Recently, the hottest startup of 2014, Zenefits raised another $500 million and got a $4.5 billion valuation. Time for us to analyse their business model, how are they making money from their ‘free’ HR software?
Let’s start with the product, Zenefits is offering free cloud-based HR software to any company. So companies can centralise all of their employees’ information in one dashboard, which is a big win. In this dashboard, there are suggestions for health care insurance plans, which the employer will pay for.
In the USA, every company has to offer their employees minimum health care, and there’s the problem that Zenefits is really tackling. Zenefits is operating as a broker here, they get 5% of every health insurance purchase. As you can see in the business model, an employee finds the right insurance plan, his/her company pays to the insurance company, and they give a 5% fee* to Zenefits. So in fact, all Zenefits has to do, is keep their HR software up-to-date according to the US regulations.
To wrap up:
- Zenefits offers free HR software to companies
- Zenefits offer free publicity to insurance companies (in the HR software)
- When a company finds the right insurance plan, they pay to the insurance company
- The insurance company pays Zenefits 5% commission
*according to Forbes