Why are so many mental health brands focused on B2B?
Over the past 5 years, there have been hundreds of digital mental health startups founded, many that have reached a stage of maturity, and many more that have died off. Everywhere you look, mental health companies are focused on selling to employers and payors. Companies like Spring Health disrupting traditional EAP offerings, Headspace and Coa selling to employers, and even Talkspace recently announced their earnings were down to a decrease in D2C advertising to move their focus into B2B.
According to Pitchbook, "Venture capitalists poured nearly $6.9 billion into US-based mental and behavioral health companies in 2021, almost three times what the category collected in 2019." Companies like Cerebral raked in more than $300 million of that. So where's this money going? Apart from salaries, and operating expenses, the top 10 or so mental health brands are collectively spending north of $50 million on social media and online advertising. The LA times reported that BetterHelp spent $7 million on podcasts alone last December.
The state of mental health across the world hasn't gotten drastically better over the past few years with all these new offerings. The global pandemic is one obvious reason. The list of potential causes and recent world events is tragically long.
Mental Health America found that suicidal ideation continued to increase among adults. The percentage of adults with a mental illness who report unmet need for treatment has increased every year since 2011. Over 60% of youth with major depression do not receive treatment.
So, if the need is so high, why are mental health companies so focused on B2B and not direct-to-client?
There are a number of reasons that all contribute to the system. The reasons hold a different weight to the individual.
- Insurance. It's incredibly difficult to get insurance to reimburse for things outside of actual care like a therapy appointment. It's also incredibly difficult to understand what benefits your insurance provides and thus many companies are recognizing the need to get clients to pay cash pay or adopt it through their employers.
- Client Acquisition Costs. With the amount of VC funding that has poured into mental health companies, there's more competition for AdWords and ad space on social media than ever before. Talk to any paid social marketer and they'll tell you how much the cost has gone up. If you work in the space it's probably not a surprise, your Instagram feed is probably filled with ads from Cerebral, BetterHelp, Real, Talkspace and others.
- LTR. The lifetime revenue of a client must be higher than client acquisition costs and if CAC is increasing that puts a stress on lifetime revenue. Unlike other industries, it can be incredibly unethical to push for greater lifetime revenue of a client in healthcare.
Let's look at LTR vs CAC in subscription models.
Let's say a subscription plan for access to therapy is $100 per month and the client acquisition cost is about $200. The first two months revenue from this client are only addressing the client acquisition cost, the cost from social media marketing or partners. So, what about the revenue that goes towards paying the clinician? Time to play catch-up. What about the revenue to cover the developers, the executives, the technology costs? Time to play catch-up. In order to be profitable in these models, organizations are banking on long-term subscribers regardless of the needs of the client - it's the only way they can reach profitability.
However, there are a number of services that are moving towards content-based subscriptions, Real, Coa, Mine'd, and Remble to name a few. This model was first popularized in the wellness space by meditation apps Insight Timer, Calm, and Headspace. While retention in these platforms is not as much an ethical issue as therapy, it can be incredibly difficult to get users paying for access and spending time on preventative care.
|Photo from apptopia|
While Calm and Headspace's usage skyrocketed during the pandemic, it appears their usage has gone back as COVID restrictions lifted. If you take a closer look at the numbers on the chart it appears Headspace's monthly sessions has gone from about 115M to 50M while Calm has gone from 225M to 125M.
According to Business of Apps, in 2020, Calm had only 4 million paying users after 100 million app downloads. With many mental health platforms offering extremely little free content, a 4% conversion rate is a tough pill to swallow for a direct-to-client go-to-market strategy.
Meanwhile, when selling to employers the revenue model is entirely different. The most common model of charging a per member per month model means these platforms are making money whether users log in or not. This part is speculation; however, historically, platforms charge companies based on the number of employees.
For example, a company covers the cost of Meditatio, a made up app for this exercise, at a cost of $3 per employee per month. A company with 100 employees is now spending $300 per month. If the same app costs $10 per month direct-to-consumer and we assume the same 4% conversion that Calm, then our app would only be making $40 per month direct to consumer.
There you have it. $300 per month vs $40 per month. Selling a per employee per month cost to businesses allows for greater client acquisition costs and leads to greater overall revenue. In an industry with 4% conversion, a B2B model that has a price just 10% of the DTC cost is still earning 2.5X what the DTC would earn.
Selling to employers also gives apps and platforms the ability to sell based on ROI. Lost productivity due to mental illnesses costs the United States billions of dollars every year. If a company with 100 employees gets just a few hours of extra productivity per month thanks to our app then the app pays for itself. If the benefit helps them get slightly better talent, it pays for itself. The employer only needs a 4% conversion to see the benefits.
Do you pay for one of these apps? Does your employer?