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How YouTube Ads Work: Why They’re Effective, How Much They Cost, and 9 Best Practices

With video marketing continuing its steady rise, it’s never been a better time to promote your business on YouTube.

Global audiences watch a collective 1 billion hours of YouTube per day, surpassing Netflix and Facebook video combined.

YouTube isn’t just the second biggest search engine in the world. It’s also owned by the all-time biggest—Google. This powerhouse combination makes YouTube advertising an effective tool for marketing and advertising.

Now, it’s no secret that branded video content is more expensive and time-consuming to create. That’s why it’s important to be proactive about putting your videos in front of the right audiences.

YouTube is quite different from other social media advertising channels. Before you even plan your next video project, make sure you have a foundational knowledge of YouTube ads. It’s the only way to take full advantage of YouTube’s many advertising tools and formats.

Continue reading to learn why YouTube ads work, how much they cost, and our 9 best practices for highly effective YouTube ads.

YouTube Ads and Google Ads

First, make sure you already have a branded YouTube channel. Although we don’t recommend starting your YouTube journey by running ads, you can read how to best set up your business’ YouTube channel here.

Since YouTube is owned by Google, you’ll also need a Google Ads account. Even if you don’t have plans to use Google Ads soon, it’s best to link the two accounts now. This way, the data collected from your YouTube ads will be waiting for you whenever you’re ready to jump into Google Ads.

After opening both accounts, you can link the two together. From Google Ads, navigate to “Tools>Linked accounts” to enter your channel URL. If you’d prefer to work from the YouTube interface, find “Advanced > Google Ads account linking” in your Creator Studio and follow the instructions.

Now that your Google Ads and YouTube accounts are linked, you can create ads and manage analytics from either platform. Feel free to work entirely within YouTube if you’d like, although keep in mind that Google Ads may offer more in-depth targeting and analytics.

YouTube Ad Stats: 2020

It’s no secret that video content is often expensive and time-consuming to create, especially for non-professionals. You may be asking yourself if YouTube ads are worth all of the extra effort.

We believe the answer is yes, and here’s why—

Although video takes more work to create, YouTube ads continue to deliver increasingly positive results.

Let’s take a look at just a few of the latest YouTube ad statistics.

  • 90% of people discover new brands or products on YouTube.

    What’s more, over half of shoppers say online video has helped them decide which exact brand or product to buy. Over 40% of global shoppers have purchased products they discovered on YouTube.

    YouTube viewers rely on the platform to educate themselves and make purchasing decisions. Businesses that understand this successfully generate leads, educate consumers, and drive sales with YouTube ads.

  • 70% of shoppers say they are open to learning about products from brands on YouTube.

    In fact, YouTube often plays a key role in purchasing decisions. Google reports that 80% of people typically switch between online search and video when researching products to purchase.
  • Viewers who complete skippable video ads were 23 times more likely to visit or subscribe to a brand channel, watch more by that brand, or share the brand video.
    It’s hard to argue with that level of ad effectiveness. Channels and videos with higher view times perform better in YouTube’s search and recommended algorithms, meaning ads can boost organic content while driving results.
  • Viewers who don’t finish skippable ads are still 10x more likely to engage with the brand on YouTube.
    Even “disinterested” ad viewers are still more likely to visit the channel, subscribe, share a video, or watch more content by that particular brand. Since YouTube only bills for completed ad views on skippable ad formats, this particular engagement boost is (practically) free.
  • YouTube mobile ads command more, higher-quality attention than TV ads.A recent attention study found that YouTube mobile ads captured an attention rate of 62%, with only 12% of participants multitasking during ads. Compared to the 45% attention rate and 26% multitasking rate for TV ads, YouTube is the clear winner.
  • Brands using skippable video ads see an increase of video views for previously posted videos increase by up to 500%.
    Research has shown that each new promoted video grows interest in past content, increasing the ROI of previously posted videos. Compelling YouTube ads can create a “ripple effect,” improving video performance across your channel.
  • Only 9% of small businesses are active on YouTube.
    Here’s where it really pays to put in the extra effort for YouTube ads. By advertising on YouTube, you have a very high chance of reaching your audience before your competitors.

