How Does Honey Make Money?

Consumers can save money with honey in a variety of sectors, including apparel, electronics, grocery, and travel. Honey benefits both consumers and businesses since it saves customers from leaving their shopping basket or checkout page to look for a coupon. A customer is significantly more likely to finish their transaction as a result.

How Does Honey Make Money?

A brief history

To create the first functional prototype, Ryan Hudson and co-founder George Ruan contributed $50,000 each in 2012. However, by publishing the extension on Reddit, one of the engineers “accidentally” pre-launched the prototype. It wasn’t the red-carpet launch the creators had in mind, but it was nevertheless successful.

The founders thought about our humorous and uplifting dialogue while shopping: “Honey, buy me this.” So the money they gave their business the moniker. Honey greatly reduced buyer waiting times, which helped it to dominate the market for online bargain sites.

Los Angeles-based Honey attracted 200,000 users in 2012–13 and collaborated with more than 100 merchant partners. Despite the impressive numbers, Honey was still not making any money. Honey did not receive commissions from the transactions. Investors were also hesitant to stake money in a desktop browser extension.

Ryan had no choice but to work as a product manager for OpenX from 2013 to 2015. With the help of a small core crew, George managed to keep the company afloat at that time.

Things did change when a user at Silicon Valley venture capital firm Anthos Capital enthused Honey to its managing partner Bryan Kelly. Later, Anthos joined the first round of investors in Honey. Honey increased staffing and concluded successful agreements with numerous merchant partners, resulting in a consistent source of cash flow. During its early funding stage, Honey raised $49 million from important investors including Anthos Capital, Plug and Play, Cendana Capital, and others.

How Affiliate Partnerships Help Honey Make Money?

Every time a user uses Honey’s extension to redeem a money, Honey is compensated. The so-called affiliate commission, which is a proportion of the final sales price, is subsequently paid to Honey by merchants.

The agreement that Honey reached with its merchant partner will determine the affiliate commission that is paid. The majority of the commissions, according to the business, fall between 0.5 and 10 percent. The commission can potentially reach 20% in higher-margin industries like high-end fashion. These retailers pay Honey because it enables them to significantly boost conversion rates, one of the major performance indicators of the affiliate business model that Honey employs.

Indeed, case studies posted on Honey’s website demonstrate how some of its brand partners were able to raise conversions by as much as 150 percent.

Honey frequently works with so-called affiliate networks rather than the retailer directly (like Nike). Platforms called affiliate networks serve as spokesmen for other businesses. They support the promotion of their goods and look after affiliate management.

Over 20 affiliate networks, including eBay, Rakuten, Groupon, Commission Junction, ShareASale, and many more, have collaborated with Honey itself. A tiny fee is given to a network each time it is involved in a transaction of this kind. But if Honey enters into a direct agreement with the advertising, the entire commission flows into Honey’s own pocket.

In addition, the business has created a number of free products and a rebate program that aid in customer retention and platform expansion. For instance, Honey’s Droplist feature examines prices from several retailers and alerts the customer when a better deal is found. Additionally, PayPal has started incorporating Honey into its current ecosystem of goods. PayPal declared in October 2021 that Honey users could now utilize its own site to redeem their cashback benefits.

As a result, the business distributes a portion of the commission it receives to its customers through its cashback program Honey Gold (which will eventually be merged with PayPal’s cashback program). After that, users can exchange their Gold for gift cards.

Honey also debuted a function that would automatically check Amazon’s marketplace and alert users anytime an item’s price crossed a predetermined threshold. Therefore, Honey’s business model strategy is based on maximizing the consumer touchpoints it has. This is also the rationale for the launch of its mobile app, which gives users even another way to monetize their merchant partners.

Previously, similar strategies have been used by other businesses that rely on affiliate commissions. Credit Karma, which offers a complimentary credit score check and other resources for free, receives all of its funding through affiliate commissions from marketing credit card issuers and other financial institutions. ShopBack, a cashback platform, was the first to start giving out incentives on its own website in Southeast Asia. Later, it became a browser extension as well (on top of payments and BNPL offerings).

Honey generates revenue by receiving commissions from affiliate networks and partner retailers. Currently, Honey is a part of 24 affiliate networks, including Impact, Rakuten, Groupon, and eBay.

Honey generates revenue through affiliate agreements in four different ways

They Gain Commission from Sales

They levy fees ranging from 0.5% to 10% on customer transactions made with affiliated shops. Honey keeps track of sales and promotional offers from shops. When a consumer is checking out, it automatically tries all valid codes and chooses the one that saves them the most money.

Droplist Function

Users can add things from websites like Amazon, Macy’s, Target, and Walmart to a list using Honey’s Droplist feature. Honey then keeps an eye out for coupons for those products and notifies the user when one emerges or when an item’s price reduces to a specific threshold. Users can foresee pricing trends using their price charts.

Amazon Price Alerts & Comparison

In order to notify buyers of the lowest price, Honey on Amazon evaluates the prices offered by several sellers for the same item, taking into account their shipping costs and Prime memberships.

Program for Gold Cashback and Rewards

Customers can exchange the digital currency “Gold” they accumulate through purchases for gift cards to more than 5,500 stores, including Home Depot, Microsoft, and eBay, through the Honey Gold cashback and rewards program. PayPal announced in October 2021 that users of Honey can exchange “Gold” for money on the PayPal network.

Revenue, Valuation, and Funding for Honey

According to Crunchbase, Honey has received $31.8 million in venture capital funding total across four rounds.

The company has received notable investments from firms including Plug and Play, Wonder Ventures, Anthos Capital, Cendana Capital, and many others.

When PayPal bought the business, the final public valuation was disclosed. The massive $4 billion acquisition cost was made by the FinTech behemoth (mainly in cash). According to PayPal CEO Dan Schulman, Honey produced revenues of about $100 million for the 2018 fiscal year while expanding at a rate of 100%. Meanwhile, Honey is already profitable. Sadly, since the transaction was completed, PayPal has not provided any more recent sales or profit figures.

To sum up

The Wall Street Journal reported in September 2020 that for the first time, the redemption of digital coupons had overtaken that of traditional coupons as a result of the COVID pandemic. Consumers are increasingly looking for ways to save money in the face of rising inflation, frequently by using coupons. Additionally, their Los Angeles offices can be even sweeter if you think the word “Honey” is sweet:

How Does Honey Make Money?

Leave a Reply

Your email address will not be published. Required fields are marked *

Scroll to top