How does The Honest Company make money?

The eco-friendly baby and family products company sells bundles of products directly to customers

Obviously the first thing  anyone is going to think of when it comes to Los Angeles are celebrities and the movie business. Now, love them or hate them (or both!) celebrities have actually become an integral part of another important aspect of the culture down there: startups.

Ashton Kutcher, for example, has made a big name for himself as a tech investor the co-founder of A-Grade Investments, with investments in companies like Flipboard, Hipmunk and Airbnb. Others celebrities attach their name to up and coming companies; take social commerce company BeachMint, which features six celebrity-curated, subscription-based sites from people Justin Timberlake, Rachel Bilson and Jessica Simpson. And then there are those who found their own companies, like Kim Kardashian who is a co-founder of ShoeDazzle, an online personalized styling and retail service.

The one we are going to focus on is The Honest Company, a subscription service for eco-friendly baby and family products, co-founded by actress Jessica Alba.

The Santa Monica-based start up designs and manufactures all of its own products, such as diapers, wipes and bath / skin care. The Honest Company also formulates and manufactures household cleaning products, such as laundry detergent, surface cleaners and dish soap.

So how does the company make money? By selling "bundles" of items at set costs. It offers three different bundles that are sold on the site:

• A membership to the company’s Diapers & Wipes Bundle costs $79.95 per Bundle. It includes one monthly shipment of six jumbo bags of Honest Diapers, and four packages of Honest Wipes. Customers can customize their order based on the baby's weight, and choose the number of diapers they want in each pack.

• The Essentials Bundle costs $35.95 per Bundle. It allows users to pick five cleaning items to ship every month, including shampoo/body wash, hand soap, bug spray and laundry detergent. 

• The Health & Wellness Bundle also costs $39.95 per Bundle. Users pay for two vitamin/supplement items, such as prenatal multivitamins, baby and toddler multivitamins or DHA/Omega 3.

Customers are not charged a monthly membership fee, and pay only for the Bundles that ship to them. Bundles will typically be shipped every four weeks, unless specified otherwise by the customer. Customers also pay shipping and handling prices.

Customers can also buy individual products on a one off basis without subscribing to a bundle from the site. That includes mouthwash, baby powder, sunscreen, laundry detergent, shampoo, diapers, or any of the other 70 products its produces.

In addition to selling directly to customer, The Honest Company makes money by selling products wholesale to various retail partners, such as Target, WholeFoods, Nordstroms, and Costco, among others, company co-founder Brian Lee told me.

Since The Honest Company is a private company it does not disclose any information regarding revenue, but it is on a run-rate of making north of $100 million this year. 

Launched in 2012, The Honest Company has raised $52 million, including a $25 million round in November of 2013. Investors include Institutional Venture Partners (IVP), ICONIQ Capital, Lightspeed Venture Partners and General Catalyst Partners. 

(Come check out the LA scene on October 2 at Vator Splash LA, where The Honest Company founders Brian Lee and Jessica Alba will be speaking)

(Image source: honest.com)