Is @ClassPass already doomed to fail? Or…

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…are there enough non-working out individuals using the service to subsidize the cost?

What is ClassPass? Well the current generation of gym go-ers hate commitment, they don’t want to sign up for a single gym that locks them into a yearly contract, so instead they are exploring all the different varietys of boutique gyms that exist in the wild. Instead of paying for one place that locks you into their class schedule, they can now go to a place that offers only boxing courses, 10 x a day.  Or a spinning class such as Soul Cycle or Flywheel that offers numerous classes in numerous locations a day.   It ends up costing a lot of money, and in reality 2-3x more than a gym membership would ever cost you if you reach out to these companies on your own, and that’s where ClassPass fits in.

ClassPass allows you to pay a set rate, $99 in NYC a month, in exchange you get unlimited classes with certain restrictions across the area.  Instead of paying $34 per spinning or boxing course, it’s now all included.  If you take more than 3 classes in a month, then it has equaled out and you’re winning the price battle.

The question that we had always wondered about was how much of this was the studio actually getting in return?  And this NYTimes editorial answers that, “ClassPass and the Joy and Guilt of the Digital Middleman Economy“.

It turns out that the magic number is around $18. “For each class booked through ClassPass, the company pays less than the studio’s $18 drop-in rate.”

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That means if you book 5 classes through classpass a month.  ClassPass has made $10 off of you, but the second you book that 6th class, you are now costing ClassPass money.  The business decision is now, are there enough people that are paying for ClassPass that aren’t actually using their account.  Most gym memberships have a large % of people that pay constantly for a membership they never actually use (myself included in a lot of this). But is that the same for ClassPass?  Typical boutique gym go-ers tend to go pretty frequently.

In the editorial there’s already a pretty massive warning flag about this company.

She said the company’s recent decision to raise money was in part an effort to not have to raise its own prices or reduce the amount it’s able to pay out to studios. “It’s not just about discounted pricing but making sure each of these studios is growing,” she told me. “We don’t want to cannibalize their loyalists.”

How this reads is that, they are playing a money game, they are already probably operating at a loss or very close, and the game is that the investors will keep paying for the people that are taking the 6+ classes a month.  Their game plan is that the recently raised funds will cover users long enough so that they can recruit more of the “Non-Gym Go-ers” that will signup for ClassPass but will never use the service, those users will subsidize the cost for the users that go all the time.

The game plan is simple, in January, they raised $40 million in venture capital, bringing its total funding to $54 million.  They need to recruit as many lazy gym users as possible, before that $40 million runs out, or it’s bye bye ClassPass.

  • Super Red

    i calculate that studios that start to use classpass will need to get 4 times the number of their current membership as all their members leave their studio memberships and join classpass. the reason is studios receive just 1/2 the per class rate they charge and because studios receive none of the money when users buy a membership but dont show up or use all of it per month. on average fitness studio users use less than the cost of 1/2 their membershp per month. thus all this membership money now goes to classpass instead of the studios. and you dont even have a choice — you can say no to classpass but since so many studios are already saying YES its too late. so many fitness studios will now be closing. the rest will have double the number of people in them.

    crowded studios.

    classpass is consolidating and efficiently making over the fitness class industry and taking all the money for itself

    • I think ClassPass will just bleed the studios dry eventually, they will win and the studios will lose.

      Already the ‘high end boutique’ trend seems to be fading. SoulCycle used to be packed and if you missed your Monday Noon reservation opportunity you were SOL for the whole week. Perhaps it’s because it expanded, but it seems there aren’t as many full classes as there used to be.

      There’s another studio near me which offers unlimited rides, when they opened they started at $350, and now after not being able to secure riders they are down to $149 and frequently offer free rides to try and secure people.

      I think the studios need to be more realistic with their pricing. Instead of doing class pass and then charging normal people $34ish per class, get rid of classpass and drop down to $20.

      • Super Red

        quote:

        http://www.fastcompany.com/3041413/body-week/how-classpass-transformed-once-pricey-fitness-classes-into-unlimited-fitness

        “But I have heard that some studios are suffering,” she says. “I know of one that’s getting closer to $5 per customer and is at about 90% ClassPass students. They’re losing so much money and can barely afford their rent.”

