Selling to Employers: Average Deal Size (Part 4)
This article is part of a six part series written by Ryan Russell at HTN sharing his learnings on employer sales. Click the links to jump to any of the other articles in the series:
In this installment of our series on Sales Velocity, let’s look at Average Deal Size of an employer sale. This metrics has two components:
- Quantity: This is likely the number of employees you will be offered to or the number of employees that enroll in or utilize the product/benefit (depending on the next component)
- Price: How you price the offering (flat platform fee, risk-based, Per-Member-Per-Month vs. Per-User-Per-Month or Per-Participant-Per-Month)
We will focus more on Quantity in this section given the type of pricing offered, especially in the early growth stages of a business, relates heavily to win rate % and is a function of what the market requires. For more details on pricing strategies, check out the Win Rate section.
Is Bigger Better?
In terms of isolating average deal size as a single variable in the equation, the answer would be yes. But it’s a common mistake to think that bigger is better here for digital health vendors. Especially early on, the different sized companies have vastly different requirements throughout the sales process and your ability to appeal to those requirements will impact win rate. It ultimately comes down to finding the niche to start with based on which audience your value prop will most resonate with.
There are companies that are much better suited to selling innovative, but simple and standardized products to small to mid-market employers. This approach means that volume through brokers or other more localized means becomes more important.
Others appeal to really big, broad populations that can absorb customizations and demands that come with larger employers. Picking a niche (at least to start) will serve you well.
Let’s take a few examples of vendors and the types of employers they are appealing to:
- Nice Healthcare, an In-home primary care provider is targeting small employers with contract sizes averaging between $50k and $100k. Nice is carving out a nice (pun intended) growth path for itself in a market where everyone is competing for the big fish. This works largely because it’s value proposition resonates with local employers that have most of their employees in one area.
- UnifiHealth, a health insurance TPA startup, is being built specifically for small businesses focused on simplifying benefits.
Larger employer targets:
- Parentaly, a parental leave benefit startup has found more success targeting larger employers because they have larger populations of people (especially women) engaging and struggling with parental leave policies. They have found success landing and expanding via pilots.
- One Medical, another primary care model, is targeting bigger contracts with larger employers given its size. To give a sense of the difference in size, One Medical’s biggest employer contract at the time of its IPO filing was Google, which represented $21 million of revenue in 2018. This was 10% of One Medical’s entire net revenue that year.
Many companies will feel a natural tension to try to sell across segment sizes but the tradeoff can put a strain on both core competencies, organizational resources, and your team’s focus. The differences in selling to these different segments also have a significant impact on roll out strategy as well as who you hire and how you incentivize that team.
Segment your market and focus
Segmenting your market can help you to internally hypothesize which employer segments your value prop will most resonate with by thinking about the factors that will be important across different sizes, industries, employee types, profit profiles, etc. It will also help to organize your marketing outreach efforts if you have prioritized lists of companies and/or markets.
You don’t need a super fancy model or vast amounts of data to get started on this segmentation exercise. Here are two ways to get started:
- If you can pay, MiEdge or Judy Diamond (aggregators of Form 5500 filings - required employer benefit plan filings) are solid sources to start segmenting employers (and brokers/consultants) based on size, funding elements, and broker relationships. Think of the cost of this around $10,000 per year. Lists like these can help with your marketing campaigns if you’re at that stage.
- If you can’t pay, the internet is your friend. Get your Google search on, look at other similar vendor/competitor logo pages to see what companies are willing to innovate/test, search Glassdoor for employee feedback, look at HR conference sponsors and attendees (EHIR, SHRM, etc). Think about who your early adopters might be - for one company focused on maternity leave, they know how important that topic is in tech right now. So they search tech companies around 5,000 - 10,000 employees headquartered in SF, LA and NYC.
Once you have a broader list of companies, start looking at publicly available data – for larger, public companies, what do profit margins look like and how important will cost be? What companies are pushing new boundaries in health and benefits? For smaller companies, what industries have specific employee types that you will resonate with the most?
Once you have your target list based on where you think your value prop will resonate, go back to the number of Qualified Leads article. Leverage those partnerships and/or share that list with marketing to generate those leads, then ask the right questions to these segmented leads early in the sales process. This will help to see what segments you resonate with most. This takes time but thoughtful planning can save a whole lot of churn and energy spent on markets/companies that shouldn’t really be targeted at your particular stage of growth.
Some of you will say, “but I’m just getting started and have no idea who I’ll resonate with so I need to talk to as many people as possible.” You’re right, you will likely need to talk to a lot of people. But you then need to prioritize your time spent because you only have so much of it to fill in the sales cycle that exists in this space (see the Sales Cycle article).
Better to be thoughtful – again, put yourself in the shoes of the buyer and think, who is this really solving an urgent problem for and create a plan to test around that. The quicker you can test and learn what is resonating and with who, the better.
