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Business Operations Business Models

How Does Vroom Make Money (Business and Revenue Model)

The Vroom business model

How Does Vroom Make Money?
Here’s what you should know:
  • What is Vroom, and how does Vroom work?
  • How does Vroom make money?
  • Retail Vehicle Sales
  • Wholesale Vehicle Sales
  • Fees From Product Sales
  • Vroom’s Subsidiaries, Acquisitions, and Exits
  • Vroom’s profit and revenue
  • What is the Vroom business and revenue model?
  • Vroom’s funding and market cap

How does Vroom make money? Here is a full, in-depth, breakdown of their three (3) revenue streams and the different products and services they offer, as well as the Vroom business model, their profit and revenue, and how Vroom works.

What is Vroom, and how does Vroom work?

Vroom is a vehicle retailer that provides an online platform for customers to buy, sell, and trade-in used vehicles.

Founded in 2013 by Kevin Westfall and Marshall Chesrown, Vroom began trading on the Nasdaq on June 9, 2020, under the ticker symbol “VRM”.

How Vroom works is: Buyers can browse from over tens of thousands of vehicle listings on Vroom’s online platform. Once a vehicle is decided on, buyers can seek financing through one of the dozen financial lenders Vroom partners with. From there, buyers verify their identity by uploading a drivers licence and proof of insurance, pay a $49 non-refundable deposit, sign some paperwork, and once everything is approved, can then have the vehicle delivered to their door within 10 to 14 days.

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

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

How does Vroom make money?

According to Vroom, the company sold over a combined 55,000 vehicles (retail and wholesale) in 2020. So how does Vroom make money off of all those vehicle sales?

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

Here are the 3 ways of how Vroom makes money (in 2021):

Vroom has a revenue model that makes money in three (3) ways – retail vehicle sales, wholesale vehicle sales, and fees from product sales.

#1. Retail Vehicle Sales

Vroom makes the bulk of its money by selling used vehicles to customers on the Vroom platform. In fact, $1.07 billion or 76.4% of Vroom’s total revenue came from selling over 34,000 retail vehicles on its marketplace in 2020.

The way Vroom makes money from this is by sourcing and acquiring used vehicles directly through auctions, customer sales and trade-ins, rental car companies, OEMs, and car dealers. Then, once acquired, Vroom cleans them up through one of their 19 vehicle reconditioning centers, lists them on its platform, and resells them for a profit.

How Does Vroom Work | Vroom Business Model | How Does Vroom Make Money?
Source: Vroom

Note: 76.4% of Vroom’s total revenue came from retail vehicle sales in 2020.

#2. Wholesale Vehicle Sales

In addition to Vroom selling used vehicles directly to customers, Vroom also makes money selling them wholesale as well. Which, resulted in an added $245.6 million in revenue for Vroom in 2020.

These are vehicles that do not meet Vroom’s retail sales criteria and are sold through various wholesale channels. Where the company sold more than 21,000 vehicles wholesale in 2020, according to Vroom.

#3. Fees From Product Sales

Vroom also makes money by selling finance and protection products, like GAP protection and tire and wheel coverage, to customers who purchase vehicles retail through them.

These products are offered through third party lenders and service providers on the site. Of which, Vroom earns a fee from each which resulted in a total of $38.2 million of revenue from fees in 2020.

Although the fee amounts are unknown, the average gross profit from each product sold on the platform is $896, according to page 59 of Vroom’s 2020 Form 10-K.

Vroom Financing | Vroom Business Model | How Does Vroom Make Money?
Source: Vroom

Note: Vroom has a higher average gross profit from each product sold with vehicles than the vehicle sales themselves.

Vroom’s Subsidiaries, Acquisitions, and Exits

To date, Vroom, Inc. has made a total of 3 acquisitions.

Vroom Acquisitions
Source: Crunchbase

Vroom’s profit and revenue

In 2020, Vroom reported $1.4 billion in revenue.

Note: Because Vroom, 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 Vroom’s publicly released financial reports, including annual reports, through Vroom’s investor section on their website.

What is the Vroom business and revenue model?

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

  • Transaction based business model
  • Commission based business model
  • B2B2C (partnerships) business model
  • Mergers & acquisitions (M&A) business model

Vroom’s funding and market cap

According to Vroom’s Crunchbase profile, Vroom has raised $1.3 billion over 9 rounds and has a market cap of $2.9 billion as of October 2021.