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Managing Fitness subscription service ClassPass brings new business to studios, but at what cost?

Craig Sheridan and his wife Jill Sheridan, owners of Eastwood Cycle, shown at their spin studio in Vancouver, on Feb. 15, 2019.

DARRYL DYCK/The Globe and Mail

A popular gym subscription service is reshaping the fitness industry by allowing consumers to book discounted classes at multiple studios in cities around the world. But while the ClassPass platform is a great way for studio owners to get people in the door, making a profit from these new clients can be a challenge. Some gyms are adjusting their business models to account for the lower margins that come with taking on ClassPass members.

New York-based ClassPass allows users to try different classes and studios using credits they purchase on a monthly plan. The number of credits used every visit varies depending on the city, gym and type of class, with highly popular ones costing more.

The appeal for ClassPass users is the ability to choose classes ranging from spinning to yoga at lower prices than typical drop-in rates, without committing to one gym. For example, a 20-credit pass costs $49 plus tax a month in Vancouver, which ClassPass says includes three to five classes at roughly $10 to $16 a class. A typical drop-in rate at studios in the city can range from about $15 to $25 or more.

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To prevent being cannibalized by the service, many gym owners limit the number or types of classes ClassPass members can attend at their locations each month – or may charge more credits for certain classes depending on their popularity.

Businesses on the platform are paid directly by ClassPass for every reservation at prenegotiated rates that are typically lower than what an owner would get directly from a consumer. Still, owners are drawn by ClassPass’s reach and powerful marketing platform, and they get free access to the company’s tools and data. The end goal for most studio owners is to convert ClassPass users into their own members.

“One of the classic issues facing fitness studios, in general, is the retention of members,” said retail expert Doug Stephens, founder of the Retail Prophet consultancy. “Filling that pipeline with new people and converting them into members is a worthy goal. ... The main problem is that, as a business owner, you can’t continue to just cover costs. You have to get that member converted.”

Studios that put too many restrictions on their ClassPass guests run the risk of frustrating consumers, who may not come back. “Now you’ve not only lost a customer, but you may also have achieved some negative word-of-mouth, too,” Mr. Stephens said. He noted ClassPass users also have their share of concerns about the service, including steep no-show and cancellation fees, as well as a reactivation charge for rejoining the service.

ClassPass did not respond to interview or information requests for this story, but according to its website, 70 per cent of users haven’t had a studio membership in the past and they try an average of 12 studios in their first six months. The company, founded in 2013, says it has 15,000 partners in 80 cities around the world and a 96-per-cent partner-retention rate.

Eastwood Cycle owners Craig and Jill Sheridan have been incorporating ClassPass into their business model since opening in the fall of 2014.

DARRYL DYCK/The Globe and Mail

At the Eastwood spinning studio in Vancouver, owners Craig and Jill Sheridan have incorporated ClassPass into their business model since opening in the fall of 2014. “We use ClassPass as a tool, not as a revenue generator in our business,” Mr. Sheridan said.

For instance, Eastwood uses ClassPass to help it test new time slots and to introduce new instructors by offering those classes for fewer credits. “I think ClassPass has given us the ability to put our neck out a bit more,” Mr. Sheridan said.

What’s more, ClassPass members going to more popular classes at Eastwood, such as weekday evenings, will have to use more credits, which translates into higher revenues for the studio. A ClassPass user will also need to use more credits if they visit the studio more than three times a month. Mr. Sheridan said ClassPass pays Eastwood anywhere between two-thirds to the full price of a single class. The ClassPass service fee is lower for less popular classes, for example, during off-peak hours, and higher for more popular ones.

Eastwood’s owners acknowledged the impact of ClassPass on the business in early 2018 when they revamped the membership packages, which included lowering the price of a drop-in class.

“If we let it, ClassPass could literally take over our entire business,” the owners wrote in a blog post on their company website last year. “ClassPass figured out the big secret a while ago; people want diversity and are tired of paying a premium for a 45-minute class.”

In a recent interview, Mr. Sheridan said lowering prices has been a challenge, but the move has helped Eastwood bring more people to the studio. Today, Mr. Sheridan said his business relies less on ClassPass to grow, which is the strategy. “At the end of the day, what it comes down to is that we want control of our own business,” Mr. Sheridan said. “We don’t know if ClassPass is going to exist forever ... so I don’t want them to affect us that much.”

Nathan Morris, founder of Club Row, an indoor "rhythmic rowing gym" in Vancouver, has used ClassPass to grow his business since it opened in the fall of 2017. He also adjusted his longer-term business projections to include more ClassPass users.

“For us, ClassPass has gone from a way to fill empty seats to more of a core element of our strategic plan,” Mr. Morris said. “We’re getting a little bit less per visit, but people are coming back more consistently. It’s a wider audience.”

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Mr. Morris sees rowing as a niche workout and only one part of a person’s overall fitness regime. It’s why he believes his business is a good fit with ClassPass, which often caters to people seeking a mix of workouts.

“People aren’t going to the same gym over and over again,” Mr. Morris said. “Any studio that isn’t including themselves in ClassPass ... is missing out on a collection of people who love fitness, who love new ideas and new experiences.”

The Globe and Mail Small Business Summit will give you practical ideas to grow your business. This year’s speakers include former Dragon’s Den star David Chilton, Kate Ross Leblanc from Saje Natural Wellness and celebrity chef Mark McEwan.

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