Today, roughly 87% of the coworking spaces around the world are profitable and that number is frequently rising. Given the competition in today’s coworking market, you need to equip yourself with unique financial models and up-to-date strategies to grow your revenue.
Through this guide, you will be well-equipped to navigate through all that with ease. The aim of this blog is to ensure that you are able to watch your coworking business grow and reap profits in no time!
Note that this blog doesn’t guide you to build a coworking space, it helps you to draw a sound financial model to grow an already kick-started business. To learn how to build a coworking space from scratch, you may check out our previous blog by clicking here.
We have also researched about Coworking space’s Growth KPIs for your shared office space. Hope you get value addition by reading it.
- Introduction To Co-working Spaces
- Can Coworking Spaces Be Profitable?
- Understanding Costs Involved In Building A Coworking Business
- Revenue Streams For Coworking Businesses
- Building A Profitable Financial Model For Your Coworking Space
- Ways To Increase Revenue
- Common Losses In The Coworking Business
- Analyzing Competition In The Coworking Market
- Important Metrics To Be Calculated For Business Growth
Let’s get started!
Introduction to Co-working Spaces
Let’s start off with what coworking spaces essentially are.
Coworking is a business model that integrates individuals and businesses to work, either collaboratively or independently, within a shared office space. The idea of coworking spaces is often associated with productivity, integration of ideas, and a well-established hub to focus on your business in peace.
Can Co-working Spaces Be Profitable?
There are several well-established coworking businesses that stand as role models to show aspiring startups that this is indeed profitable business if managed well.
While considering the profitability of your space, there are certain crucial aspects to keep in mind:
What Are Your Revenue Leads?
Where is your revenue coming from? From memberships? From leasing out spaces? These two are generally considered the two major revenue leads in coworking. You may have a business model that focuses more on generating revenue through membership, thereby a larger part of your expenses may go into enhancing membership experience, upgrading amenities, etc. You may also opt to give more importance to the latter, or perhaps both.
Targeting your lead plays an important role in pumping money in, and therefore an important role in generating your profits.
- Who Is Your Target Audience?
Your profits also depend on the community you are expecting a major part of your revenue from. There is a wide range of audiences when it comes to the coworking business. The most popular of them are:
- Digital Nomads and Freelancers
- Work From Home Professionals
- Office Teams and Groups
In the context of coworking, it is almost always more than one target audience- but that too is completely up to the vision and goals of your business. To read more about target audiences, click here.
Meeting the specific needs and expectations of your target audience has a great impact on the revenue you earn from them.
- How Viable Are Your Costs?
What are the expenses incurred? What part of your profit goes to re-investing in your own business model? How much do you have left after these expenses?
Answering all these will also determine the growth of your business, it will also give you an idea of your revenue potential.
The general expenses to keep in mind are:
- Setting up costs
- Operating Costs
- Miscellaneous expenses.
After all these, how much money do you have left as revenue?
- How Well Are You Serving The Community?
At the end of the day, coworking businesses are all about community. How satisfied is the community you are serving? Are you making frequent improvements and adding on amenities to strengthen your model?
Considering how well you are providing for the community, and how equipped you are to expand your horizons are the most crucial aspects that determine profit generation.
The profit you earn tomorrow comes down to your business-community relationship today.
A strong financial model places the community as a central force and works around it, works for it. By doing so, the profitability for the model increases, because the community is the very essence of coworking culture.
Now that we’ve seen if coworking businesses are profitable, and what to keep in mind when considering the profitability of your own business, let’s go step-by-step into learning how to build a financial model that will increase your business’ growth.
Understanding The Costs Involved In Running a Co-working Business
The first step to building your financial model in a way that it steers towards growth is analyzing the various expenses involved.
Here are a few estimated costs that all coworking spaces incur
Setting Up Costs- This includes the expenses incurred in the first stages of setting up your coworking space.
- Interior Design
- Carpentry/Plumbing/Electrician ‘s fee
- Kitchen supplies- kettles, pantry necessities, coffee machines, etc
- Coolers and Heaters
- Toiletries/ other necessaries
This also includes the setup of various safety requirements:
- Fire Extinguishers
- Fire Alarms
- Building in a security system
2. Operating Costs- These are the expenses incurred while operating, running and managing your business once it is set. They include:
- Coworking Software (helps managing bookings)
- Property Tax
- Marketing Software (helps expand the reach of your business)
- Software to connect with your customers
- Security Softwares
- Upgrading your conference room/existing private offices, etc
- Upgrading your kitchen supplies
- Office supplies and Stationeries
- Additional furniture
- Projectors, whiteboard, etc.
3. Staffing– This includes the money you pay out to your staff as salaries.
4. Miscellaneous– Extra perks that are not your number one priority. Installing noise-canceling equipment or investing in an underutilized space in the property like a garage or a basement to convert it into a gym/ small movie room etc.
Calculating these costs is the first step or the base to enhancing a sound financial model. You will look to modify your business model so as to reap maximum profits while keeping these costs in mind.
Revenue Streams For Co-Working Businesses
There are two main revenue streams for coworking businesses:
Curating membership plans proves to be a major source of revenue in this business. While creating these plans, you will have to choose the various benefits you want to include according to your costs and expenses incurred.
