…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.”
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.
