Building a successful ad-supported video business requires operators to consider operational costs, such as ad serving, SSAI, commissions to supply side platforms (SSPs) and CDN costs. These are all equally important in terms of managing operational costs. Your advertising inventory sell-thru rate and CPMs (cost per thousand) will determine if you have a successful business, but operational expense needs to be minimized to have a good ROI. And of course CDN charges are typically the largest expense.
Three components of generating ad revenue
The three components of ad revenue include impressions available to sell, CPM rates and sell through rates. The basis for generating revenue from video ads starts with total ad impressions you generate through marketing, social sharing and watch time.
The standard for estimation ad impressions is based on ads per hour typically being 2 ads inserted every 10 minutes. So if 1000 hit your site every day and watch about 60 minutes per day, you are looking at about 360,000 impressions. CPMs that advertisers pay for your inventory are based on region, device and the content itself. Average CPMs in India can be in the $4 to $6 range while US rates average $12 for programmatic ads. If you are viewing on a Smart TV, advertisers tend to pay higher rates. If you are fortunate enough to broadcast sports, then CPMs can be north of $30.
Sell through rates are the actual number of impressions that are actually sold. Do not assume a 100% sell thru rate. If you watch a broadcaster app, many impressions are house ads promoting network shows (these are unpaid impressions).
AVOD monetization on its face is pretty straight forward
A user clicks on a video which triggers a preroll ad. Ad server delivers ads to Server Side Ad Insertion (SSAI) to stitch ads into the video experience on the server side, with the ability to deliver dynamic targeted ads to users.
Aside from having enough inventory to attract buyers, the marketplace for inventory has many variables including the region, the content and how you expose your inventory to direct ad buyers, SSPs, programmatic ad buyers and other tech such as header bidding.
You can read about biggest problem with monetization and best practice to monetize your inventory in the full article on Setplex blog.