ClassPass Business Model & Understanding How does ClassPass Work

ClassPass Business Model & Understanding How does ClassPass Work

ClassPass Business Model
ClassPass Business Model

About ClassPass, Founder, Funder and Facts

Happy New Year People!  Well 2016 ended on an awesome note for Uniconomy.  UE was voted as one of top 100 startup blogs in the world (at #50).

Yes, World!

We were featured amongst the likes of TechCrunch and all… Thanks to FeedSpot Team for the honor.  Well I haven’t been much regular here and I plan to be more regular – will move to a better hosting (VPS) and add a subscribe button for you guys + post more interesting stuff.  Let’s move on to ClassPass Business Model.

ClassPass is a half unicorn fitness aggregator startup based in USA & offers a monthly subscription service to get access to programs of fitness classes in America, Canada, Australia and UK.

ClassPass Founders: ClassPass is founded by Payal Kadakia, Mary Biggins & Sanjeev Sanghavi, he left in January 2014.

ClassPass Funding: $84 Million in 5 rounds from 29 Investors which include – GV, General Catalyst Partners, Thrive Capital, Acequia Capital (Acecap), Fritz Lanman,Hank Vigil.

ClassPass Valuation: Last round valuation at $500 million.

ClassPass Business Model

ClassPass
How does ClassPass make Money

ClassPass Business Model is a Subscription based business model example.  Before moving on to the business model of classpass lets first understand how does classpass work.

How does ClassPass Work

How does ClassPass Work
How does ClassPass Work

ClassPass originally started out as DabbleNYC which moved on to Classtivity which was a SaaS based registration system / ERP / CRM tool for fitness studios which did not receive much traction from the target customers. Eventually Payal understood that this doesn’t sell because of the inherent “vacant seats” at the class which are money losers for the owner (thus no interest towards an ERP or a CRM).

Then she came up with a model that was like Groupon – Discounted seats at the end of the life cycle of the class (date of the class).  This explains how does classpass work where the user (fitness wannabe) enrolls with classpass and the following flow of events occur.

  1. ClassPass enrolls Fitness studios
  2. These Fitness studios grapple with empty seats in the programs
  3. User enrolls on ClassPass
  4. ClassPass then gives clubbed discounted rates to user for multiple variety of fitness classes
  5. These users are then directed to empty seats at Studios
  6. restart at 1 for next user

You will also want to Read: The FRAUD Theranos Business Model

How does ClassPass Work

Thus ClassPass really works on the AirLine – OTA relationship kind of the model.  Wherein depending on the time and route if the airline is going half full the remaining seats are sold at a discount on the OTA website towards the date of journey.  ClassPass also intends to do that – towards the beginning of the course they sell the tickets to users at a discount and their is no need to book the entire course, user can attend the course in 1-2-3 multiple classes as much as they like.

ClassPass Business Model

ClassPass makes money by selling monthly subscriptions, which allow fitness wannabes to take exercise classes at their partner boutique fitness studios. Rather than offering the classes available at a local gym via memberships, ClassPass allows users to choose from a wide range of activities.

Problem Statement:

With new year just started many resolutions are formed to join gyms with the best of intentions but all of these end up in a dustbin within 3 months because of failing to follow through after a few classes.  It can be due to boredom or lack of enthusiasm in a particular form of exercise which the user enrolled for.  Neglected fitness goals & paying for gym membership that you’ll hardly ever use is a wastage of money.  And just going for a trial at select high end or different exercise form classes may sound interesting but one-time trial fees are quite high or not available at all if you approach these classes directly.

The other side of the problem is that gyms and fitness studios are like airlines, they lose money when all seats aren’t filled. Airlines operate flights that aren’t fully booked because they have to similarly fitness classes are to be carried on even if they have just one member. Even if a single session is purchased by a user at a reduced rate, the class owner will not lose money because its expenses are already incurred for regardless of attendance. Any purchase price is better than an empty spot.

This is the problem that ClassPass Business Model capitalizes on.

