ClassPass is discontinuing its unlimited membership plan. The CEO and founder of the fitness class booking service Payal Kadakia explained the company’s reasoning for terminating the membership option in a blog post November 2.
“For every class taken, we paid our studio partners. The more classes that were taken, the more we paid. As you can imagine, our business costs increased rapidly. So we raised our plan prices in an effort to compensate—but we tried not to raise them too much. After all, we wanted to remain as accessible as possible. But in some cities, we even had to raise our prices twice in one year, which was awful for our members and painful for my team. We simply couldn’t make the plan work for our business.”
The move was a shock to the core ClassPass users, who used the service to take many classes during the month and were no doubt wildly unprofitable for the company.
— Julia Becker Collins (@JuliaRivka) November 2, 2016
But the move was treated as inevitable and common sense for VCs and economics students. As QZ put it:
“It was an unbelievable, wildly popular deal in a city where even cheap gym memberships are expensive and a single premium fitness class can cost $30 or more. The plan became the cornerstone of the ClassPass brand as it spread to other markets. It was never going to last.”
How was this @classpass move not inevitable? An intern with a spreadsheet could have figured this out, in like, an hour.
— Charlie O’Donnell (@ceonyc) November 3, 2016
This is the final step in a process that has seen the company increase the cost of its unlimited pass multiple times and then layer in cheaper, limited class options. When we reported on the last price increase, the company was still talking up its unlimited option.
“We have to evolve our business model and adjust prices in order to create long-term sustainability with both our members and the market,” Kadakia previously told DMN in a statement. “We’ve also realized that a one-size-fits-all membership is not diverse enough to serve all of our members’ unique needs, which is why we have decided to roll out new plans. We wanted an easier entry point for new users who have an appetite for boutique fitness, as well as the ability to keep offering an exceptional experience to those who love our unlimited product.”
The original unlimited ClassPass was $99 per month. In New York, for instance, ClassPass raised its membership fee to $125 in July 2015. About nine months later ClassPass announced that it was increasing the price of its unlimited class membership again—this time to $190 for existing members and $200 for new ones—as well as debuting a tiered pricing model for customers who wanted a cheaper option. Now, existing customers could pay $75 for five classes per month or $125 for 10 classes per month; new members would have to fork over $135 for the 10-class option.
It is unknown how many customers moved to those tiers or how many unlimited members the brand currently has. The company has not disclosed how many members it has, but it claims that 23 million classes have been booked since Classtivity, the original brand name, launched in 2011.
As with ClassPass’s previous price hikes, members have been sharing their dissatisfaction on social media.
— Jessica Liou (@jessliou92) November 2, 2016
Lost in the news is the fact that ClassPass never intended to be an all-you-can-consume organization. But the organization painted itself into a corner through growth hacking that would ultimately lead to this day.
ClassPass started as Classtivity, an online marketplace for classes of all types, according to a 2012 TechCrunch article. It eventually transitioned into a subscription model and zeroed in on fitness. The original Classtivity product ClassPass offered 10 exercise classes per month for $99. According to Gigaom, Classtivity would make money through its ClassPass offering by sharing the revenue generated from the booked classes with the course provider.
In January 2014, Classtivity acquired 1,000 ClassPass users, Business Insider reports, and it rebranded as the fitness-oriented ClassPass. In March, it announced receiving $2 million in seed funding, according to TechCrunch.
To grow its customer base, ClassPass ran an “unlimited summer promotion” in May 2014, Kadakia writes in her blog, in which customers could take as many fitness classes as they wanted for the same $99 price. She was “so taken aback by the promotion’s success,” she continues, that she decided to keep the momentum going by adopting the promotion price, thinking she would adjust the business model as the company grew.
“The promotion was a spark,” she writes. “[I]t didn’t just help launch ClassPass; it helped ignite something truly special in our community.”
The promotion clearly worked, but the company made a cardinal error in not limiting it to a fixed number of people or a limited time. ClassPass was now known to a number of people as the provider of all-you-can-take gym classes.
While customers will often take to social media to complain about any change, the reality is that ClassPass is about to become a complete new service to a number of longtime members.
It’s never a good idea to alienate your core audience, no matter how much they cost the organization. But ClassPass needed to make this change. Will the unlimited members move to a tier or will they bolt?