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How Does Goldman Sachs Make Money (Business and Revenue Model)

The Goldman Sachs business model

How Does Goldman Sachs Make Money?
Here’s what you should know:
  • What is Goldman Sachs, and how does it work?
  • How does Goldman Sachs make money?
  • Market Making
  • Interest Income
  • Investment Banking
  • Investment Management
  • Other Principal Transactions
  • Commissions and Fees
  • Goldman Sachs’ Subsidiaries, Acquisitions, and Exits
  • What is the Goldman Sachs business and revenue model?
  • Goldman Sachs’ profit and revenue
  • A Brief History of Goldman Sachs

How does Goldman Sachs make money? Well, here is a full, in-depth, breakdown of their six (6) revenue streams and services they offer, as well as the Goldman Sachs business model, their year-over-year revenue, how Goldman Sachs works, and a brief history of Goldman Sachs.

What is Goldman Sachs, and how does it work?

Goldman Sachs is an investment bank and financial services company that offers services in investment management, securities, asset management, brokering, and securities underwriting.

Founded in 1869 by Marcus Goldman, Goldman Sachs has grown into one of the largest banks in the world – with $44.6 billion of revenue and $1.95 trillion in assets under management (AUM) as of December 31, 2020.

How does Goldman Sachs make money?

Goldman Sachs had a reported $44.6 billion in revenue in 2020. How did they do it?

Well, Sachs offers six (6) services to more than 3 million clients of theirs. Below is a quick breakdown of a revenue overview by the numbers:

  1. Market Making: 34.8% ($15.5 billion)

  2. Interest Income: 30.7% ($13.7 billion)

  3. Investment Banking: 20.4% ($9.1 billion)

  4. Investment Management: 15.4% ($6.9 billion)

  5. Other Principal Transactions: 10.3% ($4.6 billion)

  6. Commissions and Fees: 7.8% ($3.5 billion)

Note: Throughout this article, we will go into what the revenue streams mentioned above are and how Goldman Sachs makes money off each service. Giving a full picture of the Goldman Sachs revenue and business model.

Here are the 6 ways of how Goldman Sachs makes money (in 2021):

Goldman Sachs generates revenue for the company in six (6) ways that fall under four (4) “business segments”, as Goldman Sachs calls them: Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management.

How Does Goldman Sachs Make Money | Goldman Sachs Business Model
Source: Goldman Sachs’ Form 10-K, Page 1

#1. Market Making

Goldman Sachs’ number one source of revenue comes from market making – which brought in $15.5 billion of revenue in 2020.

Goldman Sachs describes this revenue to come from “interest rate products, credit products, mortgages, currencies, commodities, and equity products.”

Market making is when a market maker provides liquidity to the markets. In return, makers like Goldman Sachs make money on this through the spread – by buying from you low and selling back to you higher.

Market Making Revenue:

  • Equity products: $6.7 million
  • Interest rate products: $6.1 million
  • Credit: $3.2 million
  • Commodities: $2.6 million
  • Currencies: ($3.2 million)

Note: 34.8% ($15.5 billion) of Goldman Sachs’ total revenue came from market making in 2020.

#2. Interest Income

Goldman Sachs’ second largest source of revenue comes though interest.

This interest is earned from issuing unsecured loans and credit cards through consumer banking, private banking, and private lending services offered by Goldman Sachs Bank for wealth management clients.

You can see the revenue breakdown of interest income on pages 67-68 of Goldman Sachs’ Form 10-K, which adds up to about $13.7 billion of revenue for Goldman Sachs in 2020.

Note: Roughly 30.7% ($13.7 billion) of Goldman Sachs’ total revenue came from interest income in 2020.

#3. Investment Banking

Goldman Sachs also makes money (another $9.1 billion) from investment banking. Which is, as Goldman Sachs describes it, “revenues from financial advisory and underwriting assignments, and corporate lending.”

Investment Banking Revenue:

  • Underwriting: $6 million
  • Financial advisory: $3 million
  • Corporate lending: $282 thousand

Note: 20.4% ($9.1 billion) of Goldman Sachs’ total revenue came from investment banking in 2020.

#4. Investment Management

Investment management, as Goldman Sachs describes it, is “revenues from providing asset management services across all major asset classes to a diverse set of asset management clients (included in our Asset Management segment), as well as asset management services, wealth advisory services and certain transaction services for wealth management clients.”

This type of revenue earned Goldman Sachs another $6.9 billion in 2020.

Note: Roughly 15.4% ($6.9 billion) of Goldman Sachs’ total revenue came from investment management in 2020.

#5. Other Principal Transactions

In 2020, other principal transactions brought in extra $4.6 billion of revenue for Goldman Sachs.

As Goldman Sachs describes it, other principal transactions are “revenues from equity investing activities, including revenues related to our consolidated investments (included in our Asset Management segment), and lending activities (included across our four segments).”

Note: 10.3% ($4.6 billion) of Goldman Sachs’ total revenue came from investment management in 2020.

#6. Commissions and Fees

Goldman Sachs also makes money off of commission fees, which earned them an additional $3.5 billion in revenue in 2020.

Sachs’ commission revenue comes from transactions made on major stock, options, futures exchanges, and over-the-counter (OTC) transactions.

Goldman Sachs Subsidiaries, Acquisitions, and Exits

In 2020, Goldman Sachs generated $2.45 billion in revenue from their Mergers & acquisitions (M&A).

Goldman Sachs engages in all investment stages of funding – including Debt Financing, Early Stage Venture, Late Stage Venture, Private Equity, Seed, etc.

To date, The Goldman Sachs Group has made a total of 23 acquisitions. On top of that, Sachs also had 820 investments, 320 lead investments, and 273 successful exits.

Goldman Sachs Mergers And Acquisitions
Source: Crunchbase

Note: Goldman Sachs generated $2.45 billion in revenue from their Mergers & acquisitions (M&A) in 2020.

What is the Goldman Sachs business and revenue model?

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

  • Interest revenue model
  • Fee-for-service (FFS) business model
  • Commission based business model
  • Freemium (upselling) business model
  • Mergers & acquisitions (M&A) business model

Goldman Sachs profit and revenue

In 2020, Goldman Sachs reported revenue of $44.6 billion and $12.5 billion of pre-tax profit according to Page 61 of Goldman Sachs’ 2020 Form 10-K.

Note: Because The Goldman Sachs Group, 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 Goldman Sachs’ publicly released financial reports through Goldman Sachs’ 10-K Annual Report on the Goldman Sachs Investor Relations section of their website.

A Brief History of Goldman Sachs

Before Goldman Sachs was established and founded, Marcus Goldman worked as a horse-drawn cart peddler before later turning to shopkeeping in Philadelphia.

By 1869, Goldman relocated to New York City and started what was called “Marcus Goldman & Co.”, as a broker of IOUs where he was able to successfully execute more than $5 million of commercial paper singlehandedly for the first few years of business. That’s equivalent to more than $98 million in today’s dollar value.