ClassPass Business Model

In order to solve both the above problems, ClassPass created a way to curate these local gyms and boutique fitness studios for consumers to purchase a recurring subscription for a limited pass to all of partner fitness studios for one flat rate. ClassPass thus enables studio owners to fill empty spots that would lead to drain on revenue.  Thus the studio owner makes money and the user gets to attend multiple classes and choose one if he likes or continue the refreshing exercise regimes that he likes.

ClassPass makes money on following counts:

Studio On-boarding Fees:  They don’t mention this anywhere but I am sure on account of their growing popularity they are charging studio owners for that incremental revenue.

New Seat Revenue Share:  If ClassPass gets a new seat for a studio owner they will get a commission on each seat they provide.

Unit Economics of Business Model of ClassPass

ClassPass Business Model has differential pricing based on geography and the number of classes that you want to take.

They have 3 plans (they recently scrapped their unlimited plan and hiked the price of one of the popular plans to 190$ which earlier was 99$).  The Go plan has 3 classes a month with 1x visit of any studio, The Base plan has 5 classes a month with 2x visit of any studio (2 visits one studio and 1 visit each of 3 studios = 5 visits or 2 visits two studios and 1 visit third studio = 5 visits), The Core plan has 10 classes a month with 3x visit of any studio.

Consider this scenario as a User:

  • If you pay 1200$ for your gym membership that you totally hate, you will end up not going there at all or at some irregular intervals.   That money is as good as down the drain.
  • If you like going to multiple classes of different exercise forms, you will possibly have to get trials or one session with each of them to figure out what you like.  Assuming 30$ per session as a trial fee if you end up taking 4 classes a month – you have paid 30$ x 4 x 12 = 1440$ (assuming you did not like any of them)
  • If you liked one class after your 8th trial (assuming two months you scouted for a good class) then you end up paying 30$ x 8 + 100$ x 10 (assuming that the class that you liked comes at a same price as that of a gym membership) = 1240$

Now the second and third scenario as ClassPass User:

  • Base Plan of ClassPass offers 5 classes with 2x visit per studio and is available at 75$ a month i.e. 900$ a year (discounted price not available as of now on yearly bookings) i.e. you save 300$ on yearly package as compared to a gym membership
  • If the user loves a particular class they can directly enroll with them after the trial

Studio Owner PoV

From the point of view of a Studio Owner without ClassPass Business Model:

  • He invests in rent, electricity etc. for all his classes which have 30 participants max. which is lets say 2000$
  • His pricing is 100$ (retail and not via classpass) per month for 4 sessions per participant i.e. a total revenue potential of 3000$ a month i.e. net revenue of 1000$ considering costs of 2000$
  • If he gets only 20 participants he will just cover his expenses and not make any money on the classes.

Now consider the above scenario with ClassPass Business Model in place:

  • He invests in rent, electricity etc. for all his classes which have 30 participants max. which is lets say 2000$
  • His pricing is 100$ (retail and via classpass 20$) per session per participant
  • If he gets only 20 participants on his own he will just cover his expenses
  • If he gets even a single participant for one session from classpass he will make 20$
  • Assuming ClassPass Business Model gives him about 20 sessions in a month i.e. studio owner makes about 20$ x 20 = 400$ which he otherwise could not have earned
  • ClassPass will take a cut of 20-25% (I am assuming this number as this is the norm across service e-comm) i.e. 100$ out of 400$
  • Thus the studio owner will net out 300$
  • The user that books the studio directly after the trial is a potential revenue loss to classpass which I think they will put in the clause of the agreement that the studio owner will have to pay them if a user from their platform is on-boarded as a full time user.

ClassPass Business Model will eventually bully everyone (user and studio owner) for shelling out more and more as the pressure from the investors on the unit economics mounts further.

Disclaimer : ClassPass Business Model and How does ClassPass Work is based on my understanding of this business and others in the same industry.  Please use discretion while using this on your own.

2 Comments

Leave a Comment

Your email address will not be published. Required fields are marked *