How does Zenefits make money?
HR SaaS on the surface but actually a health-insurance broker.
This is Edition #3 of the newsletter. You can find the previous editions here.
About Zenefits
Zenefits is a US-based company that offers a SaaS platform to companies for managing their human resources (employee onboarding, benefits &, payroll) with a particular focus on helping them with health insurance coverage.
It was founded by Parker Conrad and Laks Srini.
Stats
🐣2013 Founded
💰$4.5B Valuation (2016)
👩💻10,000+ users
💸 $583.6M Raised (last round in 2016)
How they make money
Zenefits started with a very unique business model.
Zenefits did not charge any fees to its customers directly for its service (for the most part). Instead, it made money (about $450 per employee, per year) by serving as the broker of record (insurance broker) on any insurance that is bought through Zenefits.
Prior to Zenefits, companies bought insurance through local insurance brokers that provided nothing more than free tickets to local sports games in return for the business. The insurance brokers get paid between 2% and 10% in commissions from the insurance carriers (think Aetna, Prudential, etc). Rather than provide you a couple of free tickets to a local game and a warm birthday phone call, Zenefits aimed to provide its entire suite of services in return for the privilege of being named the broker of record (insurance broker) for the health insurance that a customer secures through the platform. The underlying premium paid by the customer, quality, and terms of the policy and carriers is the exact same. In this model, the value of the product to the customer is very high, while the perceived cost of the product is free.
After facing various regulatory hurdles though, in 2017, Zenefits has pivoted its business model to:
provide paid SaaS HR Software to SMBs including Onboarding, Benefits, Payroll
provide the backbone technology for Insurance providers.
Here’s Parker’s YC Application video where he talks through the initial idea of Zenefits.. such clarity!
Future
Zenefits is well-poised to disrupt the insurance brokerage industry. Although they have ‘pivoted’ away from the broker-of-record model, I feel they are investing time in making deep relationships with the brokers.. until they disrupt them.. again! Even if the regulations do not allow them to do this in the US, the global market is pretty much underserved.
Food for thought: Which parallel industries can the Zenefits model be applied to?
I’m new to this and would love to hear your thoughts. Appreciate it if you could share this with your network who might be interested in learning about such unique business models.
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