How do websites make money off targeted advertising?

It's hard to give a concrete answer on average eCPMs without any further data about traffic geos, niche, or networks you work with. It really could range the gamut - from $0.01 eCPM to a few dollars eCPM. However, there are outsourced ad optimization companies like MonetizeMore that could help you with this, and they only take a cut of incremental revenue you make from network partners. We did an interview with one of the founders and he goes into great detail about website monetization strategies: http://www.thalamus.co/blog/monetizemore-kean-graham-interview/

The previous explanation from David was a good explanation of how premium inventory is sold. More and more, remnant inventory is being sold because there is quite a bit of unfilled ad inventory, as additional pages are created for each publisher. They sell this unsold inventory through a real-time bidding system, based on technology. Publishers work with Supply Side Platforms (SSP's or Yield Optimizers) that represent their inventory in the Ad Exchange Marketplace. via Ad Exchanges, who optimize the publishers' inventory, and Demand Side Platforms, who optimize the media buy for the advertiser's media buying desk. To do this, data is needed to be able to make sure that the ad unit is showing up in front of the right eyeballs. So, first party (publisher) data and  3rd party data is layered into cookies. This data is taken from Data Suppliers and Data Management Platforms, which typically make the data available to all entities in this real-time ecosystem. Mobile phone advertising data is currently less prevalent but comes directly from the publisher and some from the Network or DSP that buys the inventory from them. Some (networks) use this as a differentiation tool but because of regulations and technology difficulties using Personally Identifiable Information (PII) from mobile phones, this is a complex and nascent thing at this point. Once the cookies have the data and the whole ecosystem is plugged in - or integrated - to each other, then the user goes online to their favorite page. As they're clicking through, the publisher picks up the cookie and some piece of technology reads the information layered into the cookie. That info is then read by the Supply Side Platform (if the publisher optimizes) and picked up by the Network to put into the Ad Exchange Marketplace and Media Buying Desks will bid on this inventory in real-time via the technology they're integrated into with help from the Demand Side Platforms. The winning bid is accepted and that ad unit shows up on the screen. This process happens in nanoseconds and is almost real-time due to the speed of the tech and the integration of all of the players in the game. Often times you will hear that there is very little difference between some of these ad tech players, which is true, but each company and each classification has some proprietary technology or value in the marketplace that sets them apart. The CPM's for this type of ad buy range from $5 to $$10 online and $12 - $15 in mobile. I'm not sure why this price difference is so, but those are the values I'm typically dealing with when I work with my channel partners and customers. While click-through, which is a faulty metric at best, is used to assess value it is much more important to get an impression. To prove this out, many companies are looking to link eventual sales of those target audiences back to the impressions that have shown up in front of those cookies.