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How Does Ipsy Make Money? Ipsy Business Model In A Nutshell

  • Ipsy is a monthly subscription service for cosmetic and beauty products founded in 2011 by Michelle Phan, Marcelo Camberos, and Jennifer Goldfarb. Phan used her large YouTube following to launch and grow the platform.
  • Ipsy makes money by charging customers monthly for beauty subscription boxes. Various subscription plans are available depending on the level of beauty product size and customization.
  • Ipsy also operates an eCommerce store selling branded and in-house beauty products. The company also sells product placement spots to brands eager to receive highly targeted exposure.

Origin Story

Ipsy is a monthly subscription service for cosmetic and beauty products. The company was founded in 2011 by YouTube vlogger Michelle Phan together with Marcelo Camberos and Jennifer Goldfarb. 

Phan started uploading videos to YouTube long before it was possible to make a living on the platform. She began by posting videos about dogs and obscure topics such as how to make face masks from pulverized aspirin. However, Phan noticed that her makeup tutorials attracted the most views. 

When YouTube began allowing its creators to monetize their videos, Phan was accepted into the program. She started posting beauty tutorials more frequently, quitting her weekend job at a sushi restaurant to devote more time to her vlogging.

In a very short time, Phan amassed approximately 1 million YouTube followers. She moved to Los Angeles to build her company with like-minded individuals where she became acquainted with Camberos and Goldfarb. At the time, Phan also noted the surging popularity of the subscription box model with services such as Birchbox.

Ipsy was launched in November 2011 as MyGlam to take advantage of this trend, with each customer sent a so-called “Glam Bag” of beauty product samples every month. After raising seed and subsequent investment funding, MyGlam was renamed Ipsy in September 2012.

During the next few years, Phan managed to grow Ipsy through word-of-mouth advertising and her large YouTube following. Such was the success of the service that it was profitable almost immediately. 

The growth of the company continues to this day. Ipsy now houses more than 10,000 amateur beauty vloggers in a large studio space in San Mateo, California, with each blogger an unofficial Ipsy brand advocate. Ipsy also employs a team of stylists who promote the brands featured in the monthly bag through video. In October 2020, Ipsy announced it would be acquiring rival BoxyCharm to cement its position as one of the leading subscription-based beauty services.

Ipsy revenue generation

Although Ipsy started as a subscription box service, the company now has a diverse revenue generation strategy. An overview of this strategy is provided below.

Subscription boxes

Consumers who wish to receive a regular delivery of beauty samples can choose between three subscriptions:

  1. Glam Bag ($13/month) – the original Glam Bag featuring an assortment of five personalized beauty samples. The consumer can choose one product for their bag each month.
  2. Glam Bag Plus ($28/month) – featuring an assortment of five full-sized beauty products. In this case, the consumer can choose three of the five products each month.
  3. Glam Bag X ($55/quarter) – Glam Bag X is a members-only upgrade that includes seven to eight full-sized products personally curated by beauty celebrities. Glam Bag X is sent in February, May, August, and November and replaces the usual bag in these months.

Shop

Ipsy also operates its own eCommerce store where it purchases products at wholesale and then resells them for a profit.

The company also sells in-house brands such as Complex Culture and Refreshments. Margins on these brands are likely to be higher.

Product placement

With millions of subscribers, Ipsy has access to valuable consumer buying data which allows the company to better predict the products its consumers will enjoy.

As a result, the company works with beauty brands to promote products to highly targeted audiences. Ipsy is compensated by these brands in exchange for access to an effective and organic form of advertising. 

RelatedWhat Is A B2B2C Business Model?

Related Business Model Types

Platform Business Model

platform-business-models
A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.

Marketplace Business Model

marketplace-business-models
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.

Network Effects

network-effects
A network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.

Asymmetric Business Models

asymmetric-business-models
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.

Attention Merchant Business Model

attention-business-models-compared
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.

Wholesale Business Model

wholesale-business-model
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.

Retail Business Model

retail-business-model
A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.

B2B2C

b2b2c
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.

Crowdsourcing Business Model

crowdsourcing
The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.

Open-Core Business Model

open-core
While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.

Open Source vs. Freemium

open-source-business-model
Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.

Freemium Business Model

freemium-business-model
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.

Freeterprise Business Model

freeterprise-business-model
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.

Franchising Business Model

franchained-business-model
In a franchained business model (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.

Read Next: Subscription Box Business Models.

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