How YouTube Advertising Works: A Step-By-Step Guide

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In terms of the internet age, YouTube is one of the old guys on the block. Started in 2005 as a video-sharing platform and sold to Google 18 months later for nearly $2 billion, YouTube has seen a meteoric rise ever since.

Today, well more than half of Americans log on to YouTube every single day, while an eye-popping 98% of Americans use it at least once a month. Those types of numbers will make even the most monopolistic-minded entrepreneur cry foul.

And yet, in the minds of many people, YouTube advertising still seems to play second fiddle to the likes of other ad platforms, like those found on Facebook and Google Search. That’s strange, considering YouTube receives over five billion video views every single day.

Do you want your ad to be one of them? Here’s a step-by-step guide to getting started with YouTube advertising.

Understanding the YouTube Ad Formats

The first step to succeeding with YouTube advertising is to understand the different formats available to you.

Skippable Video Ads

As the name states, these are ads that can be skipped by users, usually after watching the first five seconds. These ads have to be between 12 seconds and six minutes, and usually appear right before the video is played. You can also display these ads within the broader Google Display Network (GDN), on certain websites that have opted into the Google Adsense program to generate passive income.

When designing an ad like this, it’s important to catch your audience’s attention immediately. Tell a story with your ad in such a way that the person is compelled to watch the rest of the video. With skippable ads, you only pay when viewers watch a certain portion of the ad or interact with the video (such as clicking the link), so the potential for a much wider reach with minimal cost is there.

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Non-Skippable Video Ads

The natural counterpart to skippable ads is non-skippable ads (obviously). Because users have to watch the whole ad, these have to stay between 15-20 seconds max.

Non-skippable ads can be shown anytime during a video — before, during, or after. —

These types of ads are sold on a CPM (cost per thousand impressions) basis, and since you force every viewer to watch the whole thing, you need to make sure the ad is effective, and the click destination is worth it. For this reason, non-skippable ads work best during special promotions or when trying to drive a call to action (CTA), such as a sale or lead generation landing page.

As a side note, some users get around the “non-skippable” aspect of these ads by installing VPNs that include ad blockers on their computers. While using a VPN won’t automatically block ads, most of the best VPNs on the market have an ad-blocking feature that prevents your ads from showing up on the user’s device.

Bumper Ads

Bumper ads are the shortest form of YouTube advertising: no more than six seconds. They’re also non-skippable — which is fine, since they’re as long as the unskippable part of a skippable ad — and are best used in conjunction with larger campaigns. They can serve as “reminder ads” to create multiple touchpoints for the brand.

Other Ads

While the other ads on this list are playable in-stream during a random video, other forms of YouTube advertising are different. Video discovery ads appear as ads in the search results themselves, just like in a Google search. Viewers find these during a search for related videos, so you have the ability to create a longer video that people can watch intentionally, possibly increasing your conversion rate.

Overlay ads are the only display or text-based ads you can use on YouTube’s network. These appear as a sort of banner ad at the bottom of the video and can be clicked away at will.

Create Your Video Ad

In the process of running successful YouTube advertising campaigns, now it’s time to decide on a format and create your YouTube video ad. If you don’t know where to start, luckily, there are plenty of resources on the internet to help you design your YouTube ad. A quick Google search for “free vectors” or “downloadable graphics” can help you get started, and if you are new to ad design, you can even search for “YouTube ad templates” and start from there.

Assuming you already have the basic creative layout for your video, the one thing you will have to decide on (as an advertiser) is length and format. There are several different types of YouTube ads that we listed above. For example, if you choose a 6-second bumper ad, you need to grab the attention of the viewer from the first second and convey your message in as few words as possible.

Set Your Campaign Strategy

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Since YouTube is owned by Google, any advertisements that you run on the platform have to be set up through your Google Ads account. If you’ve never set up an ad on any of Google’s properties, you’ll need to set up an account to get started.

Once you have one set up, your first order of business is to decide on a campaign strategy. Like most ad networks, Google has a variety of different campaign types to choose from:

  • Sales
  • Leads
  • Website Traffic
  • Product and Brand Consideration
  • Brand Awareness and Reach
  • App Promotion
  • Local store Visits and Promotion

You can choose any one of these strategies that you want, but under the next heading, which is “campaign type,” you’ll need to choose “video.” This will bring up the standard ad creation page where you can set your audience, budget, and other pertinent info.

Two parts of this page deserve special attention. The first is the “bid strategy” section just under “campaign name.” Depending on what campaign strategy you choose, you may only have a few options available to you. “Target CPA” and “Maximize Conversions” are two of the more common strategies available to video ads, but you need accurate conversion tracking set up to be able to use them. Be sure to pick the right one for your objective.

Another area to focus on is “networks.” In addition to being the largest search engine on the planet, Google also has an enormous display network where advertisers’ videos can appear. You can choose to have your videos appear only on YouTube, or you can opt-in to Google’s “video partners.”

Decide Where Your Video Is Shown

As most advertisers know, choosing the right targeting for your ads is key. Set the wrong targeting, and you’ll be throwing money down the drain by showing an ad to people who couldn’t care less about your product or service.

Google allows you to set your ad location a little differently than others. As mentioned above, you can set your ads to appear either only on YouTube itself, or on YouTube and the Google Display Network (GDN), but you also have location targeting as well. Set your location to either the entire world or only the specific geographic location you have in mind — down to a specific city. You can even choose to exclude certain areas if you want. Language selection is also available. Demographic options for YouTube advertising are endless.

