Why startups are ditching the ClassPass model

Photo credit: Mike Baird.

When ClassPass, which pioneered the concept of unlimited access to multiple fitness options for a monthly subscription, became widely popular, it spawned an army of clones. Suddenly, there’s Classhopper, KFit, FitReserve, Passport Asia, and GuavaPass – to name a few. We also started to see new startups that have appropriated the model in other categories.

Childs Pass was a clone focusing on children’s recreation. Based in Australia, it began its subscription-based service in beta in November last year. But after six weeks of operating, it had to dump the model completely.

“With the success of ClassPass, KFit, and countless others at the time, we were certain that it would be well-received. This wasn’t necessarily the case,” co-founder Matt Dibb tells us.

Low margins

Here are some of the points that made Childs Pass pivot, all according to Matt.

1. The subscription model is not profitable. While some of these companies boast of revenue of over US$100,000 per month, most of the incoming funds is held in suspense and at least 60 percent is paid out at the end of month – as such, it isn’t really revenue.
2. Users aren’t sticky. Retention rates are low and the acquisition cost of getting them on the platform can be expensive. They usually need to stay on board for four-plus months for the company to hit break-even. After this time, margins are still very small. Users join to discover an array of services around them, but more often than not find only one or two classes that they really enjoy. That’s because the ClassPass model actually has a “class limit.” In the end, subscribing can become unappealing very quickly when you can’t attend more of the classes you want, when you want.
3. That class limit means you can only attend your favorite class for an estimated maximum of three times per month, making the “unlimited” factor quite blurry. In other words, “unlimited” only applies if you’re taking different classes, but not the same class each time. This is because businesses find it extremely unprofitable if you were to allow the same person to attend their class at a 50 percent discount rate as much as you want.
4. Trying to lump a diversified range of businesses into one box is difficult. Group classes, for example, have a significantly higher margin, with one instructor and one room as the operating cost of a class. More unique and interesting activities or experiences have a much lower margin and higher capital cost. As a result, there are a lot of businesses that can never be included into the subscription model as it will mean a loss.
5. Businesses aren’t happy with giving away most of their profit. The only reason businesses join the subscription model is for lead generation. It is then in their best interest to try and secure the ongoing user outside of this model.

“These aren’t assumptions […] It’s our real experience trying to launch that model and the very reason that our beta failed,” Matt says squarely.

Childs Pass co-founder Matthew Dibb.

Starting from scratch

So Matt’s team went back to the drawing board and consulted with thousands of businesses that have already signed up as their partners. The process was tough and time-consuming but it helped them come up with a business model that works.

By February this year, Childs Pass officially launched as a straightforward booking platform with no monthly commitments to partners and taking a commission instead. It’s akin to the Open Table and YPlan approach.

Users can book a wide range of activities on Childs Pass – from ballet to coding lessons, horse riding, and even surfing – for up to 40 percent discount.

Matt says they chose to focus on kids’ recreation because of the growing demand from parents. “The youth market has been very untargeted. Average mom and dad spend in excess of US$3,500 per year on children’s recreation with no local information source to consult.”

“Kids are also now spending less time outdoors […] This is a concern, so effectively we’re trying to turn technology into the gateway to get kids healthy and active,” he continues.

Everyone’s pivoting