ClassPass (‘CP’) is a two-sided marketplace that connects the end consumer, a fitness class attendee, with classes at boutique fitness studios. It’s also an example of a company that has effective alignment between its business and operating models.
The company’s business model is based on rev inflows from its subscribers, and rev outflows to the studio partners.
For the end customer, the fitness consumer, the company’s main product is a monthly subscription providing unlimited access to boutique fitness studio classes in their area, served up on appealing cross-platform apps; consumers can book classes on either the ClassPass web app or its recently-launched mobile app. The service costs $79-$125/month, with prices set based on geography (high end included San Francisco at $119 and NYC at $125), which serves as a proxy for the number, variety, and quality of classes available in each market. Classes range from yoga to barre to cardio pole dancing to cycling to martial arts and typically cost $15 – $35 a la carte to the consumer (without ClassPass). Based on the a la carte prices, a customer can “make back” the value of their monthly subscription fee by taking 6 classes a month. The customer can take an unlimited absolute number of classes per month; however, they are limited to taking three classes a month at each studio.
UI for a user showing upcoming booked classes:
For the fitness boutique studio partners, ClassPass provides paying customers to fill excess class inventory (at a discounted rate pre-negotiated between CP and the studio), as well as emerging “thought leadership” in boutique fitness studio management. Specifically, ClassPass pays each studio a fee for each class taken by the CP customers. The fee is a percentage of each class’s retail (‘a la carte’) price. Fee percentages are scaled (as opposed to being a flat fee or cost-plus or a flat percentage) based on demand for the specific class, using time of day as proxy for convenience and demand (i.e. a 6PM class on Thursday has a higher fee than a 5:30AM class on a Saturday). In all cases, the price that CP pays the studio per class is significantly lower than the studio’s ‘drop-in’ rate. CP mitigates the “sticker shock” of the steep discount based on both a volume purchase discount and the company’s value-add to the studios, which they define as helping studios maximize their business through webinars and other knowledge transfer and serving as a marketing engine for their business.
Operating Model & Alignment with Business Model
Just as the success of its business model is predicated on satisfying both sides of the marketplaces, ClassPass’s operating model is similarly focused on servicing and delivering value to both customers and studio partners. By aligning the two models around the same goal, they are able to create and sustain a competitive advantage on both sides.
Operationally, the company is comprised of 180 people across Account Management and Customer Service, Sales, Operations, Finance/Legal/HR, Marketing, and cross functional squads comprised of Product, Engineering, and Design.
The Account Management and Customer Service team services a studio network of over 7,000 studio partners. Similar to how other companies have the account management function, this team serves the same function at ClassPass, answering studios’ questions about people coming in, technical issues, questions about money, policies, and operational management questions such as “how do I grow my business”.
The squads are an example of the business model leveraging unique capabilities of its operating model. The teams created studio-facing tech tools to automate selling, studio on-boarding, and setting up accounts. The tools co-exist with existing class booking APIs (MindBody, zingFit, Front Desk) used by larger studios. For smaller studios who don’t use reservation software, ClassPass built a venue portal that allows studios to check on reservations. The success of these tools is seen in the fact that today, ClassPass launches 100 studio partners a week across 36 cities internationally without increasing headcount.
ClassPass also reinforces their positioning as a partner to the studios by dedicating resources to address studios’ customer cannibalization concerns. This includes analyzing customer usage pre/post CP to prove that CP provides net positive users to each studio and improves customer retention.
Culturally, the employee experience reflects the company mission to help people live active lives and get the most out of life. Employees enjoy schedule flexibility at work with the understanding that they will be efficient. Similar to the value provides to customers of experiencing the mental and emotional benefits of living an active life, employees embody an ethos of “being positive and grateful. [Not just] smiley, but also having positive intent – help people [at the company] do their best and be the best version of themselves,” as described by Rachel, ClassPass employee.
All of the above features and company operational structure scales studio partners, which in turn provides a better service and experience to its subscribers. In doing so, ClassPass creates and sustains a competitive advantage in line with its business model.
Interview with Rachel M., former Director of Strategy & Operations at ClassPass