The price that bleeds your business, may save your business.
Photography by Khaled Sayhed

The price that bleeds your business, may save your business.

Payal Kadakia thought of everything when she launched Classtivity, the precursor to the fitness subscription service ClassPass. She and her team spent 18 months developing an “OpenTable for classes,” building thousands of partner relationships and a beautiful website. Every time a customer booked a class, Classtivity would make money. But 90 days after launch, Classtivity was only booking about 10 classes per month.

Several pivots later, they started offering a free month of classes. This offer was so popular that customers started trying to cheat the system, signing up for multiple months under different email addresses. This was her “Eureka” moment. She transitioned to a subscription service, renamed the company ClassPass, and blitzscaled the business in cities nationwide.

Payal’s story with ClassPass is the backdrop for this week’s episode of Masters of Scale, How to Price a Product to Scale, and it’s a perfect (though wonderfully complex) case study. The “free” model they landed on couldn’t scale indefinitely. But it was essential to their growth. It’s why I believe the price that bleeds your business, may save your business. MBAs will tell you to figure out your unit economics before you scale. But in Silicon Valley, you scale first, and figure out your unit economics later.

And when you eventually have to raise prices, as ClassPass did, we have some suggestions on navigating the crisis of angry customers, who will inevitably tweet their ire.

As always, I'd like to hear your thoughts and reactions to this episode. How did you price your product or service to attract a critical mass of customers? How did you change the price of your product or service to avoid going bankrupt?

Please write a short post on your LinkedIn newsfeed to share your answers with the wider community. Tag your post #mastersofscale so I can find it. And if you’d like, Tweet it at me (@ReidHoffman) and @MastersOfScale.

Sven Kohl

Screen builder Amiga 500

6y

The essence goes to Mr. Reid Hoffman telling him a part of beeing Toxic which means the kind of losing mother love

Like
Reply
Robert Hathaway

Business Owner at Cutter Industries Incorporated & Bridgeland Management Corporation

6y

When we first started my marine construction company we priced ourselves so low that i think it actually hurt business. People equate inexpensive with lack of quality, and we were anything but low quality . When we increased our pricing we actually saw our business increase dramatically. I have seen this in products as well. People trust products that are a little pricier. It's a very interesting phenomenon that rather than do the research to find quality, people will just pay more and expect it.

Like
Reply
Maria Dedic

Communications Agent

6y

Or maybe no. The best factor to keep a company really healthy is to invest on social responsability and never falling as @MPC company ready for hacking their olds ex workers for harrasing and intimidating them.

Like
Reply
Michel de Goede

Rationalizing, future-proofing, simplifying IT and organization

6y

Scale first and calculate later is a fantastic recipe for a constant state of panic unless there are cooperating deep VC pockets, you have a strong team that functions better under pressure and/or you have experience in value proposition design. In that case, chances are that you may actually come up with a revenue model that works in due time. Otherwise my money would be on a lot of trouble for a long time... Cheers!

Tokunbo George

Writing code at night while listening to Ibiza Cafe Del Mar Radio, Italo Disco or SmoothJazz.com // #LoveIslandUK #wallstreetbets

6y

#

  • No alternative text description for this image

To view or add a comment, sign in

Insights from the community

Explore topics