How to make money on YouTube

With more than a billion unique users every month, YouTube is the third most used website on the planet after Google search and Facebook. As a result, there are hundreds of YouTube “stars” making six-figure sums from their channels, including amateurs who started out creating programs for themselves.

While it’s beyond the scope of this article to turn an idea you may have into a storming success on YouTube – we’ve created a dedicated book for that, called How to be a hit on YouTube – we can explain exactly how YouTube channels make their money.

How to make money on YouTube: Rights and wrong

Understanding how to make money from your channel depends on knowing a bit more about how to set up advertising, the different ad formats available to you, and how to understand which of your videos is actually making money.

Before you start to set up advertising on YouTube, there’s one thing to remember: if you’re going to turn ads on you need to ensure you have the full rights to what you create. That means any music, any footage and any artwork.

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If you’ve made them yourself, that should be OK – but if you’re using any third-party content, you need to clear it with the copyright holder first. The kinds of things you’ll need to clear include logos, thumbnails, intro/outro/background music, and even software interfaces and games. Often, this clearance takes the form of explicit written permission from the rights holders, but sometimes you’ll find that copyright holders have given a form of blanket permission for their content to be used. Always check, no exceptions.

People often talk about a principle called “fair use” with regard to copyright material. In the US, this gives specific rights for someone to use another person’s copyright material under a very limited set of circumstances, for example for the purposes of education or as part of a parody. In the UK, fair use is much more restricted, and is limited to inclusion for the purposes of news reporting (with the exception of photographs), or “incidental inclusion”, which covers things such as when a billboard advert is seen in passing during some footage filmed outdoors.  Pretty much every other use of copyright material will infringe, and open you up to potential legal action and (more likely) being blocked from YouTube.

You definitely don’t have the right to use a clip from someone else’s content, even if the clip is quite small. YouTube includes a system called Content ID, which lets major partners such as studios and record companies automatically spot their content being used and (potentially) issue you with a takedown notice. Three takedown notices could lead to you being banned from YouTube, so it’s simply not worth the risk. In essence, fair use is a difficult defence to use on YouTube: for most channels, there’s simply no fair use defence.

How to make money on YouTube: Let’s talk money

Once enabled, each video will present different monetisation options depending on the length of the content

The first step on the road to YouTube fortune is to enable monetisation on your channel, which you can do simply by visiting the monetisation tab on your account settings, and, assuming your account is in good standing, clicking “Enable my account”. If your account isn’t in good standing – typically because you’ve uploaded infringing copyright material at some point in the past – then this option won’t be available.

Once you’ve clicked on the button, congratulations – you are now a YouTube Partner, eligible to earn money from your work! The next step is to verify your channel, by visiting www.youtube.com/verify. This gives you access to features such as series playlists and YouTube Live, features that YouTube regards as “advanced”.

Payment and some aspects of monetisation are done through Google’s AdSense programme, which is the same system used to pay websites that use Google Ads. Although you can begin monetising without linking an AdSense account, you will need to associate your YouTube account with an approved AdSense account to see your earnings in YouTube analytics and to be paid the money owed to you automatically. If you have already created an AdSense account in the past, all you need to do is visit the Monetisation tab in your YouTube account settings, and follow the instructions to link the two accounts.

If you haven’t created an account, you need to go to the Monetisation page in your Channel Settings and click on the section marked “How will I be paid?” From the AdSense Association page, follow the “next” step to be directed to AdSense. Select the option at the bottom of the page to choose the Google Account you wish to use, enter the password for your Google Account and accept the Adsense association.

Once you provide contact information and submit your AdSense application you’ll be redirected back to YouTube, and see a message to inform you that your AdSense application has been received. Approval should take no more than 48 hours, and once that’s done you’ll start getting paid via AdSense when the amount of money you’ve earned reaches a given threshold.

With advertising enabled, you’ll see new monetisation options appear against every video you’ve created and every new one you upload. Depending on the length of your content, you will see fewer or more options, including such as mid-rolls (which happen in the middle of your video, in what amounts to an ad break).

The key thing to remember is simple: enable everything that YouTube makes available to you.  There’s a temptation, particularly for new channels, to minimise the ad formats you select, because you don’t want to put people off by serving up too many ads. The good news is that YouTube determines when to show ads algorithmically, based on how the person who’s viewing has reacted to ads in the past. For example, if someone always hits “Skip ad” as soon as possible, they’re much more likely to see less pre-roll skippable ads. If someone always drops out when they see a non-skippable ad, they will see less of those. Basically, leave it to YouTube to determine how many and what type of ads to show.