Perhaps most importantly, the number of small- and medium-sized businesses advertising on YouTube has doubled in the last two years. With video marketing/ads performing so strongly, we can only expect that number to increase in the near future…meaning that if you’re not on YouTube soon, you’ll be left behind.

Now, let’s dive into the different YouTube ad formats available.

Types of Video and Non-Video YouTube Video Ads

YouTube places unique creative restraints on different ad formats, so understanding your ad choices are essential to shooting and editing cost-effectively.

The differences between these ad formats can be difficult to visualize, especially when it comes to their exact placement. We’ve included images (courtesy of support.google.com/youtube) to help you better understand each ad format.

1. Skippable Video Ads

Skippable video ads can be skipped after five seconds. They can run before, during, or after a video and work best for generating awareness for your brand/product.

They’re a great place to get started with YouTube advertising, because they’re incredibly low-risk. You only pay if the user interacts with or finishes the video ad (30 seconds or less).

Skippable video ads can run on any device or platform (desktop, mobile, TV, and game consoles). There are no limits for ad copy, and they can include people, dialogue, and music (either royalty-free or accessed with permission).

Skippable video ads support the following campaign objectives: sales, leads, website traffic, brand awareness, reach, and product/brand consideration

Many brands take advantage of the “Skip Ad” button you break the fourth wall and encourage continued viewing. One of our favorite examples is Nail Communication’s “Puppy Pre-roll Case Study” ad:

2. Non-Skippable Video Ads

Available only for specific campaign types, these 15 or 20 second ads run before, during, or after the feature video on desktop and mobile devices.

These ads are non-skippable, so you’re guaranteed that viewers will watch the whole ad. However, engagement rates tend to be lower because viewers are forced to watch your entire ad.

These ads support campaigns focused on brand awareness and reach, and combining them with a call-to-action can really maximize that viewer attention.

3. Bumper Ads

Bumper ads are generally the most tolerated non-skippable ads available, because they’re capped at six seconds and appear before the feature video.

These support brand awareness and reach campaigns, target both desktop and mobile users, and supplement larger video campaigns.

Hefty’s “Office Party” bumper ad proves that brands can create humor in six seconds or less.

4. Non-Video YouTube Ad Formats

If you’d like to create non-video ads or add interactivity to existing video ads, these ad formats might be right for you.

The following ad types can be used in many ways, but are typically used to encourage continued watching and/or channel subscriptions.

Overlay Ads

YouTube overlay ads are semi-transparent CTA banner ads that run along the bottom 20% of the desktop video window. These offer limited space for text and an optional image.

Uninterested viewers can continue watching their video uninterrupted or even close the ad by clicking the “X” in the top-right corner of the banner. Meanwhile, interested viewers who click on the ad will be taken to the destination URL of your choice.

Overlay ads strike a balance of demanding attention without being overly imposing. They are only possible with desktop viewing.

(Specs: 468x60 or 728x90 pixels).

Display Ads

YouTube display ads run as a clickable image or animation at the top-right of the feature video, just above suggested videos. The location is wonderfully un-obtrusive; viewers can watch their video without interruption.

These are only visible on desktops, and will be removed from view if the feature video is in full-screen mode.

(Specs: 300x250 pixels or 300x60 pixels; animations no longer than 30 seconds.)

Sponsored Cards

Sponsored cards are small CTA pop-ups you can schedule to appear within your YouTube videos. These clickable links to relevant content add context and interactivity to YouTube videos.

Cards placed somewhere in the middle of video content will appear as a small “i” in the upper right-hand corner of the YouTube player. After an interested viewer clicks, the YouTube Cards will expand, linking to a playlist, channel, link, or another video.

When placed at the end of a video, cards appear as small video or link previews. Cards are effective thanks to their non-intrusive nature, and they work on both desktop and mobile devices.

Set Up Your First Video YouTube Ads (Video)

Although YouTube will guide you through the ad creation process, it’s crucial to completely understand the targeting and budgeting options available to you. The targeting, budgeting, and bidding decisions you make will directly affect the overall cost of your YouTube ad campaign.

