Today we want to discuss the 4 main ways you can make money on YouTube, however, please keep in mind, the total number of ways you can make money are really only limited by your imagination and sales ability!
Enough talk, let’s get down the ways that YouTubers are monetizing their channel, and as a bonus, we’ll throw in some examples so you can get a feel for how it’s done, if it’s right for you and how you can replicate the strategy.
This is by far the #1 way YouTuber’s are generating revenue on their channels. However, even though it makes up the bulk of the revenue in 2017, it’s not nearly as efficient and high paying as you’d like to think. Why? Well, for one, there’s no competition. If you want to include “ads” on your video you’ve got exactly one option – Google Adsense. Now, that’s not to say they aren’t the best ad option around, because they certainly have the most inventory of advertisers and the highest bids, but it doesn’t allow you to sell advertisements yourself or create your own market for your channel. You’re really at the mercy of Google, here.
How Google Adsense Works For YouTube
The advertising industry works on a scale called CPM. This stands for Cost Per Thousand (Mille) and means that advertisers are charged $X for every 1,000 views. They do not pay per view, they pay per 1,000 views and as you can imagine, this can be a very affordable way to market.
Furthermore, as an advertiser I get to select where my ad is shown. Which countries and ideally, to which people, demographically speaking. If I set up an ad on Google with rules that my ad is only to be shown in the United States, on channels that are related to “Internet Marketing”, then my ad will only show when those rules are met. If I choose to drill-down even more I can restrict my ad to a type of person, say sex + age-range (male, 18 – 24), further limiting the locations my ad can be served.
As you can probably imagine, in order to have a healthy ad platform you need a lot of advertisers and a lot of views to sell because not every view is created equal. Thankfully, Google has both, which is exactly why advertising is the #1 way to earn money on YouTube.
However, it’s not all rosy…
How Much Can I Make From Ad Revenue On My Videos?
You can make millions of dollars per year, however you need to understand how that’s possible before you stop reading and run off to start making videos and your supposed fortune, as there are a lot of variables involved.
In a perfect world you would create a video, upload it to YouTube and your millions of followers would watch, re-watch, comment and share your videos. You’d rack up millions of views and in the process, ad revenue for each of those views. In the real world this doesn’t happen. Ads, unfortunately, rely on advertisers, and not every advertiser is willing to have their ad displayed everywhere, in every continent on Earth that watches videos.
What does this mean? This means that sometimes ads are not shown when someone views your video! Ack.
Want an even more depressing fact? Ad blockers are killing your earnings! That’s right. Those ad blockers you love to use to block those annoying ads when you surf online are wreaking havoc on your earnings. If a large group of people are using ad blockers, say, 30% of all viewers, you’re quite literally not going to make money on 30% of your views!
Combine this with the reality that people watch videos from all over the world and ad inventory isn’t always available, this starts to look dire.
Here’s an example.
Let’s say you have a popular channel. You average 200,000 views per video. The average CPM (cost per thousand views) for a general audience is somewhere around $3.30, which means that theoretically could earn $660 for this video (200,000 / 1,000 * $3.30) – not bad.
Ok, so let’s take 30% right off the top for that are using ad blockers. That just discounted 60,000 views! You’ve now got 140,000 views that can be monetized.
Wait, there’s another problem. 40% of your views aren’t showing advertisements! Why? They’re in a country with no advertisers, ad inventory is low, or most likely, they’ve possibly viewed too many ads in a row on other videos. The reasons go on and on, but this is the reality. Not all viewers are subjected to ads.
What we’re left with is monetization, or revenue generated, on just 30% of your views!
Let’s say we’ve got 60,000 views of the 200,000 views that are being monetized with ads. How much do we potentially make?
60,000 views / 1,000 = 60; x $3.30 = $198.
Instead of a potential $660, we’ve now made $180. Nothing changed on our end, but the dynamics of ad revenue are showing their true colors. You simply can’t advertise to everyone, and not every view will show an ad.
One popular YouTuber, Shane Dawson, created a video explaining his earnings and he said his average earnings were $500 per 500,000 views. Think about that. He’s earning $0.001 per view! That’s 1/1oth of 1 penny and if you look at my math above, it makes sense.
