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Coworking Economics 401 | Greetly iPad Receptionist
Only 40% of shared workspaces are profitable! This article reviews the critical success factors for operating a cash flow positive coworking space.
The increased popularity of coworking has led to a meteoric rise in the number of shared workspaces. And many projections suggest this is just the beginning. Established operators and new entrants alike are continuing the add square footage across the globe.
There are many reasons for you to open a coworking space. The most altruistic objective is the desire to help forge a sense of community for your town and local small business scene. Another is data-driven. Operating a shared workspace gives you insight into trends and specific startups. You can use this to make investments or to shift your other business operations based on what you learn.
Naturally, another major reason to become a communal workspace owner, or to increase your units, is to make money. But is it a good investment? A recent Global Workspace Association, or GWA, the study revealed that only 40% of these enterprises are profitable. Coworking economics was also a major theme at the recent Global Coworking Unconference. That said, the same research showed great variability. Several factors can greatly increase your odds of success. Let's take a look at those...
Major Success Factors
- Rent: This is a major contributor to your overhead. Your rent is usually fixed over the duration of your lease. That said, you can often negotiate deferred rent or a back-loaded lease which will help your cash flow in the short term. Further, don't skimp too much, a great location will require a premium price per square foot.
- Staff: Along with rent, payroll expense will likely be one of your largest costs. Again, this is a delicate balance. On the one hand, good people are expensive. On the other, the entire reason your members join is for the people. Here is the trick - hire great people and use them wisely. Don't waste their time on menial tasks, have them focus only on tasks that attract and retain members.
- Usage / Occupancy: On the revenue side, the most important determinant of success is space utilization. The greater the utilization, the more revenue that can be generated, and ultimately, the more profitable you will be. Think of your business center like a SaaS business. Your cost per acquisition (CPA) is the direct expenditures and time opportunities cost required to bring in a new client. How long you can retain a member, multiple by their rent, is your customer lifetime value (LTV). Unlike a widget manufacturer, any empty space is revenue that is lost forever. That is why you see everyone from independents to large operators offering discounts for new members.
- Utilities: In every modern office, but especially in your workspace where companies are paying for amenities, your members depend on consistently fast Internet and Wifi. Other essential utilities include electricity and water. Try to spare any other upgrades or add-ons that drive up cost without impacting member satisfaction.
Want to know how you stack up against other serviced offices? Here are the most important coworking space metrics.
How Can You Increase Profitability?
Below are some tips to beat the odds and operate a profitable shared workspace. One is focused on cost efficiency. The other is a source of incremental revenue - without nickel-and-diming your members to revolt.
- Smart use of technology and automation: Remember, you want your staff to focus on community building. Use high-touch technologies to free up your people towards that objective. Coworking space management software can be used to manage members, payments, space utilization, handle mail and create a package log, and much more. A visitor management system can be used to greet visitors and handle deliveries. This is important to members who do not want to keep an important client (or their lunch) waiting for any reason.
- Corporate events: During downtime, use your open space or conference rooms as a corporate event venue. This will increase your cash flow with no impact on your core clients. Local businesses need a place to hold offsite meetings. You offer two unique benefits - a ready-made space and the opportunity for corporate team members to interact with startups. Not only will you earn direct revenue, but by advertising your space as friendly to larger organizations, enterprise companies might lease space from you.
Summary -Focus on Economics and Watch Profits Grow
There are many reasons to operate a coworking space. And while the business may look sexy, it is not a guaranteed financial success. Fortunately, there is enough data about which costs and activities are likely to increase your odds of profitability. So follow the tips above and measure carefully.