Test Different Rollout Strategies
The quantity in average deal size is also a function of rollout strategy and time. As we discussed in the Employer Primer, employer size plays a massive role in both. With smaller employers, there is less appetite to test products with sub-populations of employees before rolling them out to the full population. However, with larger employers a pilot can be a valuable, if not a necessary, strategy to land and expand over time. To demonstrate this interaction of time and roll-out strategy depending on employer size, we’ve overlaid an illustration on an employer size chart from Statista.
There are some good articles on how to avoid “Death by Pilot” but in summary, when you are an early stage startup trying to gather data, logos and make a name for yourself, it can be a good way to get your foot in the door. However, as you build credibility over time, pilots can start to become a waste of time for both you and the employer. From an employer perspective, they may have to double the amount of work just to cater the marketing and implementation efforts differently to two populations. On the other hand, from your perspective, if you are being offered a “prove it” pilot to 1,000 people in a population of 75,000 employees, that effort may very well be worth it.
Just make sure you are evaluating the impact on velocity over time as this decision will impact average deal size (smaller size with pilots), win rate (more logo momentum) and average sales cycle length (longer cycles to go from pilot to full rollout sale).
Hire and incentivize your team accordingly
As you think about building out your sales team, this is where targeting a specific type of employer customer can help you in deciding how to build out the team.
Large employers typically have many stakeholders, rely on lots of data, and need change management help throughout the process. Obviously hiring someone with a bunch of trusted relationships is a great move. If you can pluck someone senior from the Mercer’s, Aon’s or Willis Towers Watson’s of the world who has established relationships with employers, that can be a huge leg up. But what if you don’t have those connections or are struggling to find someone willing to take the risk jumping into a start-up? This is where customer segmentation matters, as the answer depends on the type of employer you’re targeting.
If you’re targeting sales to large employers, think about who you want leading those long, complicated sales efforts. Empathetic, soon to be ex-consultants (meaning non-benefits consultants, i.e. the McKinsey’s, Bain’s, BCG’s, Deloitte’s of the world) who live and breathe stakeholder management processes through data driven approaches fit the bill here. Or what about someone working for an employer benefits team who is looking for a new, innovative challenge that has actually sat in the seats of these buyers and brought ideas forward to leadership?
Smaller employers typically have more personal relationships with their employees and operate largely through brokers, which can require a bit of a different skill set. Who is the person that can speak their language, wants to host local events, can develop deeper relationships with local/regional brokers, and think creatively about different partnerships? Up and comers from these brokerages who know what makes the employers tick, understand the incentive models and know how to make the brokers look good can make strong candidates. Sales or partnership folks at larger insurers who have relationships or understand the broker market in certain regions well. Or what about a smart med device or pharma rep who can apply similar frameworks but wants out of the Doctor’s office?
Going back to the “Partnerships” section of the Qualified Leads article, you can also think about external relationships to augment your internal teams. Nice Healthcare is a good example of creating a distribution partner by entering in an agreement with Agility Innovation Partners to drive growth in new markets through the relationships it has with broker networks.
As you’re building out your team / strategy, you need to be thoughtful about how you are compensating for success. For example, say your company is looking to bring in larger employers, and you get stuck in a typical sales cycle: a 100,000 employee customer wants to pilot with 1,000 employees. From that, you get 10% utilization, or 100 employees using your solution.
While that may be a massive win for the company as a whole (think of all the VC funding knocking on your company’s door from that logo on a slide!), if you incentivize your sales team by the number of employees that sign up in year 1, you’ve created a misalignment of incentives in your organization.
That salesperson, who just brought in a major customer that could be poised to grow significantly over the next 5 years, is incentivized to be twice as happy selling a 2,000 employee company without a pilot where they can enroll 10% of the entire company, 200 employees, in year 1. This sort of incentive misalignment only creates frustration and churn over time, both with your employees and your customers.
Key Questions To Ask
Asking a few key strategic questions can help define what your needs are for your sales organization:
- Do we need big company logos (regardless of full roll-out or pilot) to drive brand awareness and confidence?
- Do we need deep partnerships established with key brokerages driving concentrated sales in certain markets?
- Are we focused on a land and expand strategy or do we need to achieve full scale roll-outs early on?
- How do we think about “Available population” vs. “enrolled population” and how do we incentivize our broader team outside of just sales across those definitions?
- How can we effectively support the sales team with operations and marketing, and what does that mean from a reporting / organizational structure?
By clarifying the answers to these questions, you can build better alignment throughout the organization.
If you price based on enrollment or utilization, get really good at selling that
There are startups that price based on total eligible employees and those that price based on employee enrollment and/or utilization of a benefit. If your pricing strategy is the latter (which we talk more about in the Win Rate section), then your average deal size is affected by the number of people enrolling in or using your benefit.