Audience Targeting

Thanks to its partnership with Google Ads, YouTube ads offer a wide range of robust audience targeting options. Choose wisely, and continuously refine your audience targeting with each new YouTube ads campaign.

  • Demographic group: This is the standard collection of demographic filters: age, parental status, location, household income, gender, etcetera.
  • Detailed demographics: Get more precise by identifying specific audiences within a set of demographics. YouTube ads can target the following traits, in addition to others: marital status, education level, parental status, and home ownership.
  • Interests: This targeting type analyzes search history and personal interests.
    • Affinity audiences: Target YouTube users who are already demonstrated a strong interest in relevant topics. This is particularly helpful for raising brand awareness and driving consideration. This gets its name from traditional TV advertising methods.
    • Custom affinity audiences: Building on affinity audiences, this enables more precise targeting. For example, custom affinity audiences can help advertisers target “watercolor painters”, instead of the broad “painters” group.
    • Life events: Capture consumers as their lifestyles, purchasing habits, and brand preferences are most likely to change. Targeting life events like college graduations, marriages, and babies allows advertisers to promote accordingly.
    • In-market audiences: This targeting allows you to serve ads to people searching for products similar to yours. Google examines click history, conversions, search history, and search term frequency to find “in-market” users.
    • Custom intent audiences: Advertise to users on the cusp of making a purchasing decision. Again, Google will analyze search and click history to determine when users are close to making a relevant purchase.
  • Advanced Targeting:

If you’ve got the audience research to support it, YouTube ads offer even more advanced targeting tools.

For maximum effect, consider using different advanced targeting for different ad groups to learn what combination(s) lead to more views, clicks, or conversions.

    • Video Remarketing: Reach users based on their previous interactions with your videos, ads, or YouTube channel. Google Ads will automatically create custom video remarketing lists for you, as long as your account is linked to your YouTube channel.
    • Website and app remarketing: Serve ads to people who have already demonstrated interest in your products/services based off of their interactions with your website and/or mobile app.
    • Placement targeting: Decide where (else) to place your ads, including channels, videos, apps, and websites. This is possible because YouTube ads (run through Google Ads) have access to the Google display network.
    • Topics: Reach videos, channels, and websites relevant to specific topics.
    • Keyword targeting: Target based on (Google + YouTube) search terms.
    • Device: Target by screen type (desktop, mobile, smart TVs).

YouTube offers a wide selection of targeting options, but it’s best to start with two or three. A narrow audience can help lower costs, but audiences too narrowly targeted won’t generate enough clicks, views, and/or conversions to make the campaign worthwhile.

Audience targeting also influences your ad bids and budget. Appropriate audience targeting can help you increase results while lowering your overall costs.

How Much YouTube Ads Cost: Budgets and Bidding

In order to determine which ads to show to particular users on a specific video, YouTube runs an ad auction. Four major factors determine how much each YouTube ad costs, including:

  • Ad type
  • Bid amount
  • Bid type
  • Targeting options

In the YouTube ad auction, you (and your competitors) enter maximum bids. Many different factors are calculated, and an algorithm determines which YouTube ad to run (and for how much) in a particular “spot.”

YouTube ad bids majorly influence your overall ad costs. Overall, most of your YouTube ads will be run on a CPV (cost-per-view) bidding format. The major advantage here is that you’ll only pay when people actually watch your ad.

Determine how much you’re willing to pay per view (CPV) and/or per day (daily budget).

Your CPV should be high enough to earn enough views, but low enough to be affordable and competitive.

Keep in mind that the CPV bid you set won’t always be the amount you pay. You’ll always pay one penny higher than the lowest bid. For example, if your CPV is set at $0.25, but the next highest bid is only $0.20, you’ll only be charged $0.21 for the view.

If the cost uncertainty makes you nervous, just know that YouTube ads cost, on average, between $0.10 to $0.30 per view or action. Also, we recommend setting a daily budget to manage your overall budget and give new YouTube advertisers more control over their spending.