If you were to earn even a penny per view, that would be $10,000 per 1,000,000 views, a damn decent payday, but it doesn’t work like that. Shane’s math is right as an aggregate and it shakes out to $1/CPM, but he’s just giving you the bottom line. If you look at the reasons that I outlined above this is why he’s really making $1,000/1,000,000, not because the CPM is $1, because I can guarantee you at least half of his audience does not see ads, it’s because of the leaks in the ad delivery system, i.e. “The people not seeing ads”. If he could monetize every view he would be singing a different song, although, if you watch the video and the points he makes about TV advertising vs. YouTube, you’d see he’s 100% right – he’s WAY underpaid for a guy that reaches the same audience! BTW, for those of you that watched the above video you’ll notice he mentions Vessel as a new platform he’s working with to monetize new videos ($3/mo subscription model) and guess what? It didn’t work and they failed. It’s a tough life being a rock star YouTuber!
The bottom line: Advertising is just one of the ways top YouTubers are monetizing their channel. Many depend on it as their sole income, but you can see how many views you’d need to average to start making $1,000,000 from just ad revenue!
Now, you might wonder how you can combat this and there are ways, but they’ll end up limiting your reach. The best way is to limit your video content to what appeals to a certain demographic, such as US-related celebrity gossip, or hip-hop news. Of course, that doesn’t guarantee you’ll ONLY get your target audience viewing those videos, however it does make it more likely. The next thing you can do, and the one that is the most drastic, would be to base your channel around a specific niche. A niche that you know is really only going to target a certain type of person and happens to have a high number of advertisers willing to pay top dollar.
You might say “Like what? That makes no sense!”
Here are a few examples.
- The retirement industry.
- The insurance industry.
- The real estate industry.
- The medical field.
- The legal field.
We’re talking about a large base of 1st world residents and advertisers willing to pay obscene amounts (high CPM’s) to get those views. That’s like the holy grail of YouTube advertiser! Unfortunately, it comes with one very serious drawback – well, 2 actually.
1.) The volume in these industries are A LOT lower than cute kitten videos and pranks. When ad revenue depends on $X per thousand views, you need millions of views to start making decent money. It’s hard to get 1,000,000 views when talking about “How Much Car Insurance Do I Need?” or “How Do I Check My Credit Score?” ; but later I’ll show you how that’s not a bad thing and there is another way you can turn topics like these into good money.
2.) The competition can be fierce. What? You thought you’d have it all to yourself? If you want big volume, keep filming those cute little kitties or pulling pranks on your girlfriend because the reality is they’re a hell of a lot easier to get views on. If you’re making videos for real estate agents, get in line my friend! Not to say you couldn’t eventually be the best in the business, just know that where there’s big money, there’s big competition.
Sponsors can do something Adsense/Banner advertising cannot, guarantee revenue. It’s safe to say every YouTuber would rather be creating custom sponsorships over relying on ad revenue, but as you can imagine, it’s not quite as easy to do as it would seem. See, you need to actually land these deals yourself and it can take a lot of effort on your part to get the deal done.
What Is A Sponsorship?
There are technically multiple types of sponsorships, but primarily they are the video sponsorship and the channel sponsorship. I’ll explain both.
Video sponsorships are when companies pay to promote their brand on a video, whether 1 video or a series of videos. There are a bunch of different variables here, such as product placement (think, a bag of chips) or having the entire video built around that brand. These two types can be broken up into 2 different video sponsorship types – product placement and brand videos.
To use Shane Dawson as an example again, he does a lot of brand videos. For instance, there will be videos where he eats a McDonald’s Big Mac, or an item from Taco Bell. These are sponsorships and we can assume he’s being paid a set amount per video to create them, and while that amount is private, you can be sure that it’s far more than he’d make off ad revenue alone.
Product placement videos are easy to find as well, in fact, they’re a lot more common than brand videos. Why? It’s going to be a lot cheaper to have your product placed, or briefly “plugged” in-video rather than paying for an entire video to be created around your brand. You may say “Why would you pay extra to plug your product when you can just buy an ad?”, and that would be a damn good question. I’ll explain why.
- An in-video product placement, or plug, lends credibility to your product. Depending on the channel, this could be a huge boost to your brand. Think of it like this. Every time a popular celebrity tweets, snaps, or Instagram’s a product it has the potential to get some serious lift, which includes more sales, more brand recognition and validation in the eyes of the celebrity’s fans. This is called “influencer marketing” and I’ll touch on this in-depth at another time. Just know that celebrity endorsements and this type of YouTube sponsorship are essentially one-in-the-same.
- With advertising you can’t guarantee your ad will appear on a specific channel. Not much more needs to be said here. If you wanted to advertise your awesome new product on PewDiePie’s channel you’re going to have to pay the man!
