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A yoga class takes place.
Reuters/Francois Lenoir
Subsidized zen.
UNSUSTAINABLE

ClassPass had to kill its wildly popular unlimited plan before the plan ruined its business

Alison Griswold
By Alison Griswold

Reporter

Unlimited fitness classes made ClassPass great. When the plan debuted in New York in summer 2014, subscribers paid $99 a month to attend all the classes they wanted at the hundreds of boutique studios and gyms that partnered with ClassPass, a fitness startup headquartered in Manhattan. 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.

On Nov. 2, ClassPass finally said it was killing off its unlimited plan after repeatedly failing to make it financially viable. Over the last year and a half, ClassPass had already invoked two dramatic price increases in an attempt to fatten margins. It made the plan $125 a month in July 2015, and then $190 a month this past April, a move that reportedly alienated 10% of users. Even that wasn’t enough. ”We realized the impact this had on our business was unsustainable,” co-founder and CEO Payal Kadakia wrote in a note to customers:

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 unlimited plan put ClassPass in a bind. It was great for ClassPass’s brand and growth—so beloved by consumers that they subscribed in droves and wanted to use it all the time. But the faster people signed up, and the more often they exercised, the quicker ClassPass bled money. ClassPass was never going to be able to charge a realistic price for unlimited fitness classes because from the start it taught consumers to expect a luxury service for cheap.

Now, ClassPass, which is active in 30-some cities across the US and has raised more than $80 million in funds to date, sells boutique fitness workouts in limited monthly bundles. In New York, a five-class “base” plan costs $75 a month, and a 10-class “core” plan retails for $135.

This is a story that has played out across Silicon Valley in 2016 as startups that once relied on discounts and cheap subscriptions to attract customers have been forced to get their books in order. Birchbox, a subscription beauty products seller, laid off 30 employees in June after cutting 50 positions earlier in the year. Prices are increasing for ride-hailing services in some markets as Uber and its competitors dial back their promotions. The subsidy quagmire is especially deep in food delivery. Square, which purchased food-delivery startup Caviar in 2014, reportedly tried to sell the business but couldn’t find a buyer. Munchery, a startup that delivers prepared meals, has burned $3 million to $5 million a month and is looking to replace its CEO.

A small number of startups selling discounted goods and services have completed successful exits this year, but they’re the exceptions. In July, consumer goods company Unilever paid $1 billion for Dollar Shave Club, a subscription razor business that made its name with a viral YouTube video and blades that cost as little as $3 a month. The following month, Walmart purchased discount e-commerce site Jet.com for $3.3 billion and brought on its talented founder and CEO Marc Lore, who is now running e-commerce for Walmart in the US.

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