Don’t Count B2B2E as B2B2C – It’s Just Different

As industries, functions, and channels evolve, buyer behavior becomes more specialized. This is certainly true of what we call “Business-to-Business-to-Employee” or “B2B2E” distribution, where a business purchases a product to service its employees. Historically, B2B2E has been conflated with “Business-to-Business-to-Consumer” or “B2B2C” distribution. However, the B2B2E go-to-market motion has now become sufficiently identifiable and distinct, and we believe it should stand independently.

In this piece, we will describe the unique features of B2B2E, why it is growing fast, and how to win in it. We will also explore the role B2B2E companies play in Rebalance’s investment thesis and why the channel can now deliver both venture capital returns and upward economic mobility.

Distinguishing Between B2B2E, B2B2C, and B2B

B2B Enterprise Sales and B2B2C are well-known distribution channels, but the difference between B2B2C and B2B2E has been overlooked. B2B2C businesses serve consumers, while B2B2E targets employees, requiring a deeper understanding of organizational structures and HR procurement processes.

Notably, a B2B2E solution is typically initially a cost center before it yields a return on investment. A CHRO must justify cutting cents from company EPS to purchase it. Often, the rationale is reducing talent acquisition costs or improving employee retention, which increases productivity, or if the firm has a Diversity, Equity, and Inclusion (DEI) objective that is challenging to meet. This is typically achieved through interventions that improve employees’ personal circumstances. Financial stress is an example, and some common solutions we see around this theme are earned wage access, student loan repayments, tuition assistance, emergency savings, or PTO liquidity.

In contrast to B2B2E’s cost center orientation, B2B2C solutions focus on delivering revenue and customer retention, typically through cross-selling or engagement solutions. B2B enterprise sales can be either revenue or cost center. When it is the latter, the value proposition is not centered on employee wellbeing but rather enterprise-level value like efficiency through workflow automation, working capital management with accounts receivable tools, or sales enablement and efficiency.

To illustrate, consider Guild , DailyPay , Affirm , and Workday ’s distinct models.

Note that as for B2B2C, B2B2E distribution models need direct access to the end users and their data.

Given these definitions, of the 55 HRTech segments Rebalance monitors, B2B2E go-to-market motions are most typical in Health & Wellbeing, Financial Wellness, Retirement, Coaching, HR Career Development, Learning & Development, Education Financing, and PEOs – all of which clearly benefit an employee’s livelihood, not just work productivity.

The Rise of B2B2E

For the past twenty years, employee benefits spending has grown ~15% faster than cash compensation. Labor markets remain competitive, and HR has become increasingly complex due to diversifying workforces with diverging demands. As a CHRO shared in a roundtable with Rebalance Capital: “One-size-fits-most no longer works.” All of this has spurred companies to invest in employee-centric innovation.

The evolving needs of?employers and employees have driven technology mobilization. Gartner predicts that over 95% of employers will adopt cloud-native platforms by 2025, up from 30% in 2021. Moreover, while APIs have been around since the early 2000s, they accounted for 71% of internet traffic in 2023, according to Imperva, and 92% of organizations plan to maintain or increase APIs, according to Postman. Crucially for B2B2E adoption, 65% of organizations use Partner APIs, according to RapidAPI. And while embedded finance has been a hot topic for a decade now – think early Affirm – embedded workforce technologies are only now gaining momentum.

The emergence of this go-to-market motion also reflects the elevation and evolution of the CHRO role. Gone are the days of the administrative-centric David Ulrich three-legged stool HR model: business partners, centers of excellence, and shared-service centers. CHROs are now the architects of change, designing and implementing employee experience, dictating workplace culture, and supporting a fast-evolving workforce. The function is more nuanced, sophisticated, and innovative – and using generative artificial intelligence is a critical strategy in this new era (here is the honorary AI mention every tech article requires!).

The B2B2E Opportunity and How to Commercialize It ?

According to the BLS, the average cost of benefits per employee is $14.41 per civilian hour worked. Across 168 million workers in the US, this represents an annual employer spend of $4.8 trillion. Employers also support 53 million retired professionals through partnerships with recordkeepers and the retirement industry, according to the Social Security Administration. Needless to say, this market is vast, but winning it requires a win-win value proposition for employers and employees.

The Buyer: The primary buyer in the large enterprise market for B2B2E solutions is, of course, the Human Resources suite. However, the CFO is a critical stakeholder and often the final sign-off. So as a company develops its case against HR’s priorities, it should also design it for a finance office audience. One suggestion is to prepare an ROI analysis – a metric relevant to cross-functional stakeholders. ????

Pricing Models: In the constantly evolving WorkforceTech market, consistent pricing models exist. These models usually take the form of annual or multi-year contracts.

• Price Per Employee Per Month (“PEPM”): Subscription-based pricing based on the total number of covered employees.
• Utilization-Based Pricing: Pricing is determined by the number of enrolled employees, not those potentially supported.
• Tiered Pricing: Like typical SaaS pricing, a startup may offer volume-based discounting but avoid the variability of employee counts at a single point in time. For example, a firm may offer $240,000 for 10,000 to 24,999 seats but $300,000 for 25,000 to 49,000 seats. ?
• Marketplace Revenue Share: When a company is aggregating and delivering external capabilities (e.g., educational courses) to employees, it typically earns a take-rate on transactions. The distinction from utilization-based pricing is delivering aggregated versus proprietary capabilities.

