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Business Operations Business Models

How Does CarMax Make Money (Business and Revenue Model)

The CarMax business model

How Does CarMax Make Money?
Here’s what you should know:
  • What is CarMax, and how does CarMax work?
  • How does CarMax make money?
  • Used Vehicle Sales
  • Wholesale Vehicle Sales
  • MaxCare Extended Protection Plan Revenues
  • Other Sales and Revenues
  • CarMax’s profit and revenue
  • What is the CarMax business and revenue model?
  • CarMax’s funding and market cap
  • CarMax’s Subsidiaries, Acquisitions, and Exits

How does CarMax make money? Here is a full, in-depth, breakdown of their four (4) revenue streams and the different products and services they offer, as well as the CarMax business model, their profit and revenue, and how CarMax works.

What is CarMax, and how does CarMax work?

CarMax is a vehicle retailer that provides an online platform for customers to search for new and used cars.

Founded in 1993 by Richard L. Sharp, CarMax began trading on the New York Stock Exchange (NYSE) in 1997, under the ticker symbol “KMX”.

Since its founding, CarMax has bought and sold over 9 million vehicles making them one of the largest retailers of used vehicles in the US.

How CarMax works is: Customers can visit one of CarMax’s 228 locations across the US or browse from over 41,000+ vehicle listings on their online platform. Once decided on a vehicle, customers can secure financing through CarMax Auto Finance or through one of their third party lenders.

Some of CarMax’s competitors include Carvana, TrueCar, Cars.com, CarGurus, Autotrader, Vroom, and other eCommerce platforms for buying and selling used cars.

CarMax App in Apple App Store | CarMax Business Model | How Does CarMax Make Money?
Source: Apple App Store | CarMax

How does CarMax make money?

According to pages 32 and 33 of CarMax’s 2020 Form 10-K, CarMax has sold over a combined 1.17 million used and wholesale vehicles in 2020. So how does CarMax make money off of all those vehicles sold?

Below is a breakdown of how much money CarMax makes and its revenue model. Including all revenue streams and how much they charge for their services.

Here are the 4 ways of how CarMax makes money (in 2021):

CarMax has a revenue model that makes money in four (4) ways – selling used vehicles, wholesale vehicles, MaxCare Extended Protection Plans, and other sales.

#1. Used Vehicle Sales

CarMax makes the bulk of its money through the sales of used vehicles. In fact, $15.7 billion or 83% of CarMax’s total revenue came from used vehicle sales in 2020.

The way CarMax makes money from this is by acquiring used vehicles directly through customer trade-ins, auctions, wholesalers, franchised and independent dealers, and fleet owners. Then, once acquired, CarMax cleans them up, lists them on its platform, and resells them for a profit.

According to pages 32 and 33 of CarMax’s 2020 Form 10-K, CarMax sold 751,862 used vehicles in 2020. With an average sales price of $20,690 per vehicle.

Note: 83% of CarMax’s total revenue came from used vehicle sales in 2020.

#2. Wholesale Vehicle Sales

In addition to selling used vehicles, CarMax also makes money selling its vehicles wholesale. Which, in 2020, resulted in an added $2.67 billion in revenue for CarMax.

The way it works is: CarMax sells vehicles in their inventory at wholesale price at their CarMax Auctions. These are vehicles in the inventory that did not meet the threshold requirements to sell them used on carmax.com.

According to pages 32 and 33 of CarMax’s 2020 Form 10-K, CarMax sold 426,268 wholesale vehicles in 2020. With an average sales price of $5,957 per vehicle.

CarMax Auctions | CarMax Business Model | How Does CarMax Make Money?
Source: CarMax

Note: These auctions have a 97% to 100% sell-thru rate, as reported by CarMax.

#3. MaxCare Extended Protection Plan Revenues

CarMax also makes money by selling Extended Protection Plans (EPP) to customers who purchase vehicles through them.

The cost of EPP is added to the customer’s monthly car payments, which is an additional $20 to $71 per month depending on various factors such as car type, estimated miles that are driven per year, and the deductible amount chosen.

This revenue is a part of CarMax’s “Other Sales and Revenues” income (laid out below) which made up just 3% of CarMax’s total revenue in 2020. Of which, EPP revenue resulted in $412.8 million or 72.7% of this income.

CarMax MaxCare Cost:

  • $20 to $71 per month
CarMax MaxCare Cost | CarMax Business Model | How Does CarMax Make Money?
Source: CarMax

Note: It’s reported that CarMax has had more than 3.8 million MaxCare EPP customers since 2009.

#4. Other Sales and Revenues

Aside from CarMax’s MaxCare Extended Protection Plan (EPP) revenue, there is still an additional $155 million of revenue that makeup for CarMax’s “Other Sales and Revenues.”

These revenues are recognized as “net third-party finance fees, and other revenues, which are predominantly comprised of the service department and new vehicle sales,” according to page 34 of CarMax’s 2020 Form 10-K.

CarMax’s profit and revenue

In 2020, CarMax reported $18.95 billion in revenue.

Note: Because CarMax, Inc. is a publicly traded company, under the Securities Exchange Act of 1934, they must file continuous financial filings with the U.S. Securities and Exchange Commission (SEC). You can find all of CarMax’s publicly released financial reports, including annual reports, through CarMax’s investor section on their website.

What is the CarMax business and revenue model?

CarMax makes money through a few revenue models that they combine within their company, they are:

  • Transaction based business model
  • Fee-for-service (FFS) business model
  • Mergers & acquisitions (M&A) business model

CarMax’s funding and market cap

According to CarMax’s Crunchbase profile, CarMax has raised $98.2 million over 1 round and has a market cap of $21.29 billion as of October 2021.

CarMax’s Subsidiaries, Acquisitions, and Exits

To date, CarMax, Inc. has made a total of 1 acquisition, 2 investments, 1 lead investment, and 1 successful exit.