One area that is unique to YouTube and other video-based ad platforms is content categorization. Google calls these “inventories,” and you can select which type of “inventory” of content you want your video ad to appear on.

An “expanded inventory” will show your ads to virtually all types of content, except for those showing excessive profanity, sexual content, and violence, whereas a limited inventory is much more selective. Not even moderate profanity and suggestive content are allowed.

You may also opt out of content that meets certain parental rates. If you want your ad to show to all audiences, check mature audiences or leave it unmarked. If you have content that is more kid-friendly, click the “G” or “families” label.

You can also get a lot more granular with your targeting and select specific channels or keywords that you want your video ad to show up for. The keyword-based targeting is unique for YouTube in that it can also target audiences based on what they searched for on Google, not just YouTube. This makes it a great way to target “in-market” audiences, people who are actively researching products like yours already.

Choose the Right Keywords or Audiences

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Audience categorization is the “make it or break it point” for YouTube advertising. The standard demographic data is there — age, gender, and household income — but choosing the right customer segment is also key. You can pull in data from past campaigns to create warmer campaigns, or you can select based on behavior and customer interest.

If you’re having a hard time figuring out the right lifestyle or interest-based targeting — or just want to add another layer to your ad groups — you can also advertise based on search terms (on Google properties).

The real strength of Google’s ad platforms lies inside of this vast network of data on user behavior. In addition to targeting based on interest and search terms, you can also input certain apps and URLs to create an audience interested in them. This will show your video to people who are browsing websites or apps similar to the ones you input, further defining your audience.

Upload and Officially Create Your Ad

Google requires all video-based ads to be on YouTube, so if you haven’t uploaded your video on their platform yet, do it now. If you’ve already uploaded it to your channel (even if it’s private), you can either paste the URL or search for it in the ads interface.

Once selected, you can create the copy that goes on the ad itself. You’ll have to create a CTA, “long headline,” and description, but other options, like parameters and tracking templates, are optional. The ad image is also customizable. Either YouTube will select a screenshot from your video, or you can upload your own thumbnail image directly.

As with other ad platforms, you’ll want to try several versions of each creative to find the one that reaches your target audience. Create multiple ads inside of each ad group until you discover the highest-performing option.

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Best Practices for YouTube Advertising

While the above steps will get you to a completed video ad on YouTube, if you truly want to master the platform and make money on YouTube, you’ll need a few insider tips. Here are a few ideas from people who have “been there, done that” that should take your ads to the next level.

Lean Into the Data

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Data, data, data. Everything in the advertising world revolves around data. From collecting the right data in campaigns to using appropriate data to generate better audiences, and A/B testing each creative to figure out what resonates, data is king.

Thankfully, Google has an in-house solution to data tracking: YouTube Ads analytics. From view rates, click-through rates, CPM, conversion tracking, cost per conversion, and ads quality score, you get access to a lot of real-time performance data on any ad you run.

While not as comprehensive as some other sources, your ads dashboard will give you a basic understanding of your ad’s effectiveness. For example, the AQS is generated from three sources — ad relevance, predicted CTR, and landing page. Optimize all three to raise your quality score, and improve your results.

If you want something even more high-powered, use a modern data stack. This approach will help you quickly identify areas of improvement and growth that the basic data in the Google Ads Manager won’t pick up on. YouTube advertising is highly dependent on data, therefore, you should always track, base, and improve your campaigns based on it.

Spread Your Content Wide

While YouTube Ads is a great advertising platform by itself, other forms of advertising exist as well — even if it’s not technically an ad. Another option besides paying for every click and video view is sponsoring content creators to mention your brand on their channel. MOS is a great example of a neobank that leverages sponsored content effectively on YouTube. For example, they have great resources on the best bank for college students, which they have connected with videos where creators promote the benefits of their banking solutions with relatable reviews of said benefits.

Some brands are able to obtain UGC that mimic ads that are more incognito (as well as more exhaustive) through the use of affiliate links. The Youtube account “Digital Millionaire” created a 13-minute-long video about Tailor Brands where he walks viewers through the steps of creating an entire brand using their service.

While this may not seem like an advertisement, Tailor Brands effectively incentivized a thirteen-minute feature-length length ad on the platform. The creator also benefits from this exchange by earning money from the affiliate link included in the video. There are rules for this type of content on YouTube, though, so it includes a disclaimer as mandated.

Leveraging organic user-generated content like this is a huge part of creating a successful social media campaign in 2022.

Stack Your Ad Types

Bumper ads, non-skippable ads, overlay ads — what format should you use? If you’re a smart marketer, the answer is “all of them.”

Not every video is made for every type of ad, but the best approach is to create an overall marketing strategy that will display the same type of information in different formats. For instance, you may choose to have a longer video, followed by a series of shorter videos that support that video. Sprinkle in some overlay ads, and you’ve got an effective marketing strategy that includes multiple touchpoints.


YouTube advertising, if done correctly, can be a powerful boost to your company’s brand. Instead of simply advertising your products or services, customers get to see them in action. Moreover, you can use these video assets on your own social media platforms and website to increase exposure.

Video ads are a unique opportunity to build relationships with potential customers, so start taking advantage of them today.

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