9 YouTube Ads Best Practices

Before launching your first campaign, there are a few things to set up before you start shelling out for views. Follow these 9 tips below to make the most of your YouTube ad budget and earn the highest ROI possible.

1. Maximize Your Organic Presence

If you’re familiar with our philosophy at Success Envy, you’ll know that we always encourage businesses to dig in deep with their organic social media efforts before starting ads.

To make the most of your advertising dollars, learn about your YouTube audience, organize video content into playlists, and optimize your organic presence. This is really the foundation of any successful YouTube advertising campaign.

Not sure where to get started? Check out our YouTube marketing guide

2. Define Your Goals and Metrics

YouTube analytics provides four major metrics categories: views, audience, branding, and conversions.

Before launching, you should identify one or two goals for your first YouTube ads campaign. Base these goals on the measurable metrics (below).

  • Views: Understand what percentage of an ad is watched and how an ad encouraged views on other brand videos.
  • Audience: Track likes and shares of each video ad.
  • Branding: View rates illustrate how interesting or entertaining viewers find your ad. Increasing the view-through rate (VTR) will lower your CPV (cost per view).
  • Conversions: Understand how well an ad drives leads and returns a high ROI.

The metric-based goals should influence the ad format, ad creative, and messaging.

At the end of your campaign, be sure to analyze how well you’ve met your advertising goals against the metrics you set at the beginning. The insights gained from your each campaign will help you improve on the next.

3. Negative Remarketing

If you’re planning to run a longer campaign—or are just looking to keep a tight budget—consider implementing negative remarketing.

Negative remarketing allows you to create a list of people who have already seen a particular video, subscribed to your channel, or otherwise already done the favorable action you’re looking to promote with ads.

Once set up, your negative remarketing list will represent the people that your YouTube ad(s) will not be shown to.

This technique makes the most of your budget by further narrowing your audience targeting.

4. Avoid Annoying Viewers with Frequency Capping

Although showing the same ad to the same user more than once can drive results, it can also drive people crazy. No one wants to inadvertently overwhelm users with ads, because eventually ad frequency creates more negative feelings than positive ones.

Avoid this by setting frequency caps, which limit the number of times a video ad will appear to the same person in a given time period.

This feature is particularly important if you have a small, narrowly targeted audience.

5. Personalize Ads with Video Remarketing

If you’ve linked your Google Ads and YouTube accounts, video remarketing is easily done with YouTube ads.

You can create remarketing lists to reach people who have completed actions on YouTube, such as: viewing certain videos, subscribing to a channel, liking any video from a channel, visiting a channel page, viewing certain videos (as ads), and more.

Video remarketing allows you to show personalized ads, based off of past interactions with your videos and/or YouTube channel.

Reinforcing your messages this way can increase your ROI and lower your CPV costs.

6. Understand What Makes a YouTube Ad Effective

Everyone wants to “make great content,” but what exactly is a dynamic YouTube ad?

Just like we set clear goals for advertising campaigns, we must also set clear standards for effective YouTube ads.

Using its collective YouTube ad analytics, YouTube has created its own “Guidelines for Great Creative(s).” While every business and niche will have its own best practices, these guidelines are a helpful framework for any business.

It’s as simple as: A, B, C, D.

ABCD-of-youtube-ads

A: ATTRACTCapture attention from the start.

  • Front-load your story arch: No matter which YouTube ad format you use, those first seconds are crucial to earning attention. Open with impact and plunge the viewer into the action.
  • Use familiar faces: Relatable and recognizable people appearing at the beginning of a video can increase viewership. Consider working with another YouTube creator or influencer.

At the very least, try to create your own recognizable brand ambassadors by using the same personalities consistently across YouTube. This could be you, an actor, a well-spoken team member, or even a really good friend. Over time, this individual will earn some recognition within your target audience.

  • Build for sound on: YouTube viewers expect audio on YouTube. The platform itself has noted a correlation between videos with sound and positive brand response. (However, you should still aim to create transcripts and ads that can work without sound for maximum effectiveness. The more choices you give viewers, the more likely they are to keep watching.)
  • Make ‘em laugh: According to the platform, YouTube ads with humor are associated with higher brand awareness and ad recall.

