Cashback websites offer rewards to customers in the form of cashbacks for shopping on third party websites by following links (to the third party website) placed on the cashback site.
It is interesting to note that the cashback websites do not themselves sell any products/services. They simply direct shoppers to third party sites(merchant websites) that actually sell such products or services.
The question that quite naturally comes to our mind now is how do these cashback websites make money when they do not themselves have any products or services to sell and additionally have to pay a cashback to users making purchases on third party sites via their website.
What then is the Revenue Model of Cashback websites?
Revenue Model of Cashback Websites
We have already said that Cashback websites do not have any products or services of their own. They direct users to sites like Amazon (known as merchant websites) that actually deal in such products or services.
Each time a user makes a valid purchase on the third party site following the link placed on the cashback site, the cashback site earns a commission from the thirdparty website.
In advertisement parlance this is known as “Affiliate Marketing” where commissions are earned on each successful referral.
The cashback website now extends a part of this commission earned to the user making the purchase in the form of cashbacks (which can in most cases be redeemed to a bank account or wallet).
In other words, the cashback websites make money (in the form of commission) by facilitating sales on merchant websites.
The spread i.e difference between the commission earned and the commissions shared with users in the form of cashbacks, represent the gross margin for the cashback websites.
Hope you like our discussion on the revenue model of cashback websites. You might also be interested in understanding how CrowdFunding Websites make money.
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