Originally launched in 2013, Zenefits is a leading provider of human resources (HR) software – or, as it’s more commonly referred to, ‘’employee management software.’’ With just over eight years since its launch, Zenefits has already gone through a lot.
From once hitting a staggering $4.5 billion valuation mark in just 2 years after its launch to being caught in an insurance scandal (employed unlicensed people to sell health insurances all over the US) which nearly halved its valuation, it’s been a roller coaster ride for this company.
Zenefits is one of the top HR software solutions that have been making waves on the market since its birth in 2013. In 2015, they raised over $500 million in funding at a $4.5 billion valuation. That’s impressive, and it begs the question, how do they make money? What exactly is their business model? And this is exactly what this article is all about.
There’s a lot of conflicting information about how Zenefits makes money on various websites, some of which are far away from the truth. This is why we decided to dig deep into the business model of Zenefits and list down all of its revenue sources.
Zenefits makes money through multi-level paid subscription fees charged to small businesses. The cloud-based HR software empowers businesses to streamline their payroll and employee management processes.
Zenefits is an online platform that makes human resources easy. Thanks to them, processes like onboarding, open enrollment, and employee benefits are made simple with the click of a mouse.
Read on to learn why this “incredibly boring” business was once valued at $4.5 billion in under two years since its start.
Business Model of Zenefits
Zenefits, the popular human resources software company, operates on a subscription-based business model. Its flexible and customizable cloud software allows users to track employee benefits, manage pay for hourly employees, and enhance training programs.
In an interview with Traction, Conrad notes that the company is not in the business of creating a new market. They are expanding upon an existing one by delivering a superior product and service, as well as a newer approach. The company is about problem-solving.
Zenefits recognizes the impact that small and mid-size businesses have in fueling the American economy. Unfortunately, these businesses are overlooked in favor of larger businesses that have more to profit from. With this knowledge, Conrad formed Zenefits with a mission.
99.7 percent of small businesses make up the driving force behind our economy. The company’s mission is to create a fair landscape for these businesses that are often disregarded.
By using their streamlined automated system, employers can have Zenefits shoulder their burdens so they can focus on what’s important in their core business.
From hiring and onboarding to performance management, Zenefits does all the hard work for you.
Businesses can quickly and easily build compensation packages and send offers of employment to new hires using the company’s automated system. New hires can then onboard themselves, cutting that process down by half.
Employees can also use the company’s mobile app to manage their own records. This gives them the ability to update their files, request time off, and more.
Additionally, when any kind of revision takes place on the platform, the program automatically updates all other areas. This saves time on having to manually go in and update each area one by one.
These features are not only accessible to full-time employees but also to part-time employees, freelancers, consultants, and more. The HR package is the ultimate draw for any small business looking to save time, money, and resources.
Taking care of your employees by compensating them fairly and on time is a big part of what gives your business integrity. Though it’s an important process, it can also be a demanding one.
Here is where Zenefits comes in.
Businesses can learn just how simple it is to manage payroll with the Zenefits program. Using their step-by-step instructional videos and informative guides makes payroll easy. Program features include a PTO calculator, time and schedule tracker, and automatic hourly and/or salary changes, among many more.
Zenefits also provides businesses with an automatic taxes and filing system. This gives them the confidence that their records have been accurately and easily reported.
These are just some of the many features that businesses can expect to receive once they join the Zenefits family. The company believes that employers should “celebrate employees joining the team instead of thinking about money”.
Providing benefits is an important part of the employment process. Delivering a simplified way to offer, manage and update employee benefits is a crucial part of the program.
Whether your business already provides health insurance to employees or you’re in need of it, Zenefits has got you covered.
For those seeking coverage, the platform offers a marketplace of carriers and plans to choose from. This is based on information like the number of employees, location, and employee age range.
The system then curates a list of full coverage plans, helping you pick what’s most fitting for your team. Moreover, the program provides advisors who can answer any questions you might have and offer support when needed.
One of the more important parts of their program is compliance.
Zenefits helps keep businesses in compliance through the entire HR process. Their Compliance Assistant is a tool that keeps customers ahead of federal compliance deadlines in HR, Payroll and Benefit.
For example, the Affordable Care Act is tens of thousands of pages long. However, the program breaks the law down, simplifies it, automates it to help keep you within compliance. From providing 1095-C forms to monitoring ACA status, Zenefits stays on top of the game so that you can too.
Many entrepreneurs and business owners find themselves having to manage multiple systems. This in turn creates a slew of administrative tasks. Rather than these multiple systems, Zenefits created a single one that businesses can connect their various programs to.
A lot of frustration from running a business comes from the employment process. Recognizing this, the company works hard to eliminate that frustration, with the goal of making employment “hassle-free”.
How Does Zenefits Make Money?
Fulfilling HR tasks costs time and money. Many small businesses find themselves stuck at a crossroads. Hiring an HR department is expensive, a cost many businesses can’t afford.
So they’re left fending for themselves, which deprives them of valuable time that could be spent on more important matters. Unfortunately, many times these businesses start to fail and eventually fizzle out.
Zenefits makes money by acting as the HR department for paying companies. By subscribing to their subscription services, businesses can use the platform’s advanced software to fulfill their taxing HR duties. In exchange, the company receives monthly payments varying in cost per plan.
Zenefits is an affordable HR solution for businesses across all industries, available as a SaaS option.
Zenefits offers a multi-level subscription service for businesses looking to take advantage of their program. Members have the opportunity to choose between three different plans: Essentials, Growth and Zen. Each plan is created based on the level of necessity.
With this plan, members pay only $8 per employee on a monthly basis. In return, they are able to use the platform’s valuable tools and resources. These features include access to the mobile app, a number of core HR tools, and a few other basic necessities.
This mid-level plan offers the same features found in the Essentials package, with the addition of a couple more. For $14 per employee, members can expect to receive an added compensation and performance management service.
With their most comprehensive package, members have access to all that the Zenefits program has to offer. For $21 per employee, businesses can easily manage all HR functions using the platform’s efficient and innovative software.
The company recognizes the risk that comes with forfeiting hard-earned cash for these small businesses. This is why they offer a 14-day free trial without a catch. In this way, Zenefits can share their confidence in the program with users.
Businesses can also purchase additional services for less than 10 dollars per employee.
Instead of purchasing the highest tier of service, members can pick and choose an add-on. In this way, they can carefully curate a package that will be most beneficial to their team.
As a finalist in Disrupt’s 2013 Startup Battlefield competition, Conrad admits “we do something incredibly boring: insurance benefits and HR…[however] we are going to mess stuff up for two very large industries by redefining what it is that insurance brokers do for their clients”.
Taking on the role of an insurance broker for a business’ employee benefits policy proved to be incredibly lucrative for the company.
For example, commission rates vary across insurance companies. Still, Zenefits earns an average commission rate of five percent for each insurance policy sold.
In the US, the highest gross margin segment for Zenefits comes from small businesses with less than 25 employees. This is because many insurance brokers overlook them.
Similar results were found after expanding to Canada, with the highest gross margin coming from businesses with under 100 employees.
Zenefits saw there was a way to turn a profit in a largely untapped market, and took advantage of it. In doing so, Conrad would later earn a coveted spot on Fortunes’ 40 Under 40 list.
Zenefits Funding, Valuation, and Revenue
In a 2016 interview with Traction, Conrad boasted that tens of thousands of businesses had begun using Zenefits. This is 5 times more growth than the company saw the previous year.
And as Zenefits gained momentum, investors such as Comcast Ventures and Augusta Investments LLC started to take notice. They believed that the company could go from a small start-up to a major force in the industry.
In 2015, Zenefits raised over 500 million dollars in a Series C funding round according to an article from TechCrunch. This round, led by Fidelity and TPG, generated over seven times the funding that it did in the last round.
In total, they received approximately $584.1 million dollars in funding over the previous five rounds. This placed the company at a $4.5 billion valuation in a little over two years since its inception in 2013.
Zenefits saw a great many successes early on in its journey, however, the company would soon face a number of controversies.
One controversy alleged that Conrad developed software to illegally help his employees cheat on their insurance certification courses.
Over time many employees and staff began regarding the company culture as inappropriate and toxic. Employee morale eventually decreased, and as the company began to see a decline in revenue, so did investors’ interest.
According to a report from CNBC, Conrad was overpromising to investors, yet Zenefits was unable to deliver. He guaranteed that the company would eventually earn $100 million in recurring revenue by the end of 2015.
Unfortunately, it earned a little more than half of that at $60 million. This dropped the platform’s total valuation by over half, totaling just $2 billion.
Buzzfeed reports that in just six months, Zenefits lost $100 million on revenue of $35.3 million. The company simultaneously spent $97.1 million, projecting a complete loss of cash by the end of 2017.
Conrad resigned in 2016, and shortly thereafter the company let go of over half its employees. This decision was made by newly residing CEO Jay Fulcher.
And in 2020, Zenefits quickly began losing more momentum with many of its small businesses closing down due to Covid-19. Though revenue was rapidly decreasing, Zenefits relinquished control to Francisco Partners. Francisco Partners is a private equity company that invested in the platform to help them revamp and regain their footing.
Is Zenefits Profitable?
According to CEO Jay Fulcher, Zenefits is not profitable currently and will not be focussing on profitability in the near term. They have a big vision and are investing aggressively for growth.
Though Zenefits made big changes in the industry, over time controversies arose, causing their once pristine reputation to crack. And with businesses shutting down due to Covid-19, Zenefits lost much of their revenue.
Zenefits found themselves in the throes of controversy, losing much of their revenue. However, with the naming of a new CEO and complete rebranding, the company looks to be on a smooth upward trajectory.
Whether the company will bounce back is uncertain, however, their rebranding and Francisco Partners’ investment in the company could help.
Conclusion: How Does Zenefits Make Money?
So, there you have it, a complete breakdown of exactly how Zenefits makes money.
After looking closely at this business model, it can be said that Zenefits is a promising solution for small businesses to enjoy the advantages of a cloud-based Employee management system.
We see that the company pays attention not only to the possibilities it provides for employees and employers but also to marketing strategy. In fact, they organize various events, meetups, and webinars to keep their clients up-to-date with new product features and other important information.
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