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How YouTube Monetization Works (Part 1/2)

How YouTube Monetization Works (Part 1/2)

April 6, 2021
April 14, 2015

Read part 2 of this article here.

One of the most frequently asked questions from YouTube channel owners is “how much money will I earn per view?" There are a ton of factors that determine whether an ad will be shown on your videos and how much money you’ll earn from that ad impression, so let’s walk through the various steps and factors that affect your YouTube monetization and channel revenue.

Here’s a quick rundown and graphical display of the 4 main ad types on YouTube:

Non-skippable video ads
Skippable video ads
Overlay ads
Display ads

Guide To YouTube Ad Formats

There is a series of four checkpoints each video goes through each time a viewer clicks a video on YouTube:


Enabled – The first thing YouTube must determine is whether or not the viewer that clicked your video is in a “YouTube monetized market." There are certain countries in which YouTube cannot serve ads (like North Korea, Cuba, Iran, & a few others) so if the viewer happens to be located in one of those countries, an ad will not be served. You can see an up-to-date list of the countries included in YouTube monetized markets by clicking here.

Next, YouTube determines whether or not your content is appropriate for advertisements. If your content is deemed offensive or racy, YouTube may not feel that it’s safe to associate a brand’s advertisements with your video. If it contains depictions of alcohol, gambling, or similar sensitive content, your video may become age-gated so that YouTube knows to only serve ads that would appeal to adults. If this happens, you will receive a notification from YouTube (which you can appeal if you feel like the decision was incorrect).

If your viewer is in a monetized market and your video is ad-safe, the next thing YouTube checks is whether or not your video is claimed and enabled for monetization.  For that to be the case, you must either be signed up with a YouTube network such as Quarterlab or be otherwise registered with YouTube and approved for enabled monetization. The video being watched must also have at least one ad format selected to run on your video in order for an ad to have a chance of being displayed.

Allowed –Once your video has passed the “Enabled” stage, YouTube considers how often an ad should be shown. YouTube applies an algorithm they refer to as “dynamic ad loading” to help determine the frequency of delivery, with the goal of placing the right ad in front of the right viewer at the right time. The dynamic ad loading takes several factors into consideration - how the viewer found the video, the time of day, how many ads that viewer typically watches without abandoning videos, and other features of the ad. YouTube does this in an attempt to prevent viewers from leaving your video before allowing an ad to complete.

After dynamic ad loading is applied, YouTube determines what kind of device the viewer is using to watch your video. All of YouTube’s ad formats can be displayed on computers when viewers are watching videos on, but certain ad formats cannot be shown on other devices and embedded placements. For example, overlay ads cannot be shown on mobile devices, and display ads cannot be shown on embedded videos since YouTube does not own the real estate of the web page the video is embedded on.

Requested – The next question YouTube must answer is whether or not there is an ad available to be shown on your video. At this point, your video is basically competing against all other similar ad-enabled videos on YouTube to see which one is the most valuable to the advertiser. Again, there are a number of factors that will influence this, but some of the major ones include the watch time, popularity, and engagement metrics (likes, comments, shares, etc) of your video.

Depending on how your video stacks up against the other videos YouTube could place an ad on, they will then try to find an ad that is appropriate for your video. YouTube follows a “waterfall model” when they check for ads, which basically means there’s a hierarchy they follow that moves from the most valuable and lucrative ad formats to the least. We briefly outlined the ad formats above, and we did so in the order of value (non-skippable and skippable ads, overlay ads, and display ads).

The other major factor to consider is the two ways in which YouTube ads are purchased by advertisers: reserved ad buys and auction ad buys. Reserved ads are either sold directly by your YouTube network or by Google’s ad sales teams, and are generally sold at a fixed rate for the right to advertise on premium, highly desirable video content. If your video clearly addresses a targeted demographic that is desirable to brands, you’ll have more chances of attracting reserved ads. Auction ads are paid for by companies and brands using Adwords to run their advertising campaigns. If your video is on a channel or in a category that one or more of those companies wants to target for advertising, whichever ad is willing to pay the most will be the one placed on your video.

Served – At this stage, an ad is successfully displayed on your video and we all give each other high fives on the way to the bank.

Check out part 2 of this article here.

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