Having said that, it’s worth knowing about the different formats available to you. There’s a large range of options, some of which are worth more than others.

Standard Instream

Standard Instream is a non-skippable format, which means the viewer must watch the video in full before the video will play. According to some research, 70% of InStream ads play all the way through. Users are significantly more likely to click on InStream ads versus ordinary web banner ads, which, along with the “unstoppable” nature of them, makes them very valuable ads for your channel. If you start to see lots of Standard InStream ads on your channel, you know that you’re likely to make much more money.

TrueView Instream

Like Standard Instream, TrueView Instream ads appear in your video, either as a pre-roll or mid-roll ad. The difference is that they’re skippable after five seconds, which means viewers only watch them if they’re interested. Your channel gets paid if someone watches either the whole ad, or 30 seconds of a longer ad, and they form the bread and butter of ads on YouTube. According to YouTube, anywhere between 20-50% of viewers watch the ad the whole way through.

InVideo overlay

InVideo overlays are the small ads that usually appear at the bottom of a video, at any point while it’s playing, but usually around 8-10 seconds in from the start. They can be closed at any time by the viewer.  These ads earn you money on a cost-per-click basis, so are often the least-valuable of all the ad formats. However, advertisers who are interested in response (having people visit their site) will pay good money on a per-click basis for some topics.

Display units

Display ads show on the YouTube holding page rather than in the video itself. It is, effectively, a standard clickable banner ad. Because it doesn’t require any specific new creative work from advertising agencies (as it’s a standard format) it’s one of the easiest units for YouTube to sell. However, the amount of money you’ll make off these is relatively low, as they don’t get massive amounts of response from users.

TrueView In-display

With more and more companies making their own video content on YouTube, TrueView In-display ads are becoming more common. They’re effectively ads that link to other video content on YouTube, and can generate good revenue if companies are willing to pay to get plays on their own content.

Product placement

Although this isn’t strictly an ad format, product placement can be a good earner for established channels. As the name suggests, this is simply ensuring a prominent placement for a product in your videos, and needs to be pre-arranged directly with the company wanting to place product. You will probably find that as your channel gets to a large size, you’ll receive offers for product placement. In the video above, for example, Jenna Marbles (who has over 13 million subscribers) included prominent placement for beachwear company Bella Beachwear’s product in a video – mostly by actually wearing them.

XHEAD: Tracking your earnings

You can tell which kinds of ads are delivering you the most revenue from within the Ad Performance section of your channel analytics

The primary place to work out how much your YouTube videos are earning is YouTube Analytics (www.youtube.com/analytics). This reveals all you need to know about performance generally, and if you click on the Estimated earnings tab, lets you drill down to how individual videos are performing. The Estimated earnings report provides earnings-related details for all your content, as well as the channel and video levels.

The first place to look is the overall performance of your channel. You can see three blocks: Total estimated earnings; Ad earnings; and transaction earnings. Unless you’re supplying rental content, only the first two will be applicable.

Beneath this is a graph for total estimated earnings, which is initially set to daily totals. If the totals are small, you probably want to change this to make it weekly or even monthly. Under the graph is a timeline that gives you a bigger-picture view over time, with handles you can use to stretch out the time period you’re looking at, but you can also do this at the time period drop-down menu at the top of the page.

Finally, underneath, you’ll see a top-ten list of the best performing videos on your channel. You can click on these to drill down to see an individual video’s performance, or use the search box to find more. You can look at the performance of whole playlists too.

YouTube Analytics will give you a breakdown of estimated earnings for the whole channel or each individual video

The “Estimated monetised playbacks” should help you spot this straight away. However, as the name suggests, the estimated earnings shown in YouTube analytics are just that. Although they should be close to what your final earnings will be, they aren’t the canonical truth about what will end up in your bank account.

To find that, you need to go to the downloadable earnings reports, in the Reports tab of YouTube Analytics. In particular, the Performance Reports section will give you a view of the actual amount payable on a month-by-month basis, although – as you would expect – the amount is always in arrears, so you’ll only see reports for the previous month rather than the current one.

To do full analytics on what’s working on your channel, you need to download the report. This data gives you the performance of everything on your channel, and breaks it down according to the performance of the individual kinds of ad available to you. You can also filter your earnings to help you better understand whether your revenue is coming from viewers on YouTube or on embedded content elsewhere on the web. These reports are a goldmine of information for larger channels, but at the start, you can probably just consider the estimated earnings as the best place to go.