The more popular a YouTuber, the more likely any reference, or image of a branded product is a sponsorship of some kind. That doesn’t mean every time you see a can of Coke that Coca-Cola paid someone to promote their product, because that certainly isn’t the case. Even top YouTuber’s don’t always get the big brand deals. However, there’s another smaller component, that while not directly related to revenue is still a type of sponsorship and that’s free product.
I’ll write about this in a more extensive article, but I wanted to touch on it here because it’s very important to YouTuber’s. The majority of product placement you see, especially when the video is based around a “review”, is not compensated in any other form than free product. For some YouTuber’s this is good enough and I don’t blame them one bit because if you’re trying to build a channel around product reviews, you need products!
A lot of mid-range YouTuber’s, those with 50,000 subscribers or more, find themselves in this situation. They have enough leverage with their audience to demand a lot of free product from companies in their niche, but not quite enough to get the brand deals or outright sponsorships. Thankfully, they don’t have to be at the top of the heap to see companies begging to send them product!
Sponsorships aside, free product can be one of the best ways to build your channel and rapport with potential advertisers. The bigger you get, the more free product you get and at a certain point, you’ll be able to structure payment + free product for reviews and product placements. Talk about win-win!
How Much Can I Make From YouTube Sponsorships?
Unlike ad revenue, there is no scientific formula for this. It really comes down to your skill as a salesman and your leverage as a brand of your own. A guy like PewDiePie has a distinct advantage over smaller YouTuber’s simply because he has an audience that tops 50,000,000 subscribers and videos that receive 2m+ views on average. If he were to charge prices inline with TV ad rates for a similar audience, he could be looking at $500,000 – $1,000,000 per video – maybe even more if he were to work a backend deal based on referral fees or hitting specific metrics like app installs, or email signups, .etc.
It really is as lucrative as it sounds at that level, but keep in mind, I’m talking about the top 1% here. It’s just like any other industry, the numbers can be mind-blowing for the top brands, however you have to look at in the proper light. Shane Dawson, Jenna Marbles, PewDiePie, Michelle Phan, Casey Neistat, et al. They’ve done their time, they put in the years of work to get where they are. A new YouTuber isn’t starting out with that kind of brand or leverage, so don’t get too caught up in acquiring sponsorships in the very beginning.
This is truly the most exciting monetization angle on YouTube in my opinion, as your ability is the only ceiling. Google does not control the terms, it’s just you and a company making a deal. The key to soliciting/winning sponsorships like this is knowing your value and utilizing the leverage you have. It would also be in your interest to read some of the books I recommend on sales and negotiation as the tactics will be integral to getting the maximum amount of money on each deal.
Donations & Subscriptions
This is not a new concept in the world of business. Subscriptions have been around for a hundred or more years and donations even longer. However, online it’s a relatively new concept and one that a lot of people are finding is a tough road. No mention of donations or subscriptions online should be without this disclaimer, people are used to getting content for free online!
That’s a bit of a roadblock isn’t it? I think we can all admit that we won’t blink at a movie rental or subscribing to a magazine, but the second the New York Times throws their paywall at us and blanks out the content we get pissed! Free content is like our God-given right!
But, is that true? Even better, is that fair? Someone is quite literally trading you value for $0. That’s almost depressingly sad. Take this blog for instance. By the time you’re reading this things might have changed, but as of today I’m writing all of this for free – completely unpaid. Sure, you can click on some Amazon links and I can make a whopping 4%-6% commission, but for the most part I’m taking my time to help you learn and I can’t expect to see a return.
It’s unfortunate that’s the way the world works online, and if you get into YouTube, you’re going to notice that first-hand. You’ll sit back and wonder why you can’t just squeeze $1/yr out of each subscriber, because, you easily provide 4 sips worth of a Starbucks drink in value! Am I right?
Trust me, this all ties in.
At this point in the game donations aren’t big enough to be a game-changer with YouTube, or website monetization in general. Same with subscriptions. The die-hards that want to support you will certainly be happy to do so, but it will never likely be “what your worth” to everyone. A lot of people will view your videos, take your advice, maybe even apply it or make their own videos or blog posts recycling it word-for-word and you won’t see a dime, probably not even a thank you.
That’s all of the bad stuff.
The good news is that there are companies and platforms out there that are designed to allow people to subscribe or send you a donation.
My goodness this is the answer to our prayers! Well…kind of. YouTube allows you put a donate button on your site, and you can certainly take some time out of your video to point out you have a donate button and to “please donate to help me keep making videos” or some statement like that, but from what I’m reading and hearing in the industry – this little feature isn’t doing much. Why? I don’t definitively know, however I have a hunch it’s related to what I said at the beginning of this section. People tend to feel entitled to free content online and you have to really, really appeal to them get money. That, and often it’s not just as easy as clicking a button, like it is on iTunes for in-app purchases. It’s a little more involved, and the more hoops a prospective donor has to jump through, the less likely they are to do it.