In a recent Rebalance roundtable on FinTech & The Workplace for HR and Financial Services leaders, a CHRO said: “Please, not another PEPM.” This is the most startup-friendly model, and we are seeing pressure to shift toward utilization-based pricing. The challenge for founders is that unit economics become deeply variable and less predictable. Employees churn or undergo layoffs, among other events. A compromise is tiered pricing if upfront discounts or implementation waivers do not work.

We do see a meaningful divergence in HR-focused FinTech products. The most active segments are infrastructure (e.g., earned wage access, retirement, flexible spend accounts), emergency loans and savings, or brokerage/marketplace businesses repositioning existing insurers’, banks’, or lenders’ products for the workplace market. We will not dig into these here, but their pricing models align with traditional financial services.

However, going directly to the employer is not the only game in town. There are also channel partnerships - or B2B2B2E(!) - where companies partner on distribution with organizations like payroll providers, record keepers, and HR management systems already serving many employers. Like SaaS, distribution partnerships are monetized through revenue shares, flat fees, or implementation fees charged to the end employer or the distribution partner. Alternatively, firms may invite a trusted partner to engage their enterprise customers because they lack the competency, and in a customer-centric culture, the channel partner wants to ensure their clients are well looked after.

Keys to Success for Founders in B2B2E?

HR buyers aiming to benefit their employees have distinctive buyer behaviors, both in terms of how many vendors they want to partner with and product preferences.

1. If you are not a core benefit, you should deliver a platform with domain expertise, not a point solution. HR professionals increasingly prefer vendors offering a range of solutions within a domain. Enterprise HR leaders typically go through vendor compliance for each firm they onboard, so platforms reduce the need for multiple onboarding processes. The time commitment to onboarding a point solution is just too challenging unless it is a core benefit (meaning a mission-critical or legislatively required benefit). Moreover, HR is more likely to purchase a solution offering multiple modules because it provides scalability and flexibility for both parties to benefit. For example, Summer , a student debt management platform, goes beyond plan optimization: it assists with retirement matching following the introduction of Secure 2.0 (which includes an incentive for employers to match student debt payments into retirement accounts) and offers tuition assistance. Only two out of the 15+ players we evaluated in the student debt market met HR’s overall student debt domain requirements.
2. A clear “win-win” proposition for Employee and Employer. Cost savings alone are not enough for the HR leader if the offering hinders the employer’s brand or ability to attract and retain talent. Similarly, the product must clearly contribute to organizational sustainability or productivity as well as employee wellbeing.
3. The employee experience matters. A significant challenge for HR leaders is communicating the benefits of new capabilities to employees. Utilization is often disappointingly low, with 10-15% seen as a success, depending on the category. Assuming this hurdle can be met, 92% of HR teams prioritize Employee Experience. A rep-assisted model is more effective than just another chatbot.
4. Enterprise demands enterprise-grade. Employers need security, compliance, customizability, integration-friendliness, and scalability. A CHRO will only accept a technology with robust data security, governance, and compliance infrastructure, regardless of the potential impact. Critical certifications include SOC2, ISO, HIPAA, PCI DSS, and GDPR.
5. ROI is a critical KPI. As with any enterprise sale, companies need to show measurable ROI from their value proposition and its second-order effects. Businesses with clear outcomes are more likely to be shortlisted by HR decision-makers.

The Role of B2B2E Models in Upward Economic Mobility

At Rebalance Capital, we aim to propel upward economic mobility for low- and middle-income communities by rethinking and mobilizing financial security and career success.

According to Census data, only 24% of Americans benefit from federal social safety net programs. Most low- and middle-income individuals receive critical benefits elsewhere. Increasingly, the employer is providing the safety net, and we believe B2B2E solutions can reduce barriers to wealth-building opportunities that have been out of reach for these communities.

We are seeing HR structuring partnerships or embedding technologies to address barriers to upward mobility, such as:

• Financial planning and retirement savings: 70% of Americans do not have a defined benefit pension through an employer, and 33% do not have a retirement account, according to the Federal Reserve.
• Healthcare costs and medical insurance coverage: 43% of adults with employer-sponsored insurance still struggle to afford healthcare, according to the Commonwealth Fund.
• Student debt: 45 million Americans owe a total of $1.59 trillion in student loans, according to the Federal Reserve of New York.
• Upskilling and reskilling: 64% of employees say they need new skills to stay relevant, according to a Gartner survey.
• Childcare support: 52% of parents report difficulty finding affordable childcare, according to the Pew Research Center.

By offering subsidized or low-cost access to these services, employers can help level the playing field for their employees, leading to improved productivity and retention. For example, a study by the Employee Assistance Professionals Association found that employees using Employee Assistance Programs experienced a 26% reduction in stress levels and a 24% improvement in overall wellbeing. Moreover, 60% of employees are more likely to be retained with financial wellness benefits, according to the Financial Health Network. Rebalance Capital aims to accelerate the growth and impact of B2B2E companies, contributing to a more equitable and prosperous society for all.

About the Author

Josh Tanenbaum is a Founder and Managing Partner at Rebalance Capital, a Series A and B FinTech and WorkforceTech venture capital firm propelling upward economic mobility for low- and middle-income communities. Josh has advised CHROs and C-Suites of Globally Systemically Important Banks and Insurance Firms, Fortune 500 companies, leading Asset Managers and FinTechs for over a decade, including as an investment banker at Citi and human capital consultant at Korn Ferry. He has presented at The White House, judged the Clinton-backed Hult Prize, and previously served on the External Advisory Board of the University of Michigan Ross School of Business’s Erb Institute. Founders partner with Rebalance because of its established trust with Human Resources and Financial Services leaders, its sector expertise, and because of how hard we work for them! Learn more at www.rebalancecap.com.