Launched in 2013, Zenefitsserves as an HR service provider. It has been going strong for almost eight full calendar years these days.
After reaching a staggering $4.50 billion valuation within two years of its launch, it has been on a rollercoaster ride ever since.
Zenefits is an HR software solution that was founded in 2013. They were able to raise $500 million in funding in 2015 at a valuation of $4.5 billion. This shows that they must be doing something right. However, we wanted to know how they made money. So, let’s dig into their business model.
There’s lots of confusing info out there about how Zenefits actually generates revenue. We decided to dig deeper and list down all of their revenue sources.
Zenefits charges companies for its services by charging monthly subscriptions. It helps them automate their human resources processes.
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Zendesk is an online service for customer support. It helps companies manage their internal operations by making things like onboarding, open enrolment, and payroll easier with the click of a button.
Read on to learn the reasons why this “incredibly boring” company was once worth $4.5 billion within just two short months after its launch.
Business Model of Zenefits
Zenefits, a popular HR management service, operates on a subscription basis. It offers its services through an online platform that allows users to track employee benefit plans, pay hourly workers, and improve their own skills.
According to Conrad, the startup isn’t in the business of inventing a new market; they’re just trying to expand on an existing one by delivering better products and services, as well as a smarter way of doing things. The startup is about problem-solutions.
Zenefits was founded with a mission to help smaller companies succeed by making their HR processes easier and less costly.
Small business owners drive our country’s economic success. We want to help them succeed by creating a fair environment so they don’t feel ignored.
With Zenefits’ streamlined automated system, employers don’t need to worry about managing payroll anymore. They can instead focus on what’s important in their own businesses.
From recruiting to performance management, Zenfits takes care of everything for you.
Businesses can quickly create compensation packages for new hires and offer them jobs through their own online systems. New hires can then sign up for these positions without having to go through an HR department.
Employees can also access their files through the organization’s mobile app. This allows employees to update their files, ask for leave, and more.
If there is any change in the software, then the program automatically updates all the other areas too. This saves a lot of time since we don’t have to individually update all the different areas.
All these features are available to both full-timers and part-timers, freelancers, consultants, and more! The HR package is the perfect fit for every small business.
It’s essential for companies to take care of their employees by paying them fairly and on schedule, but it can be a challenging task.
Here is where ZenDesk comes in.
With Zenefits’ help, business owners can easily track employee hours, paychecks, and benefits. They can even use the company’s online scheduling tool for flexible working arrangements.
Zenefits also offers business owners a tax management solution. It helps them manage their payroll, taxes, and employee benefits.
Some of the many benefits that companies can expect to enjoy when they become part of the Zenefits family include celebrating their new hires instead of focusing on money.
You need to provide employees with a simplified way to offer their own benefit plans.
Whether your company already offers health coverage to its workers or you’re looking for one, Zenefits has you covered.
For those who want insurance, the company provides a marketplace for insurers and plans to pick from. It bases its decisions on factors like the number of employees and their ages.
After you enter your information into the system, it will help you choose the best plan for your business. It will also provide you with an advisor who can answer any questions and give you advice if you need it.
Compliance is one of the most important parts of their programs.
Zenefits’ Compliance Assistant makes sure that companies stay compliant throughout the entire HR process. It helps them stay ahead of federal compliance deadlines and ensure their employees get paid on time.
For instance, the Affordable Care Act (ACA) is hundreds of thousands of pages long, but the program simplifies it, automatizes it, and keeps you compliant by making sure you’re filing the right paperwork. Zenefits makes sure you don’t miss any deadlines, whether they be for submitting 1095-Cs or keeping track of your health insurance coverage.
Instead of managing multiple different software applications, many entrepreneurs and business owners find they need to manage just one system. However, rather than doing so, Zenefits has developed a single application that businesses can use to integrate their various programs into a single platform.
Businesses go through a lot of frustration from the employment processes they use. Recognizing this, companies work hard to remove that frustration by eliminating the employment hassles.
How Does Zenefits Make Money?
Small business owners often face a dilemma when they realize their company needs human resources but don’t want to spend the money necessary to hire someone full-time.
Because they’re left alone, they don’t get enough attention from their clients, so eventually, they go under. Sadly, many times these business owners end up failing and then disappear altogether.
Zendesk makes money by providing customer service support through its web application and mobile apps. Businesses pay them a fee for each ticket they receive.
Zenefits is a cost-effective human resources (HR) software platform available as a Software as a Service (SaaS) option.