Don’t let it stop you, though, it’s 1 revenue stream. Having multiple revenue streams is smart business. There’s no reason you can’t have a donate button and try to raise money that way in addition to other monetization strategies.
Of the few platforms out there, Patreon is probably the best for subscription-based content. If you’ve never heard of it, feel free to go check it out. Essentially it’s a platform that allow you to set up a deliverable item, like a video, and charge your Patreon’s (patron’s) at specific times. Once, once per month, once per video, .etc. It’s fairly flexible and in some YouTube niches, such as ASMR, it’s a viable income stream for them.
You still have to pander to your audience to join your Patreon, and there isn’t a button you can simply add to your channel that makes it easy, but from what I’ve read it works and you can just include a link in your description and brief mention at some point in your video.
How Much Can I Earn From Patreon?
In theory, there is no limit, as a large enough audience combined with an appealing pitch to subscribe could be very powerful and you could make a lot of money. There are people out there that have subscribers sending them $50,000 or more each month! I’m completely serious. When you have fans, and they love your work, they’re going to support you. No one I know would say that isn’t a success! Of course, that isn’t an average by any means and you could probably expect to start out small like you would with anything, but again, there’s no ceiling here and the potential is huge for an outside-YouTube revenue stream.
Chances are you’ve heard of this tiny little site that generates millions of dollars in donations for thousands of people. It’s everywhere. There’s also absolutely nothing stopping you from using this as a source of income, although there are a couple issues.
- It wouldn’t be a great source of monthly income.
- You need to give a very compelling reason people should donate.
So, with the first issue it’s just like it sounds. You can’t just keep throwing up GoFundMe‘s every month and expecting similar success. The best way to utilize a platform like GFM is to do it once and make it damn good.
Imagine this. What if PewDiePie ran some crazy stunt like he did with his 50,000,000 subscriber plea? What if he said something like “Donate $10,000,000 and I’ll quit YouTube” – I bet he could get it funded. It’s part his audience, part his personality and part media coverage.
I’m not suggesting you try this, and I’m certainly not suggesting he’d do this, either. I just want you to see how limitless the right pitch on the right platform can be. You could make a yearly GoFundMe, and spend the entire month (30 days) driving people towards that page. I’m tempted to do it for this site, actually! Can you imagine?
“Donate $5 and I’ll rescue this kitten!”
Ok, that’s not very compelling, but you get my point. Be as creative with your donation pitch as you are with your videos and you’ll be just fine my friend.
Affiliate Marketing & Partnerships
Alright, if there’s any topic in this world I can crush out of the ballpark, it’s this one. I’ve been in the affiliate marketing industry since 2002, and have had a lot of success, so that makes me like the Godfather of this industry ;). There isn’t anything I haven’t seen or done and I know the game inside-and-out, so now I’m going to tell you how you can leverage YouTube for affiliate marketing profit.
Affiliate marketing, in a nutshell, is when you (publisher) promote an “offer” from an advertiser in exchange for a fee when a certain action is made. Typically, these actions are sales, but sometimes they’re leads (people fill out a form), sometimes they’re email submits (people fill out their email) and sometimes they’re app installs (people download an app). Whatever the “action” is, it will be clearly defined.
Here’s an example.
Let’s say I have a personal finance channel on YouTube. We already know that I’m going to have advertisers spending top dollar to attract my audience, but the volume isn’t very high, so it doesn’t make a lot of money. In addition, I’m not popular enough to use my channel as leverage to get a custom sponsorship with any big companies in the financial space – so, that leaves me with one other “real” option, and that’s to promote affiliate programs.
The types of affiliate programs I’m going to promote will be related to personal finance. What type of affiliate offers will I promote? Well, let’s run through a list of ideas that we know are related.
- Auto Insurance ($3 – $20, paid per lead & per call)
- Home Insurance ($4 – $8, paid per lead & per call)
- New Home Loan ($10 – $25, paid per lead & per call)
- Refinance Loan ($10 – $25, paid per lead & per call)
- Credit Reports ($20 – $45, paid per sale)
- Credit Score ($20 – $45, paid per sale)
- Credit Monitoring ($20 – $45, paid per sale)
- Credit Cards ($50 – $150, paid per approval)
The list can literally go on and on, we can cover investing, 401k’s, all of that. However, the list of companies that have affiliate programs tends to be a lot shorter than the number of companies that are in the space. Without going into too much detail on this YouTube guide, let’s say you’ve joined a network like CommissionJunction, or NeverBlue, or any of the other larger affiliate networks and that you’ve been accepted to run specific offers.