        —–

        Hi Tiffany, I agree with your $20 price. Looks like the end game here is going to be massive consolidation. Class Pass might end up owning the entire fitness studio industry. The power of the internet is astounding. I could see Class Pass owning the physical studios one day. They will need to do something to keep some studios alive. In one article I read the founder of Class Pass discussed helping to finance studios so they must know the power they have. This is happening so fast. Also, I dont believe any studio owner who says they are converting members from Class Pass to full-timers at their own studio. I think they are posturing for public relations and marketing and out of fear of Class Pass.

  • Super Red

    hey tiffany,

    1. the founder of classpass has stated the average classpass member is going to 4 classes a month. this means the average class pass user is paying $25 per class to classpass. $100/4 = $25.

    2. my understanding is that classpass pays on average $10 a class to each studio — not $18.

    what do you think of those 2 statements? am I wrong?

    a big part of the economics of fitness studios are non-users (those paying but not going to classes) as you so correctly wrote.

    this money is now all going to classpass and not to fitness studios.

    studios are being sucked dry. their classes will be crowded if they are to survive at all. many will close.

    there is an old tale about how concert goers at a lawn concert stand up so they can see the band on stage. the first few people are better off for a few minutes. soon everyone is standing and nobody can see any better then before… but now everyone is standing and are uncomfortable and nobody can sit.

  • Super Red

    update:

    Classpass is financial engineering.
    Classpass founder is already saying they are financially supporting studios.
    Talk about making a deal with the devil, eh…
    Classpass is rolling up and owning the studios without actually having to buy them one at a time.

    The ones that dont sign with them will be gone.
    The ones that do sign with them will be owned by Classpass.
    This is worse than Uber.

    The minute the first studio, the very first signed with Classpass is the day all of them — all the studios — began to fail.

    It makes me a little angry to watch classpass call itself an “expert” and offer “advice” to studios. I cant help thinking a visit from Classpass must be like a vist from the mafia.

    Which industry do you think will fall to this model next?

    article and quote:

    http://www.bizjournals.com/newyork/news/2015/03/25/class-pass-founder-payal-kadakia-partner-search.html

    Kadakia says that treating the studio partners as true partners is key, and that means in some cases offering financial support.

    “We’re helping our studios open new locations. We’re also helping them as consultants and experts in the market when it comes to hiring, merchandising and everyday tasks that they need to be doing, because we can aggregate that across the entire industry,” she said. “We’re also able to look at their ratings and reviews and give them recommendations on how they can improve their facility.”

    Through loans (basically, a pre-payment of revenue from ClassPass) the company is currently helping five or six studios in New York open new locations, she told me.

  • Super Red
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  • Sarah

    Class Pass tried to get us to sign with them. Our drop in rate is $20 and they offered to pay us $8.75 per visit. We chose not to sign up with them…

    • Ottavio

      Sarah did they allow you to set and manage your slots availability?

  • Very interesting to see how this goes.

  • Interesting, but why would non gym goers pay for this service? It doesn’t make sense, it’s not like paying for a gym and then not going…you are essentially paying for an app that will let you maybe go to a gym… not going to fly. I already lost with Wildfire so sad about that and I LOVED their unlimited, but now I understand why that didn’t work.

  • I have class pass & since having it I have been going to 5 classes a week! So I guess I’m costing them big time:)

  • It will be interesting to see how this pans out. I predict CP will have to do another raise. The question is, will they get it? The industry average for members working out in gyms or studios is 4-6 times per month. However, for the early adapters & fitness enthusiasts that typically sign up for an unlimited offer is more like 12-15 times per month. So yea, paying the studios $10 per class puts CP in the red for $20-$50 monthly per user. Which explains why they have been changing their pricing and payments. They tried to get our studio to go down to $7.50 per user visit and when we explained that was not what we agreed to they stated that the $10 per visit was just an example. So we asked what the basis for payments was and they said a formula. So then after our insistence going over their formula they should have actually been paying us $12.50 per class. I have to give them credit for making the right decision and making the adjustment by making it retroactive. But I bet most studios just went along with the payment reduction. Now user’s on the other hand, they have not been happy with the increase in prices and the decrease in class availability. So I have to think there is an opportunity here for someone to come in and get the pricing & growth models right so the business can be self sustaining while keeping the studios and users happy.

  • Guimo Investigador

    I hate Classpass. Classpass policy is restrictive for members. Not flexible, bad customer service. I cancelled and so did ALL my friends. We’d rather pay the studio directly instead of funding mean Payal.