Zenefits offers three different subscription packages for businesses: Essential, Growth, and Zen. These packages are based on the business’ need for services.
With this plan, employees get their own personal account for just $8 per month. They can then take advantage of the company’s valuable tools, including its mobile app, a number of core HR tools, and some other basic necessities.
With this mid-level option, members get the same benefits as the Essentials version plus two additional ones. For $14 per member, they can get access to an extra compensation and bonus program, and additional HR services.
With its most complete package, members get everything the Zenefits program offers for $21 per employee. Businesses can efficiently use the company’s powerful software to manage all human resources tasks.
The company understands the risks associated with giving away money for free and therefore offers a 14-day free test period without any strings attached. In this manner, Zenefits can demonstrate its confidence in the product by offering a free trial.
Some companies can even buy additional services at prices below ten dollars per employee.
Members can select from any number of services offered by the company. By doing so, they can create a custom bundle that best suits their needs.
As a finalist at Disrupt SF in 2013, Conrad admitted “We do something incredibly boring: health care benefits and human resources…However, we’re gonna mess things up for two very large industries by redefining what it is that insurers do for their clients.”
As an insurance broker, taking on the role of an employer’s employee benefits plan was extremely profitable for the company.
For example, commissions vary across different types of insurers. However, Zenefits earns a five-percent average rate for every new customer they sign up.
Small business owners who use Zenefits’ services tend to be overlooked by their local insurance broker.
A similar result was observed when expanding to Canada, where the highest gross margins came from small businesses with less than 100 employees.
Zenefits realized that there was an untapped market for HR software, and decided to take advantage of it. By taking advantage of this new market, Conrad would go on to be named one of Fortune magazine’s “40 under 40” leaders.
Zenefits Funding, Valuation, and Revenue
According to an interview with Traction, Zenefits CEO, Adam Conrad, boasts that tens of thousands of companies have started using his platform, which is five times more growth than they experienced last year.
As Zenefits grew in popularity, investors such as Comcast Venture and Augusta Investments LLC began to believe that the company could become a major player in the industry.
According to an article from Techcrunch, Zenefits raised $500 million in series C funding in 2015. This was 7X the funding they received in their previous funding rounds.
Over the last five rounds of funding, the company has raised $584.1 million from investors including Google Ventures, Andreessen Horowitz, and Kleiner Perkins Caufield Byers. It currently has a $4.5B market cap.
Early on in its career, Zenefits saw many success stories, but these would soon be overshadowed by controversy.
Some people claim that Conrad helped his employees cheat on their health insurance certifications.
As the company culture became increasingly negative, employee morale declined and investor interest waned. Eventually, the company saw a decrease in revenue.
According to a recent study by CNBC, Zenefits CEO Parker Conrad promised investors that his company would eventually generate $100 million in recurring revenues by the year’s close, but he failed to meet that promise.
It was unfortunate that it made less than $50 million. This dropped its overall value by almost 50%, totaling just $2 billion dollars.
According to Buzzfeed, in just six months’ time, Zenefits lost over $100 million on revenues of $35.3million. At the same time, they are projected to lose over $300 million in cash by the end of next year.
After Conrad resigned in 2016, the company let go of nearly half of its employees. This happened after new CEO Jay Fulcher took over.
And in 2020, the company lost even more momentum when many of its smaller clients shut down because of the coronavirus pandemic. Despite the rapid decline in revenues, the company handed off control to a private equity firm called Francisco Partners who were willing to invest in the platform to give it a chance at revival.
Is Zenefits Profitable?
According to CEO Jay Fultz, Zenefits is unprofitable at present and has no plans to focus on profitability in the near future. They have a big dream and are putting significant resources into growing their business.
Despite making major changes in the industry, Zenefits has been plagued by controversy for years. And now, with businesses closing because of coronavirus, they’ve lost most of their revenue.
After experiencing some major setbacks, Zenefits was able to rebound by hiring a new CEO and completely rebranding itself.
It remains uncertain whether the company will recover from its recent setbacks, but the company’s rebranding and Francisco Capital’s investments might help.
Conclusion: How Do Zenefits Make Money?
Here’s a summary of how Zenefits makes its revenue.
After examining the features of this particular employee management software, it seems that Zenefits could be a promising solution for small companies to enjoy the benefits of a cloud-powered Employee management system.
They pay close to no mind to marketing strategy; instead, they focus on providing opportunities for both their staff and their customers.
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