Peloton Business Model | How Does Peloton Make Money?

Peloton is a hardware technology company that designs and manufactures fitness equipment, specifically the Peloton Bike and Tread. Peloton devices are connected to the internet due to which users can participate in virtual workout and group sessions.

Peloton is a media and fitness equipment company that earns money primarily through fitness products such as an indoor cycle with a touchscreen monitor.

The base price for the Bike Basics package indoor cycle with a touchscreen monitor is $1,895. 

Additional packages are available, including the Bike Essentials for $2,045, the Bike Works for $2,145, and the Bike Family for $2,345.

The Peloton business model is based on the sale of its hardware products. Additionally, Peloton generates revenue by charging users a monthly subscription fee and selling fitness apparel.

Success Story of Peloton

John Foley introduced the concept of Peloton in 2011. He has positioned as acting president at the e-commerce Store Barnes & Noble at the time. He found himself unable to attend his fitness classes regularly with his time-consuming job and two children.

Instructor-led fitness classes were getting popular during that time period. SoulCycle and Flywheel were the companies that had developed a much more personal relationship with their customers. 

John could not attend many of his fitness classes due to his limited availability and was forced to return to his home bike.

He understood a void that needed to be filled. He quickly drew his vision of an indoor bike connected to a monitor that would stream cycling classes.

Foley leveraged his extensive network to raise a $350,000 seed round in addition to his own $50,000 as a Harvard Business School graduate and accomplished executive.

Peloton’s Chief Operating Officer Tom Cortese joined before the round; the remaining founding members joined shortly after. The first four employees did not receive a salary but were compensated with equity during its initial years.

Peloton generated a  total of $3.5 million in Series A round by the end of 2012. The company initiated a Kickstarter campaign to raise more funding and awareness for the product and secure an amount of $307,000.

By the time the company has raised $994 million in venture capital funding until today. Peloton raised $1.2 Billion during its IPO launch and is currently valued at $8.1 billion in May 2021. 

How Does Peloton Make Money?

Peloton earns money from the sales of its integrated fitness products, apparel & accessories, and subscriptions of its packages.

However, Peloton’s primary revenue streams are user memberships, which provide customers with access to live and on-demand exercise classes and premium exercise equipment.

Let us understand the revenue streams of Peloton in detail:

Fitness Products

Fitness products are the first and most apparent revenue stream of Peloton. Peloton sells an indoor cycling machine equipped with a touchscreen monitor for $1,895, known as the Peloton Bike Basics package.

Several other packages are available, including Bike Essentials priced at $2,045), Bike Works at $2,145, and Bike Family at $2,345.

These packages come with the same indoor cycle as the previous one but with various accessories such as riding shoes, weights, a drink container, headphones, and a heart rate monitor based on the package.

Additionally, the company sells a treadmill known as the Peloton Tread. As with the indoor cycle, this one features a touchscreen and the option to add on additional features.

Peloton’s Tread Basics package costs $2,495, and the Tread Family package costs $3,065.

Peloton earns a significant amount of money from both the indoor cycle and the treadmill. 

According to a report, these products and packages provide a profit margin of up to 43% to Peloton.

Apparel & Accessories

Peloton also sells fitness apparel, including workout bags, leggings, caps, and t-shirts, under the Peloton Apparel Brand.

While this is a small revenue source for the company, revenues of apparel and accessories are increasing at a 53 percent annual pace.

Apparel revenue is less than 1% of total revenue at Peloton. Despite this, the segment is rising at a 53 percent annual pace. 

Subscriptions

The customers of Pelotons can subscribe and access the exclusive sports content that is streamed directly to their fitness device monitor.

Peloton provides two options for its subscription. As a customer, you have the option of joining a live class or selecting from Peloton’s extensive content collection. In this case, the customer can compare their success to that of other program participants.

Peloton charges $39 per month for the subscription, which the company says is equivalent to the cost of a Flywheel boutique fitness class.

Peloton Digital Membership is available at $12.99/month for those who are looking for a comparable but more affordable alternative. You can download the Peloton app to subscribe to its monthly program.

For example, Cyclists can either enter a live class, compete against other participants, or simply follow a class from Peloton’s extensive material library. 

The monitor then compares them to the other participants, indicating whether or not they progressed on their previous workouts while remaining linked to the teacher.

Surprisingly, the gross margins on subscriptions are similar to those on physical goods of Peloton. 

Although the organization does not disclose its exact cost structure, it is suspected that factors such as manufacturing, research and development, promotion, and the instructor’s salary all significantly impact the category’s profitability.

How Much are Peloton Instructors paid?

While Peloton does not disclose instructor salaries publicly, it is believed that instructors earn between $500 and $750 per session. An instructor could earn more than $500K per year for 10-15 classes per week.

Peloton offered stock options to attract famous trainers during its early day.  Various employees have billions of stock at the firm and are currently working.

According to a Bloomberg article published in January 2021, a Senior instructor on Peloton makes more than $500,000 per annum.

Peloton employees Instructors on a full-time basis and pay both on a fixed salary and bonus. Peloton also utilizes talent agencies to recruit the best trainers and instructors for the platform.

What is Peloton Ownership Structure?

The venture capital firm Tiger Global was listed as the company’s largest shareholder in the S-1 filing with a total share of 19.8 percent. John Foley owns more than 15 million shares or 6.2 percent of the Peloton firm.

TCV with 6.7 %, True Ventures with 12%, and Fidelity Investments with 6.8% are also notable shareholders of Peloton.

How Many Peloton Bikes Have Been Sold Till Date?

Once again, the company declined to reveal the precise amount of its revenues. 

As per Statista Report, Peloton sold more than 550,000 bikes in the first quarter of 2020 and more than 880,000 bikes in the third quarter of 2020.

Given that the cycle can be considered their signature product and has existed for a much longer time than the tread, one can conclude that the cycling product accounts for most sales.

How Much Funding has Peloton Generated?

Peloton raised a total of $994.7 million in venture capital funding throughout the company’s existence as a startup, as per the Crunchbase report. GGV Capital, Kleiner Perkins, and Tiger Global Management are just a few prominent investors.

What is the Total Revenue of Peloton?

Peloton generated $1.06 billion in the Q2 of 2021 and $757.9 million in the Q1 of 2021, as per their financial report.

Also, Peloton has generated a revenue of a total of $1.86 billion in 2020. 

Revenues of $607 million were reported in Q-4 of 2020 & $524.6 million for the third quarter of 2020, representing high growth year-over-year increase. 

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What is the current Valuation of Peloton?

Peloton was valued at $8.1 billion during its initial public offering, in which it raised an additional $1.2 billion. Today, that value has more than doubled to more than $24.4 billion. 

Since the majority of consumers were confined to their homes and thus unable to use public gyms, many purchased home gym equipments to compensate for the lack of outdoor activity, giving a big boost to the revenue of Peloton.

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What is the Userbase of Peloton?

Peloton currently has over 4.4 million members. The connected fitness membership has 1.67 million subscribers. Peloton has a paid digital-only subscriber base of over 625,000. Also, Peloton users complete 98.07 million workouts per quarter.

Moreover, Peloton claims to reach the mark of 100 million workouts per quarter soon in 2021. 

Peloton Membership Over the Year

Peloton Paid Digital Subscribers

Peloton Quarterly Revenue

Final Thoughts about Peloton Business Model!

Peloton developed a high-end product that users adore, resulting in high margins and loyal customers. Some of its instructors even achieve celebrity status. The strength of their brand enables the company to expand into other verticals such as running or apparel. The Peloton was ultimately successful in establishing a new market category, that of connected fitness products.

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