  • Who your audience are
  • Where they are
  • How often you would like to reach them

And you only pay per view, so if the person does not view your ad, or skips before 30 seconds, you do not pay a cent. YouTube offers very flexible spending options; you can set a cap on the amount you want to spend per view, and the budget you want to spend per day. Added to this, are the wide choice of formats and targeting options to choose from.

Remember that all YouTube Ads except for Overlay in-stream ads (which are just text) need to be designed, the most expensive of which are the skippable TrueView in-stream ads. Being video, they need to be filmed and edited and often involve animation as well. Expect to pay anywhere from R10,000 upwards for a YouTube video ad to be created. Alternatively, a set of display ads can be put together by a graphic designer more inexpensively.

What exposure can I get from a YouTube campaign?

An important aspect of maximising your exposure within your given budget is to focus on your geographical area. A large FMCG group advertising a washing powder will target the whole of South Africa, while a photocopier dealer in the North of Johannesburg will only allow ads to show to YouTube users in the North of Johannesburg.

Another way of maximising your budget would be to target your audience with pinpoint precision. For example, an advert for a baby product can target women within a certain age demographic and who show an interest in baby-themed websites, since we know that those people are most likely to be moms who shop for nappies.

Similarly, tech companies and computer retail stores can market their latest products and services to their ideal audience. They can reach their target audience by showing ads specifically to viewers who have been watching eSports videos or forms of gaming content on YouTube. The businesses can further pin down their target audience by filtering their ads to show up to users who meet their criteria such as the following:

  • Interest in PC or console gaming.
  • Location and distance from business and retail stores.
  • Age and gender demographics.
  • Devices used to view YouTube content.

Geographical focus and audience targeting, combined with the underutilisation of YouTube as an advertising platform, means that there is a massive opportunity to gain huge exposure for a relatively small budget.

 

How will YouTube bill me for my ads?

YouTube advertising operates on the same model as AdWords, which is essentially an ad auction. Advertisers bid on ad placement and the outcome is determined in milliseconds, so the winning video is displayed in the search result, or in the pre-roll.

Skippable TrueView in-stream ads offer the best opportunity for low-cost exposure. If your ad appears before a video and the user clicks skip, you have their undivided attention for 5 seconds before they are allowed to click skip. Importantly this costs you absolutely nothing. Only if they engage with your ad for more than 30 seconds are you billed, and if they are engaging for more than 30 seconds it’s worth the spend.

There are different bid strategies available that are tailored towards your advertising goals, mainly brand awareness which will focus on cost per thousand viewable impressions (vCPM), or interactions that will focus on the cost per view (CPV).

vCPM bidding is recommended for advertisers that are more familiar with the traditional metrics of the number of views, or if you happen to be targeting a specific placement. vCPM is also effective when your video contains the whole message, and no further interaction with your brand is required, or when your campaign is designed to increase awareness and not necessarily acquire a conversion.

CPV bidding is the highest amount that you are willing to spend per view of your ad, although often you will pay less than this due to the auction process. The actual CPV will vary in amounts lower than your pre-defined cost per view. Similar to how CPC is calculated, your CPV is linked to your Quality Score and your Ad Rank. The highest-ranking ad will win the auction and pay a small amount higher than the next ranking video ad.

Should I hire an agency to run my YouTube Ad campaign?

The answer to this question will depend entirely on your needs. If you're looking for an incredibly well crafted video that will hook viewers in an instant, then it's definitely worth hiring an agency to do the heavy lifting for you - using their equipment and expertise might even same you a ton of money.

Most agencies will charge you between 15% and 25% of your monthly YouTube Ad Spend to manage your account. This will typically include monthly reporting at the end of the month and regular optimisations to get the most out of your budget.

If, however, you are tech-savvy and feel you would like to save on the management fee, there are numerous resources out there to teach yourself how to manage your ads. For the creation of display banners and video ads you should consult an agency to provide a slick and polished product, as doing this without the necessary expertise could come across badly and negatively impact your brand image.

What data can I get from YouTube Analytics?

On YouTube Analytics, you can get detailed information about who your audience is, how your audience is engaging with your content and where on the web they are coming from. You can apply a range of filters to your data, for example, content, geography, and date range so you can get insights out of the performance of content per region, and the performance of your videos over a specific date range. There is a range of reports available for you to view or download on YouTube Analytics.

Earnings report

  • Track estimated earnings and see estimated views on your channel
  • Looks at the most successful formats in meeting your objectives

Audience retention report

  • Views every second of your video as a percentage to show you where people are watching, and where they are dropping off
  • Considers video style and length to see what is most effective for your brand
  • Displayed in graph format

Engagement reports

  • Helps you to understand your audience’s interests
  • Shows you how people receive and interact with your content
  • You can use this information to improve your channel

Traffic reports

  • Shows various YouTube features and traffic from external sites and social networks
  • Looks at how people found your videos so you know what’s working for you

For a quick summary of how to get going with YouTube ads, take a look at Quick Start: Grow Your Business with YouTube, or for a more detailed explanation on running a successful YouTube campaign, download Google’s YouTube Advertising Guide: Grow Your Business With YouTube.


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