The Peloton Business Model – How Does Peloton Work & Make Money?

Executive Summary:

Peloton is a hardware technology company that manufactures and distributes fitness devices, namely its Peloton Bike and Tread. Its devices are connected to the internet and thus allow users to have virtual group workout sessions.

The business model of Peloton is based on selling its hardware products. Furthermore, the company makes money by charging users a monthly subscription fee as well as through the sale of fitness apparel.

Peloton, founded in 2012 and headquartered in New York, has become widely popular with sports enthusiasts around the world. Its continued growth allowed the company to go public in 2019.

A Short History of Peloton

The concept of Peloton came to Foley in 2011. At this time, he was the acting president of e-commerce at Barnes & Noble. Next to his time-consuming job and two kids, he found himself having less and less capacity to attend his fitness classes.

During this time, instructor-led fitness classes began to gain popularity. Companies like SoulCycle and Flywheel created a much more intimate experience with their customers. Unfortunately, due to his limited availability, John found himself unable to attend many of these classes and had to revert to his home bike. “A totally unsatisfying experience”, as he described in the How I Built This podcast.

He realized there was a void to be filled. He quickly sketched out his vision of an indoor bike with an attached monitor, which would stream cycling classes. Being a Harvard Business School grad and accomplished exec, Foley tapped into his extensive network and was able to raise a $350,000 seed round along with $50,000 of his own funds.

While Tom Cortese, COO of Peloton, joined prior to the round, the other founding members followed soon after. Interestingly enough, the first four employees did not draw a salary, but received equity instead.

By the end of 2012, Peloton was able to raise a $3.5 million Series A round. Additionally, the company launched a Kickstarter campaign to raise additional funding and increase awareness for the product (and securing an additional $307.000).

Until today, the company was able to raise a whopping $994 million in venture capital funding. An additional $1.2 billion was raised during the company’s recent IPO, valuing it at $8.1 billion.

Peloton’s Ownership Structure

The S-1 filing listed venture capital firm Tiger Global as the biggest shareholder in the company (19.8 percent). John Foley owned a little over 15 million shares, equaling a 6.2 percent stake in the company.

Other noticeable shareholders included TCV (6.7 percent), True Ventures (12 percent), and Fidelity Investments (6.8 percent).

How Does Peloton Make Money?

Peloton’s business model is based on three streams of income, namely Connected Fitness Products, Apparel, as well as Subscription revenue.

Let’s dive deeper into them in the following section.

Connected Fitness Products

The company sells two different workout products. The first one is the Peloton Bike, an indoor cycle with a touchscreen monitor. The starting price is $2,245 with the option of monthly payments (at 58$/month). Furthermore, the consumer can choose from different packages that include add-ons such as shoes and headphones.

Next to the bike, the company also sells the Peloton Tread. Similarly, to the bike, the treadmill comes with a touchscreen monitor as well and retails at a starting price of $4,295. Conversely, add-ons can be bought on top.

As illustrated in their S-1, 78 percent of the company’s revenue comes from these two products. But what is exciting isn’t necessarily the doubling revenues (from $183.5 mil. in 2017 to $348.6 in 2018 and $719.2 in 2019), but the profit margins it receives on these products. These come at 43 percent, which is exceptional for a physical product.

Apparel & Accessories

Next to the sports equipment, the company also sells fitness clothing under its Peloton Apparel brand. This includes clothing such as t-shirts and leggings as well as accessories like gym bags and hats. 

Peloton’s apparel revenue makes up less than 1 percent of the company’s overall revenues. Nevertheless, the segment shows promising results, growing at a rate of 53 percent year-over-year.


On top of its hardware sales, Peloton customers can subscribe to exclusive sports content streamed directly to their monitors.

Cyclists can either join a live class and compete against other participants or simply follow pick a class from Peloton’s extensive content library. The monitor then shows them how they stack up against the other participants, whether or not they improved to their prior workouts while being directly connected to the instructor.

The monthly subscription price comes at $39, just a little over the price of a boutique fitness class at companies like Flywheel.

Additionally, customers can download the Peloton app and subscribe to various classes such as Yoga or strength training at $19.49 a month.

Interestingly, their profit margins on subscriptions are roughly the same compared to their physical products. Although the company doesn’t offer an exact breakdown of its cost structure, it is believed that aspects like production, R&D, marketing, and their instructor’s salary are heavily influencing the category’s profitability.

Which ultimately leads me to the next chapter.

How Much Do Peloton Instructors Make?

Although Peloton is not officially disclosing salaries, it is believed that the instructors make $500 to $750 per class. With 10 to 15 classes taught in a week, an instructor could rake in up to $585.000 annually (52 weeks/year * 15 classes/week * 750$). 

During its early days, in order to attract popular instructors, the company also handed out stock options. According to financial reports, there are currently several billions in stock options assigned to employees.

A recent article by Bloomberg has essentially confirmed the above calculation, stating that “more senior instructors make upwards of $500,000 in total compensation”.

The instructors are hired on full-time contracts and compensated on both a fixed structure as well as incentive basis. Peloton even uses talent agencies to find their most talented instructors.

How Many Peloton Bikes Have Been Sold To Date?

Again, the company chose not to disclose the exact figure of their sales. But according to their S1, they claim to have “sold approximately 577,000 Connected Fitness Products, with approximately 564,000 sold in the United States”.

Since the bike can be seen as their flagship product (and has been around much longer than the tread), one can assume that the majority of sales come from its cycling product.

How Many Users Does Peloton Have?

Peloton claims to have 1.4 million members using its interactive fitness platform. These members completed a total of 58 million workouts in the fiscal year of 2019.

Furthermore, Peloton claims that its existing members are highly devoted to the product and platform. This is backed by a supposed retention rate of 92 percent.

Peloton Funding, Valuation & Revenue

According to Crunchbase, Peloton during its life as a startup has raised a total of $994.7 million across 8 rounds of venture capital funding. Prominent investors into the company include the likes of GGV Capital, Kleiner Perkins, Tiger Global Management, and many more.

During its IPO, in which the company raised another $1.2 billion, Peloton was valued at $8.1 billion. That valuation has more than doubled to over $19 billion today. As the majority of consumers were forced to stay home (and couldn’t access public gyms), many went on to buy home gym equipment to compensate for the lack of outdoor activity.

For the third quarter of 2020, the company has posted revenues of $524.6 million, representing a 66 percent year-over-year growth. The company expects to generate annual revenues of $1.72 billion for 2020.

Peloton Mission & Vision

Peloton’s mission is to utilize technology and beautiful design to connect the world through fitness. It aims to empower people to become the best possible version of themselves. The company wants to help people inspire each other by connecting them through their devices.

The vision of Peloton is to build a great and engaging fitness experience across all the devices it offers. Their goal is to create a set of interconnected fitness devices that fit any user preference.  

Key Takeaways

  • Peloton created a premium product which users absolutely love, leading to high margins and loyal customers
  • Some of its instructors even obtain celebrity-like fame
  • Through the power of their brand, the company can branch out into other verticals such as running or apparel
  • Overall, Peloton was able to create a new market category, namely that of connected fitness products

Hi folks, my name is Viktor! By day, I lead a tech team of 10 for an e-commerce startup. At night, I work on expressing my weird thoughts through this blog. And if there's time, I cuddle my cat..