Have you ever wondered how YouTube ads work?

YouTube is the new tube. The world’s second largest search engine and third most visited site after Google and Facebook.

youtube ads explained

Written by Smokeylemon Team

27 February 2019 | 6 Minute(s) to read

YouTube is the new tube. The world’s second largest search engine and third most visited site after Google and Facebook. In an average month, 8 out of 10 18-49 year-olds watch YouTube. In other words, if you want your video ads to be seen, you need to be on YouTube.

I’m sure you have seen (and skipped) hundreds of ads while watching videos on YouTube. But have you ever wondered how it works, how much it costs the advertiser and if your business could afford to pay for these ads that get skipped so often? In this blog, we have all the answers for you to start considering adding this highly effective advertising channel to your digital marketing strategy.


Although video ads may seem pretty sophisticated and hard to do, YouTube ads are just another version of Google Ads campaigns. You can load, pause or enable your video ads, edit the settings and measure the results from this interface (or we can do it for you!). These video campaigns let you show video ads on their own or within other streaming video content on YouTube and across the Google Display Network. So, if you are running Google Search or Display ads, you are already on the right track!


YouTube video ads are called TrueView campaigns. You can not only see when your ads showed but also track when users actually chose to view them!

Don’t like reading? Watch this cute YouTube-style explanation of how TrueView works:

In-stream ads run before, during, or after other videos on YouTube or across Display Network sites, games, or apps. After 5 seconds, the viewer has an option to skip the ad. 

Youtube in stream ads

Video discovery ads only appear on YouTube and reach people in places where they’re discovering content, like at the top of search results or at the top of related videos. They require users to click on them to begin viewing.

Outstream ads are mobile-only ads that show on other websites and apps. They help increase brand awareness by extending your reach beyond YouTube.

 Outstream ad

Non-skippable in-stream ads are designed to allow you to reach customers with your entire message.

non skippable in stream ads

Bumper ads are a 6-second non-skippable video ad format, designed to allow you to reach more customers and increase awareness about your brand by using a short, memorable message.

Targeting on YouTube

By targeting your video ads on YouTube and other eligible websites, you can advertise to the right users at the right time. With a wide variety of targeting methods available to you, such as demographic groups (gender, age, parental status, etc), interests, placements (on what Youtube channels or videos you want your ads to show), and remarketing lists (those who have already viewed your videos), you can reach specific or niche audiences based on who they are, what they're interested in, and what content they're viewing. For instance, you can target 24-35 year old newlyweds living in Wellington, actively looking for ideas on their next holiday destination and show your travel insurance ads while they watch Pacific Islands videos. How awesome is that!


Best of all is there is no minimum budget for these campaigns and you don’t pay for all the times your ads show (impressions). You only pay when users actually choose to view your video by interacting with it or viewing 30 seconds (or the full length of the video, if it is shorter) in the case of skippable in-stream ads. If a user skips your ad while viewing a video on YouTube, you don’t pay for this impression! So if you are able to get your brand or an important message in that first 5 seconds, then that's free marketing for your business. Thanks for the free lunch YouTube!

Video ads campaigns are actually one of the more cost-effective options and use the same bidding system as other Google Ads campaign types. You can indicate the total amount you are willing to pay per view as well as a daily/lifetime budget for the ad. A typical video ad costs between $0.15 NZD and $0.44 NZD per view. So, at a cost of $0.15, if 1,000 people decide to watch the full 30 seconds video or interact with it showing genuine interest in your brand, you only pay $150 even if the video showed 10 thousand times.


When you run video ads, you can see a number of metrics that will help you understand the effectiveness of your campaigns and measure the accuracy of the targeting methods you are using. You can also analyse the cost/result relation so you can adjust the bids and budgets accordingly. For example, you can see how many people skipped the ad, how much you spent on average for each 30-second view, the number of times a unique person was shown your ad, and so much more. With some time and dedication, these numbers can turn into more sales and business growth.

Our recommendations

Cover all devices

Although this isn’t a requirement for your ads to be approved, we recommend that you have your video ads optimised for mobile devices. Across the board, viewability for video ads and display ads is significantly higher on mobile and tablet than on desktop. If you want your video ads to appear optimally across different devices, it's recommended to use different video ratios:

  • Landscape: 16:9
  • Either a vertical 9:16 or square 1:1, or both.

Keep in mind that 2560 x 1440 videos and vertical videos have the highest viewability rates (over smaller sizes).

Target strategically

The more granular your targeting is, the smaller the audience will be and the more you can expect to pay as you will be competing against other advertisers who want to reach this group too. If you’d rather show your ads to very large amounts of people, the average cost per view will be lower as YouTube will also show your ads to people that nobody else is advertising to. There is no good or bad option. Keep your goals in mind and proceed to select the best targeting.

Make quality content!

Make sure you make quality and engaging videos as the number of people interacting with them will determine their relevance. If the algorithm understands you have a highly relevant video because more users decided to view it, it will be more likely to show than other eligible videos competing for the same placement.

Talk to us

YouTube ads are powerful because you know people are really watching and you get to choose just who sees your video ad. If you have the budget to afford video production, we highly recommend to go next level and run YouTube ads. Contact us, tell us about your marketing goals and we can design a tailor-made video campaign for you.


If you want a compelling creative campaign and effective management of your budgets and targeting, talk to us.

Contact us