Likes & Launch

[– Special deal, join ClassPass, get $50, I’ll give $50 to Defy Ventures –
Update 3/8: We raised $150 for Defy Ventures!]

Last night I learned it was more ‘Bhangra-like’ to use your fingers in a thumb-to-fingers clap motion, “imagine you’re flicking an apple off of a tree”, than hold your fingers straight up with a wrist twist, referred to many as “turning the lightbulb”. 

I’m not a regular at Bhangra & Bollywood Dance class by any means. This was my second time ever taking a Bhangra dance class. I’m a long way for this but at least I have few new moves.

Would I do it again? Sure! I was joined by three friends and it was a ton of fun. Would I go every week? Maybe not.

The great news is, with ClassPass, I can decide how often I want to go back without fear of missing out on a ‘package discount’ for buying X number of classes that would need to be used by Y date.

I’ve been singing the praises of ClassPass since I joined in October. I quit my monthly gym membership and instead take classes at different workout studios throughout the city. I’ve recruited a number of friends already and they’re hooked. Currently, for $99/month you get unlimited access to their 200+ gyms in NYC as well as the ability to take classes in their other markets (including SF which is great for my regular trips to the west coast USV portfolio). From ballet to spin, boxing to crossfit, dance to parkour. They have it all.

I’m not employed by the company nor are we investors. I’m simply a huge fan and have $50 for you if you join too — more info below. With great enthusiasm for product, I’ve had some questions about how the business will grow, sustain and live in harmony with the studios it helps promote.

Bucking the gym business model

I quit my monthly gym membership to use ClassPass in exchange. Health Club business models are largely subsidized by individuals who pay each month but rarely use the facilities. Contracts with high cancellation fees cover the labor costs, depreciation on machines, and upfront equipment investment.

Gyms focus on signing up new members, and ideally would find the right mix of individuals who want to use the gym at different times or not at all. They have limited capacity at peak times, so some have become more dynamic to charge access for non-peak-hours. Access to multiple locations is usually another add on. Personal training and other services can be layered on top. That’s the extent of dynamic pricing.

That means, if you go once a month or thirty times a month, you’ll pay the same price for the majority of the service. Less frequent members subsidize the more frequent ones.

Through ClassPass, you currently pay one fee for unlimited classes per month. This is the same model that gym memberships employ. It’s easy to charge but it may be missing additional value that can be captured. As a consumer, I hope they don’t put in tiered pricing for frequency of use, but they very easily could. They already track the quantity of classes you take and count them on a monthly basis.

Additional layered services could be earlier access to book classes or a “spending per month” that could cover costs like renting spin shoes or extra towels at gyms that offer those upgrades.

Will studios win or lose?

ClassPass limits 3 visits per month to a particular gym. That means if you find a class you want to go to twice every week, you can’t do it. If you discover a class you love, you can take the steps to setup a membership with that studio directly. You can keep your ClassPass membership as well or cancel it and just commit to the ones you want.

The alternative is to arrange some clever hacking to build a schedule that allows you to max at your 3x classes at your favorite gyms and then find close supplements for other days. If you want to spin 2x a week each month, you need to find 4 studios with classes you like. Or if you travel for work, it may mean finding 3x studios in NYC and 1x in SF to use. That’s a bit more work and a bit more to keep track of. If you find a class you absolutely love, it’s probably work committing with them directly.

Does this model work better for studios or worse? Does it cannibalize business from individuals who would normally pay $10-$35/class to come 3-4 times a month? Or does it expand their market. Since they can reach more people, do they raise more awareness and ultimately sell more memberships directly? Does ClassPass make the pie of ‘class-takers’ larger so all boats rise?

Discovery of new studios was limited to word-of-mouth, foursquare, Gilt City, and online promotion. It would be a fair bit of work to sign up for the different classes, compare prices, and commit. On top of that, most of the studios are small businesses. Their pricing could be confusing. $100 for 10x classes or $150 for 20x if you use in the first three months. First class free or first week unlimited for $10. They would want to sell you so early in the process that it could be distracting from just figuring out whether the classes and schedule would fit.

The discovery wasn’t great or easy. That may be a win for the studios as switching costs were high, but a loss for new studios with little clout.

Margins and monetization

ClassPass doesn’t rent any studio space, nor do they supply free weights or mini trampolines. They are the information layer that connects the physical studios. I don’t know the intimate details of their monetization, but I know they currently only charge $99/month for members. That money likely goes largely to the studios and a small take rate is used to cover development costs, a sales team and operations.

How much money does a studio get? If a member goes to 20 classes a month and only pays $99, and let’s say ClassPass takes 10% which would include the credit card transaction fee,  that would mean at most (with $10 going to Classpass) the studio would get $4.50 per class. That’s pittance compared to the $10-$35 they may charge for each class.

Now, $4.50 may not be much, but it may make sense for the studio. Once a class kicks off, it’s a fixed cost. Whether there are 2 people in the class or 40, the instructor, rent and equipment is already paid for. If a studio is able to increase utilization for each class, the additional students, at any price, are worth taking. Now, they need to consider costs like depreciation on equipment for that additional student, like a spin bike, and the impact on experience for other attendees who are paying full price and expecting access to showers, enough floorspace, etc.

Studios would just have to make sure that financially, filling more classes, at different prices, means they cover their fixed costs. Having every customer on ClassPass may not work out for them.

Cash flow also comes into play. I’m not sure if ClassPass buys blocks of classes from the studio each month or only pay commission on successfully booked classes on a monthly basis. Studios with regular members usually get membership dues before they host the classes, easing forecasting and cash flow. ClassPass may pay later.

Join ClassPass, get $50 & support Defy Ventures

I’m excited to see where ClassPass goes next. They have great team they’re building in NYC and a huge network of studios they’re growing nationwide. I’m sure their revenue model will be evolving but I’ll be enjoying all of the benefits at the current price while I can.

If you’re interested in signing up, they are currently running an offer to give $50 to anyone who signs up, and give $50 to anyone who refers someone in.

Now here’s the deal, if you use the promotion link to sign up for ClassPass by Sunday 1/19 (promotion extended!), you will get $50 for yourself and the $50 that I receive I will donate to Defy Ventures, a fantastic non-profit organization that transforms the lives of people with criminal histories through entrepreneurship, employment and character training*. You get ClassPass, $50 and you get to support a great group.

Update 3/8: We raised $150 for Defy Ventures!

[*Full details: This offer is limited to the ClassPass promotion which ends 1/18/15, 11:59PM. ClassPass does not provide cash awards but giftcards. If you sign up it will be $99/month but you’ll get a $50 Visa Giftcard in the mail. I get one too. I will donate the cash equivalent of the $50 giftcards received. ClassPass may notify me if new members sign up through that link, I may not have access to your email address so please feel free to send me a note on twitter that you signed up so I can say thanks!]