Now, you simply have to promote the offers in-video, drive traffic and hope for some conversions!
I make it sound so easy, right? Well, it’s not, but it’s an angle and one that quite a few people have used successfully with YouTube. If you make the right video and pitch it to the right audience, again – the sky is the limit. You can truly create residual income from one awesome video that promotes the right product, I’ve seen it in areas like Web Hosting, where one video is responsible for $30,000/mo+ of a certain affiliates income!
I’m not saying this will be you, but I’m not saying it can’t be. If you can make compelling videos you can “push” anything, you simply have to know your audience and know what they want. Sometimes affiliate programs are the answer where other forms of monetization like Ads/Sponsorships are not. You have to test it, see if it’s right for you.
Now, you’ll notice I left out the biggest affiliate program in the world – Amazon. I did this because I wanted to touch on this last. I don’t treat Amazon like a typical affiliate program because you’re only selling products, and often some of the best affiliate programs are services, like credit monitoring, auto insurance, .etc. However, Amazon is huge for a reason and while the payouts (4%, 6%) are pretty low, the revenue can really add up.
Let’s just be clear here. There are hundreds, if not thousands of YouTuber’s that generate a substantial income from promoting Amazon products. You’ll see this a lot on “Product Review” channels and it’s easy to see why. They review a product, the viewer gets excited and wants to buy it!
Amazon could very well be one of the best ways to monetize your YouTube channel, maybe even better than advertising, although it’s always going to come down to how much leverage you have. Big audience? In-depth videos? A natural “pitch” that gets people to click and buy? If you can say yes to that, you’ll do very well with affiliate marketing + YouTube. If you can’t say yes quite yet, don’t worry, just work towards getting to that level because that’s where the big, residual money is at.
Alternate Ways To Generate Money
This is a relatively new phenomenon within YouTube, however you might be more familiar with it’s use in the music industry. In the last few years major YouTube stars have been signed to agency deals one-by-one. It seems at this point, almost everyone that’s big is on a label.
Why? Well, they offer you money upfront, like an advance (sound familiar, music industry?) in exchange for a cut of your ad revenue profits. For some big YouTuber’s this makes a lot of sense. A company approaches them, offers them a million dollars to sign with their label and it might be hard to turn down.
Now, I can’t go into too much detail here because just like the music industry, details aren’t really publicized. However, I wouldn’t expect these “talent agencies” or “artist labels” to differ too much from the music industry. Their goal is long-term profit at the expense of a short-term loss (the advance they pay out to the artist) and over the long run they expect to make a lot of money.
Ok, so is joining a label right for you? That’s something only you can decide! It’s hard to turn down someone waving a big stack of cash in your face, however, as you can imagine, this doesn’t happen for just anyone. You’re not going to get offers like this as a new YouTuber, and you may never. These companies are looking for a return on their investment, and with advertising, that comes from A LOT of views.
Do you generate millions of views each week? Then you might be a serious candidate for joining an agency/label. If you don’t, and your end goal is still joining one of these companies, simply work harder, be awesome and they’ll find you! Again, I’m not advising taking a deal just to see some upfront money and a little help with production, you need to weigh whether this is the right move for you.
Leverage Your Brand For Outside Opportunities
You’re going to get damn tired of hearing Shane Dawson’s name here, but he’s a prime example of someone that leveraged his YouTube brand into other projects – primarily a book deal. It’s not just book deals YouTuber’s are getting though, and someone did it even bigger than Shane, and that’s Michelle Phan. She managed to parlay her beauty tutorials into a modeling contract and from there she founded a company called Ipsy (which of course is heavily promoted on YouTube!) that’s now worth a shocking $500m+!
That’s just…unreal. She took her brand and did what we all should do, leverage for bigger, better, and more money. I brought up Shane because I believe he’s got a great chance of doing something similar down the line. He pushes his brand hard enough outside of YouTube that I think he can do it. Michelle, is clearly the top dog here, though. The press loves to talk about PewDiePie and how he generates millions in ad revenue, but Michelle is probably worth $150m – $200m and it’s all because she built her brand on YouTube!
No matter which route you decide to go, the choice is going to be up to you how to want to monetize your channel. You can’t go wrong with advertising, angling for partnerships, asking for donations or promoting affiliate programs. All are very viable sources of income and if you focus on creating the best channel possible and building your brand within the industry, the sky really is the limit.