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they indicated their business priority is to put bodies in classes, not to help convert these guests to regular clients of their partner boutiques. Consequently, as a result of the available data and discussions with both ClassPass and operators, we do not see them as a reliable or viable source of signi cant client conversion. In the Mindbodygreen.com


article mentioned earlier, one of the ten things the author brought forward about ClassPassers was, “You’ll never go to the gym again.” This alone should raise a red  ag when it comes to converting ClassPass guests to regular clients and/or members. In the same article, another alarming bullet the author brought forward was that, “You bond with other ClassPassers.” One of the key ingredients for driving loyalty and pro tability in the boutique studio business, and also the club business, is the social connectivity and pride in belonging that is created among business regulars. If ClassPassers already have this sense of community, then conversion becomes a nightmare. Potentially the biggest challenge to conversion has to do with price. A monthly subscription to ClassPass is lower than the average studio’s subscription pricing, and in some instances, is signi cantly lower. When it comes to more traditional health clubs, ClassPass’ pricing may actually come at a higher price point. We give them a score of 2 out of 10 in ful lling this partner promise.


Generating incremental revenue and pro t for studios. The revenue potential of any partnership with Internet middlemen is driven by the volume of additional guest traf c driven by the partnership (increasing class occupancy), the rate received by the seller for delivering the service and the seller’s ability to convert the guests to regular clients. The key to driving incremental revenue is to leverage at least one, and preferably all, of these variables. In the case of ClassPass, the seller typically receives 50% of their base price for the lowest priced class pack, in essence 40% of their single session base price. For example, one yoga studio we talked to offers a 20-pack price point of $320 and receives $8 from ClassPass for each visitor. One club operator we talked with indicated they get $3 for a gym visit and $10 for a group class visit. So, from a price point perspective, the seller is sacri cing a considerable amount of revenue. With respect to driving incremental guest traf c, the data clearly shows on average boutiques gain at least 65 additional guest visits a month (22 unique visitors) from ClassPass and some gain closer to 300 additional visits (100 unique visitors) a month. Viewed from this perspective, the seller gains a revenue advantage. Lastly, with an average conversion rate of 6% (as noted from the AFS study), the seller obtains


some bene t, but it’s minimal. Having said all this, let’s take a look at some revenue numbers based on the available data from the AFS study.


The average studio generates 65 additional visits each month at an average of let’s say $12 per visit (50% of the average price charged for a single class by a boutique in the AFS study). Using these numbers, the average studio will generate $780 in additional monthly revenues (we are assuming that without ClassPass they would not have these additional visits). If we then take the average of four conversions at an average price of $111 per month (average monthly fee charged for group classes by studios in AFS study), that comes out to another $444 a month. All told, that is $1,224 a month in incremental revenue. It’s not a great number, but for a small studio, it could be the difference between going out of business and remaining in business. Now,


let’s look at the cost to


generate the revenues from the above scenario. By offering a 50% discount to attract the additional guest traf c, the club/studio is sacri cing $12 in revenue per guest visit. Therefore, the sacri cial cost of generating those 65 additional visits each month is $780, equal to the revenue generated by those visits. Since the average club would generate $1,244 in additional revenue at a cost of $780, the average monthly pro t would be $464 or $7 per guest visit (63% cost margin compared to average studio marketing costs of 4%). As the data shows, while you garner new revenues, the cost of acquiring those revenues is extremely high. Chances are most operators don’t assess their costs in this manner, though they should. Instead, most operators will see their margin as the total revenue from a class divided by the cost for the class (instructor payroll). Let’s evaluate the pro t effectiveness of ClassPass from this perspective. Let’s say that, before ClassPass, you average 12 students per class at a rate of $24. That represents $288 in revenue before instructor costs. Let’s say your instructor receives $60 for teaching the class. The cost margin is 21% with a pro t of $228. ClassPass now provides you an additional two students per class (using data from prominent boutique operator) at $12 per class that adds $24 and brings class revenue to $312 with a pro t of $252 and a cost margin of 19% instead of 21%. Let’s say you have 15 classes a week that are open to ClassPass guests. Under this scenario, you would increase incremental class revenue by $360 a week and with a lower cost margin. Using this approach, there is revenue and pro t to be gained by using ClassPass.


What we haven’t brought forward is the possible cost associated with a devaluation of your brand, and furthermore, the cost of existing clients switching to ClassPass as a result of the favorable pricing and  exibility ClassPass offers. Unfortunately, at this time, we don’t


have data to model this cost. What we do know is that, if members are able to get an experience with ClassPass that is similar to what your studio or club offers (e.g., good instruction, energy and comradery), and at half the price, they will be inspired to switch.


As a result of the above discussion, we would give ClassPass a score of 4 out of 10 on ful lling this partner promise. If a studio operator is vigilant about what classes they open up to ClassPass guests (limit to only low occupancy classes), negotiates hard for higher than average fees (e.g., doesn’t settle for the standard rate of 50%) and  nds a way to prevent client switching, then the revenue and pro t bene t of ClassPass is reasonable and makes sense. If the above steps are not taken, it’s probably a losing proposition in which you gain a small amount of short- term incremental revenue while devaluing your brand and having your client base shrink.


Based on this deep dive into the ClassPass value proposition, we can de nitively say that it is a fabulous deal for the majority of  tness consumers. From the studio perspective, it appears that ClassPass does not bene t this segment of the industry as well; what we de ned in earlier articles as a parasitic relationship. In those instances where the studio/club operator carefully manages the program, then the relationship might be more symbiotic. We should note that, in talking with ClassPass, they indicate a 97% retention rate for their studio partners, which would indicate these studios perceive value in the relationship.


(Steve Tharrett and Mark Williamson are veteran club business executives and Co- Founders of ClubIntel, a consulting  rm serving the industry worldwide. Steve can be reached at stevet@clubintel.com and Mark can be reached at markw@club-intel.com)


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