ClassPass is one of the hottest startups in New York. It’s two years old and is worth about $US400 million, according to CEO Payal Kadakia.
ClassPass sells a $US99 per month membership program that lets users pay a flat monthly fee to take fitness classes at a diverse group of studios and gyms, from widely known ones like Barry’s Bootcamp and Flywheel to boutique shops offering barre, yoga, pilates, and more.
ClassPass is in more than 30 US cities, and it is expanding internationally with 4,000 partnering studios around the world.
Users love it because the price point is a steal when you consider that a single spin class at Flywheel costs $US30 a pop. Take three or four classes per month and your membership pays for itself.
But now ClassPass plans to hike up its prices in New York, and users are not happy about it.
“We’re going to skip the warm up and get right to it — beginning this fall, ClassPass membership will change to $US125/mo. + tax for current members. For new members, the rate change is effective today, July 14,” ClassPass said in an email to New York users.
“To put it simply, adjusting the rate lets us continue delivering the best possible fitness experience we can. We’ve seen how much you love having unlimited classes and countless options, and we didn’t want to change your ClassPass membership in any other way.”
ClassPass has now upped the price of its membership by more than 25% in New York, its earliest market.
Users aren’t particularly thrilled to hear that the discount fitness class-hopping service they were using now costs more than a membership to many gyms.
Some users feel misled by the price increase.
ClassPass has a subscription model, which retains users and gets them to try new studios routinely. On average, the company says, a ClassPass user will go to 10 new studios that they have within three months while using the platform. Kadakia says it has a 95% studio retention rate.
General Catalyst partner Adam Valkin led ClassPass’ latest $US40 million round of financing and joined the company’s board. He agrees that churn in a two-sided marketplace like ClassPass is a challenge, but he thinks Kadakia’s team is well positioned to survive and thrive.
“Subscription business models appear very attractive on the surface — committed customers, recurring revenue, top-line velocity, high lifetime values — why not?” Valkin told Business Insider in an email in March.
“But in reality, building a subscription commerce model for a two-sided marketplace is challenging. Churn can spoil the party, on either the supply or the demand side. Those that get it right may find a large prize, but I believe there are high barriers to success. I think it requires, as ClassPass has proven, a very compelling product offering with an authentic entrepreneur like Payal who lives her product, has the flexibility to turn on a dime, and strives to deliver unequivocal value to both sides of the marketplace.”
When reached for comment, a ClassPass spokesperson gave Business Insider the following statement:
ClassPass membership in New York City will change to $US125/mo + tax for all new and future members beginning on July 14th. To thank our active members who have contributed greatly to ClassPass’s success, we’ll be honouring their current rate of $US99/mo + tax. for their next two billing cycles before the price change takes effect.
After surpassing 6 million reservations in the past two years, we’ve seen how much ClassPass members love having unlimited selection classes and countless options. And we want to keep giving them more — more studios, more choices, more classes — and even more to come. Adjusting the monthly membership rate allows us to deliver the best, most comprehensive fitness experience there is.
We look forward to continuing to strengthen the ClassPass community and are grateful for their support.
Price hikes can be a good way to weed out stingy users who are often more trouble complaint-wise than they’re worth. Extremely loyal users often don’t mind paying more for a service they love. However, this price-hike strategy can work best when a startup goes from being free to charging a subscription. It’s more difficult to take a semi-expensive product and then make it even more expensive.
If ClassPass wants to generate more revenue, it could have made a tiered subscription product, offering a more expensive monthly fee to users who want premium services and studios and kept the price point lower for moderate users. But that’s not what ClassPass has chosen to do, and it’s already causing a Twitter backlash.
Here’s the email ClassPass sent its New York users Tuesday morning.
It’s not clear what’s driving the price hike, although presumably it’s because New York studios are more expensive by nature and studio owners may be asking the startup for a bigger cut of reservations.
In May, ClassPass says it had paid out $US30 million in revenue to studios since its relaunch in June 2013. In 2015, the company plans to pay out $US100 million. ClassPass has booked 4.5 million gym studio reservations since June 2013.
The company doesn’t disclose its revenue split with studio partners, and reports suggest it varies.
“Sometimes ClassPass pays half of what a studio normally charges per customer; other times, it’s far less than that,” Fast Company reported back in January.
Many of the 4,000 studio owners love ClassPass; the service brings in new clients who otherwise would never visit their gyms. It also fills seats in classes that would be empty otherwise.
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