B: BRAND – Integrate your brand logically and meaningfully.

  • Brand placement: Depending on your goals, you should integrate your brand in different places within the video ad. For ad recall, include your brand in those important first 5 seconds. When optimizing for awareness and consideration, focus on building a relationship with the viewer before adding your brand later on.
  • Keep it natural: Showing your brand or product in natural usage is related to higher ad recall and viewership, compared to logos or overlays. In other words, try to integrate your brand in subtle ways, and avoid “forcing” your brand into videos.
  • Reinforce with audio: Audio mentions of a brand are associated with increase brand lift. Include brand or product names (naturally!) in voiceovers whenever possible.

C: CONNECT – Connect with viewers using emotions and storytelling.

  • Break the fourth wall: Ads featuring people breaking the fourth wall connect with viewers, and are associated with more brand interactions (brand lift).
  • Hold their attention: Watchtime is consistently related to increased brand awareness and consideration. Consider making longer YouTube ads to help increase watchtimes.
  • Pull on the heartstrings: Some things never change; emotions are still the most effective way to meaningfully connect with viewers. Humor and suspense are both related to higher ad recall. Humor particularly promotes higher brand awareness and viewership.
  • Sing, speak, yell your message: Unlike other video ads, 95% of YouTube ads are viewed with sound on. Viewers that watch ads with sound show a 20% increase in brand awareness and consideration.

D: DIRECT Clearly state what you want viewers to do.

  • Use a CTA: Make it easy for viewers to take that next step. Even when no action is taken, clear CTAs drive brand lift.
  • Utilize interactive platform features: Info cards, end screens, and CTA overlays encourage viewers to take actions directly from the video player.

When you’re brainstorming concepts, keep the ABCD’s of great YouTube ads in mind.

7. Close the Deal with Effective Landing Pages

Even the most convincing YouTube ads will struggle if viewers are sent to generic or irrelevant landing pages.

When a viewer clicks on your ad or link, you want to send them to a web page optimized to encourage conversions (download a resource, sign up for an email list, purchase a product, etc.).

Successful landing pages often include testimonials, social proof, benefit-driven copy, (additional) videos, and/or answers to common questions.

Before launching your YouTube ads campaign, ensure that you’re engaging and persuading viewers after they’ve left YouTube.

8. Accommodate Users and Search Engines with Transcripts

This is recommended for all YouTube videos, but many businesses neglect this step.

After you’ve finalized your video ad, create your own quality video transcription. Google only indexes user-generated transcriptions because the automatic YouTube captioning is fairly unreliable.

Creating full transcripts helps you get the maximum benefit from your videos, for a variety of reasons.

  • Meet the needs of people unable to watch videos. There are a number of reasons why someone might be unable to watch a video at a particular moment. Regardless of the reason, a written transcript gives users another avenue to access your content.
  • Improve your SEO. As we mentioned earlier, only user-uploaded transcripts will be indexed by Google. If you have no idea what that means, just know that indexing is the first step towards content being ranked in search results. Transcripts help your videos rank in YouTube search and Google search results, making it easier for people to discover your content.

9. Conduct experiments

Successful advertisers constantly seek out improvements. With your advertising dollars on the line, now is not the time to stand still.

Always look for areas of improvement. Experiment with different ad types, CTAs, targeting settings, and even creatives. You can also consider running A/B tests to answer big questions, like which product version is more popular with a given audience segment.

There’s no right or wrong here—as long as you’re experimenting, analyzing results, and refining your ad strategy appropriately.

Final Thoughts

With consumers increasingly demanding video content from brands and its consistently high ROI, YouTube ads will probably only get more popular in the upcoming years.

With so much required for effective video production, it’s key to create strategic YouTube ad campaigns in order to get the most from your hard-earned video content.

After you’ve mastered organic YouTube marketing, be sure to follow our 9 YouTube ads best practices for the best return on your investment.

If you’d like to really make the most of your video content, consider re-editing your footage to create ads for your other social channels. We have guides on Instagram ads, Facebook ads, Pinterest ads, and Twitter ads to help you get started.