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

Coworking space reception softwareSome of the major drivers of your serviced office's profitability include:

  • 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?

corporate offsite meeting

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.

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.

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