This is another topic that could warrant a separate article for itself. All too often, digital health players win deals with employers and end up projecting substantially higher uptake rates than what actually materializes. This is not just an issue smaller startups face, even big players perpetually do this as well. Let's take a look at a few examples of the challenges that can occur in enrolling employees in benefits that are offered:
- The State of Delaware & Livongo:
The State of Delaware implemented Livongo and based ROI / savings calculations off of enrollment of ~3,600 diabetics in the program. Enrollment rates in Livongo were less than half of that, at ~1,600 diabetics enrolled. Source:
- City of Boston & Virta:
Virta, in a pilot with the city of Boston identified 1,600 individuals with Type 2 diabetes. After 9 months of go-live, they had recruited 166 active enrollments. Source:
Setting yourself up for success to drive enrollment often happens before the sale is even completed, which is an internal, cross-functional feat. You need to account for the needs of multiple stakeholders within your organization, so they can be set up for success in enrolling employees:
- Sales / Account Partnerships (AP): Can you get access to employee emails you are being offered to?
- Account Management/Partnerships (AM/AP): Do you understand the employers’ and employees’ needs such that you can adequately address them during open enrollment?
- Product: Are there any customizations that need to be completed specific to the enrollment process that you can, and are willing to, accommodate?
- Marketing: Are you in control of the marketing collateral or is the employer calling the shots? What other freedom do you have to get in front of employees?
It’s always important to remember that the employer benefits and marketing teams are busy so the more help and resources you can offer up, the more likely they are to implement your ideas (with some exceptions).
Tactics for Success Enrolling Employees
There are a number of ways you can set up your organization for success in terms of enrolling employees in your benefit after an employer agrees to offer it:
Things you can do inside your organization as a vendor:
- Make sure you provide the right decision making authority and resources to a single person/group to do what is needed to drive uptake, including testing and iteration. What happens when the revenue team is accountable for the number of enrolled employees but marketing holds the budget and resources for the campaigns, collateral, etc..? Who gets to make final decisions on what strategies and tactics to employ? If not done effectively, this can lead to infighting and reactionary tendencies that hinder results.
- Make sure you align your internal planning around the benefits open enrollment and/or budget planning cycle. We’ll have more on this in the article on Average Sales Cycle length, but if most open enrollments occur in October through November, then work backwards from there.
Things that you can do with your employer customer (& their employees):
Employers - have limited time/resources and need to coordinate across all other benefit offering campaigns. Some ideas for how to make life easier for them:
- Create a daily campaign schedule for them to leverage - collateral delivery, email content and sent dates, webinar date and hosting asks, etc.
- Script emails and presentations and provide collateral options to choose from
- Pay for engagement incentives (but under the limits that create tax issues)
- Develop simple digital tools that can be linked on their benefits portals
- Host webinars and provide feedback early and often
- Be transparent about both what has and hasn’t worked well for other similar employers (similar in organization type, types of employees, locations, etc…)
- Support in monitoring and outreach in employer internal and external comms channels (message boards, slack, reddit, etc.)
Employees - have limited attention spans and a lot of information to consume, so make it easy for them to do so by:
- Give them something they can remember and associate with a good emotional connection
- Providing simple digital tools to understand the benefit
- Giving a trial during annual enrollment
- Providing access to live support and be extremely responsive (first impressions go a long way)
- Get creative and leverage word of mouth sharing among employees
- Be authentic and transparent - employees know when they are being sold to
- Strive for placement where they are going anyway (e.g. a tile next to the “Enroll now” link is worth far more than a stand alone email that will likely be deleted as spam)
Collective Health is an example of a company that has both taken the creative onus off employers and leveraged word of mouth with employees very well. Check out this article about Box’s experience with Collective’s Open Enrollment:
And when it came time to get Box employees—fondly referred to as “Boxers” at the company—engaged during Open Enrollment, Collective Health hosted a handful of curated events to deliver Boxers their benefits information in an accessible, easy-to-understand way. With several Collective Health ambassadors on hand for events ranging from a gelato stand to a puppy adoption pop-up, Kramer felt confident that Boxers got the answers they needed to their benefits questions.
Yes, you read that right, Collective hosted events including a puppy adoption pop-up. What do puppies have to do with healthcare benefits? Nothing at all. But what better way to make a positive emotional connection than with puppies? It’s a great way to start the conversation and build awareness with employees.
Taking these tactics can help avoid the common trap of winning the business with an employer only to lose by not enrolling a meaningful number of employees. There is nothing worse than a disappointed employer after you predict substantially more employee engagement than actually materializes (and spend an incredible amount of your organization’s time doing so). Being thoughtful about how you attract employees can make all the difference.
The impact that average sale size has on velocity is more complicated than just maximizing the number. Understanding the customers - both the employers and the employees - that you will resonate with most may mean you proactively choosing smaller vs. bigger.
Finding an average deal size that works well with the rest of your sales strategy is a key ingredient in maximizing your sales velocity equation - if you’re targeting the wrong deal size for your organization, it negatively impacts all of the other key metrics in the equation.
Now let’s move to the next key metric in the sales velocity equation, your Win Rate.
Jump to other articles in the series: