There used to be two ways to get a regular workout: You could join a gym, locking yourself into a long-term commitment, or you could sign up for individual, boutique fitness classes whose costs quickly add up. But a former Bain consultant created a third way—a $99 pass that gets members into an unlimited number of classes, from boxing to Pilates, hosted by a wide range of small businesses. It is, to be cliché about it, the Netflix of fitness. And in less than two years, the company, ClassPass, has become an obsession of fitness-minded women—along with raising $52 million in funding, booking 1.5 million reservations, and expanding to nearly two dozen U.S. cities.
“Every time I go to almost any studio, there’s tons of people there because of ClassPass,” says Lisa Elaine Held, features editor at Well+Good, a site that covers boutique fitness news. “They’re bringing boutique fitness to a huge set of people who otherwise could only afford it here or there, and now they can take classes all month long.”
But to accomplish this, ClassPass founder and CEO Payal Kadakia had to pull off something harder than the most advanced spinning class: She had to convince thousands of small fitness studios, who have almost never collaborated with competitors, to think about the fitness industry in an entirely new way.
When Kadakia launched her startup in the summer of 2012 out of accelerator TechStars, she called it Classtivity. It was an online directory of boutique fitness classes that enabled users to find out which businesses had open slots. The business model depended entirely upon users booking classes through the site—the company would take a cut of each transaction—but that didn’t happen. “It was like crickets. No one was booking,” says Kadakia, an MIT alum who worked at Bain & Company and, later, Warner Music Group. “People were using the site for information, but weren’t transacting.”
Like any good exerciser (try, try again and all that), Kadakia didn’t despair. Instead, she and her team decided to test a concept they called Passport: a $49 pass that allowed users to take 10 classes of their choice within 30 days. “We thought people would spend a month discovering and then fall in love with one of these studios,” Kadakia says. And if that happened, they’d just go straight to the studio and stop using Passport. But the results showed otherwise: Only about 20% of users committed to a specific class at the end of the month. “We polled everyone, and most said they just wanted to keep doing the Passport experience again.”
That’s how Classtivity became ClassPass. The service launched in New York City in June 2013, and originally offered 10 classes a month for $99. It now offers unlimited classes per month for either $99 or $79, depending on the city. And for those who travel a lot, the company offers ClassPass Flex, a $99 plan that admits users to unlimited classes in every ClassPass-affiliated studio in the country. Anecdotally, users are mostly women in their twenties and thirties of some means (but not $40-per-class, four-times-a-week means). And that’s a big potential customer base: In the past year, Kadakia says, her revenue has grown 30-fold.
The pitch to users is obvious. But why would studios—many of which charge at least $30 per class to regular customers—get on board? In fact, some have refused to, including star-studded indoor cycling mecca SoulCycle. But Kadakia convinces many by presenting ClassPass not as a replacement for their business model, but a supplement to it: Like the last-minute hotel booking app HotelTonight, ClassPass can help fill in otherwise-open class spots. And because 65% of ClassPass users are new to fitness, boutique owners say ClassPass is a way to bring new people in the door.
“The extra revenue is great, and there are many people that have heard of my class but haven’t tried it yet,” says Dasha Libin Anderson, the founder of Kettlebell Kickboxing, a popular fitness class in New York. Regulars don’t have to reserve a slot in Anderson’s classes; they just show up. So to avoid overcrowding, she provides no more than three slots to ClassPass.
ClassPass won’t reveal details of how it splits revenue with studios—in fact, they’re contractually obligated not to—but in conversations with boutique fitness owners, it appears that the percentage varies. Sometimes ClassPass pays half of what a studio normally charges per customer; other times, it’s far less than that. According to the owner of one popular studio, when ClassPass first approached her, it offered $5 per ClassPass customer visit. “My normal rate is $35 per class, so that was way too low,” the owner says. “Plus, I worried that being on ClassPass might cheapen my brand.”
After negotiations, though, the owner locked in $25 for peak-time classes. And at that rate, she doesn’t regret it: ClassPass has brought a huge amount of new customers into her studio, many of whom have opted to pay full price to keep coming past the allotted three classes per month. She thinks of the lost revenue from ClassPass’s cut as marketing dollars. “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.”
Held, the Well+Good editor, says she’s heard similar stories: “The studios and ClassPass originally thought their users would convert to full-price clients, and overall it seems like people aren’t,” she says. “People just are not using ClassPass and then going out and buying a $500 package at Flywheel. From my perspective, that’s going to be their biggest challenge.”
But Kadakia says the studios will ultimately benefit, and so that’s the message she sells them on. “We have close to zero studio turn, because they receive a big check that grows every month,” she says. “Many studios actually give us all of their inventory.”
And as a customer, Kadakia knows she represents the kind of person that boutiques value. She’s been dancing since age three and still loves dance classes, but her busy schedule doesn’t always align with one studio’s lineup or location. ClassPass gives her more flexibility, and access to more studios. “I was looking for a class online and was frustrated by the experience, so I realized there was a gap there,” she says. “We’ve learned, though, that getting people motivated to do something is the other part of this equation. We’ve gotten people to be like, ‘Oh I can do this! It’s fun and engaging. I’m going to spend my Saturday morning working out with friends, and then go out for brunch.’”