There are various ways you can earn money through membership, some of them are:
- Membership Fees For Renting Desks And Offices- This includes the revenue you get from renting out desks, private/shared office spaces, conference rooms, etc to an individual/team. This revenue is rather lucrative and unstable because unlike a set package that has a specified duration, this does not. This means the expected target audience for this particular revenue stream could be freelancers, digital nomads, and other self-employed workers.
- Membership Packages– For members who want more frequent use of your services or perhaps a longer duration of a non-lucrative commitment, such as entrepreneurs or even regularly visiting freelancers for that fact, may benefit from membership packages. There are a few things you must keep in mind while curating these packages:
- Grouped Amenities- You may want to group the amenities you have into separate membership packages and price them cheaper than they’d cost when purchased separately. A light membership package may have access to coffee and snacks along with passes for events, whereas a premium membership may include amenities such as gym, a small theatre in your space perhaps, passes to events, beverages and snacks, conference room privileges, etc.
- Payment schedule– The membership may be daily, weekly, monthly, quarterly or annually, each having different amenities and price ranges of course
- The magnitude of benefits– This goes hand-in-hand with grouped amenities, you may classify your membership packages as “basic”, flexible” and “premium”, with amenities and prices increasing respectively.
You may choose for the Flexible Membership Package to be customizable, if you have a software through which potential members can use your website or app to customize the amenities they need, and have it adjust and show the pricing accordingly- that may attract a lot of new customers.
- Group Memberships– This could be specifically for office groups or teams, entrepreneurs who are looking for a more permanent usage of your space. In such a membership, they may thus need access to more private spaces and conference rooms, discussion spaces to communicate as a team, amenities that support them working longer hours, etc.
- Shared Memberships– Coworking is all about integrating ideas. Like-minded people who want to share a part of your space to brainstorm different business ideas and to expand their network might be interested in this membership plan. It typically brings together different workgroups who are open-minded to hear and produce novel ideas. Including amenities like shared discussion spaces, open desks, snacks and beer-on-tap, coffee machines, etc can strengthen this membership.
- Social Memberships– This is more of a light-weighted membership without conventional commitment. It is a great way to bring in more people into your community. These people are committed to your spaceless, they may not be looking for a dedicated desk or but they are still looking to be a part of the community. Amenities for social members may include passes to events being conducted in your space, access to open desks for every X entries made into your space, etc.
Social membership is a great idea because you are not only using it as an on-and-off revenue stream, but you are also promoting your business culture, your space, and what it has to offer without completely investing in offering it. Most importantly, you are allowing the time and space to build trust with these members so that, with time, they opt for a more permanent membership plan and become a constant part of your community.
You are thus directly serving prospective members through a social membership plan.
These are a few different membership plans you may provide. They will act as a major source of your revenue
- Space Leasing
The second major revenue stream for a coworking business is space leasing.
The first step is to understand the subletting opportunities for the space you’ve rented from a landlord. Does the contract legally allow you to further rent parts of the space? Make sure that it does because space leasing can generate a considerable amount of revenue for your business.
You may choose to lease out offices for individuals or groups and teams, even individuals. Short-term space leases can also be done such as using a specific amenity for a set-duration in a day, like conference rooms and private offices.
Generating income from renting out desks and offices come with determining certain important aspects:
- The costs that come with this.
- An estimate of the number of people using this service.
- Determining whether you have enough space to accommodate these people.
- Deciding what amenities you can provide on the basis of your cost, and the individual/team’s expectations/needs.
Membership fee and space leasing are thus the two major revenue streams when it comes to coworking spaces.
Building A Profitable Financial Model For Your Co-working Space
It is imperative to steer your business model towards maximum profit in order to progressively increase the growth of your coworking space.
Let’s discuss a few key areas to consider while trying to remodel your financial plan towards increasing revenue and growth.
While remodeling your business plan so as to reap maximum growth, there are certain assumptions you are required to make for achieving important calculations, they are as follows:
You are likely to proceed with your calculations under the assumption that,
- Market costs of necessary items for your space such as coffee and office supplies do not change drastically.
- A discount price can be arrived at for frequently purchased items such as bathroom supplies, office supplies, coffee, snacks, etc in bulk.
- X number of desks will be rented
- Y number of employees are needed
- Z number of members will enroll.
- Unique Selling Points (USPs)-
Focusing on your Unique Selling Propositions will not only bring you more permanent customers but also generate a considerable amount of revenue in the long run. With more and more startups joining the coworking business model, investing in your USPs will help you ride the competition and grow your business. A crucial aspect of deciding on your USPs is analyzing the competition in the coworking market, about which we will discuss shortly.
Come up with novel innovations, look at what the other coworking spaces don’t offer and look to offer that within your cost- range. You are, at the end of the day, appealing to the community which is the heart and soul of coworking culture. The more you pave the way for different people to integrate ideas, discuss and produce new strategies for their work, share experiences and opinions, the more you are appealing to the community because this is what’s expected of an ideal coworking space.
How can you broaden these expectations? How can you bring in new amenities and plans that will better the environment of freelancers and teams exchanging and feeding off of each other’s knowledge? What more can you offer? The more you push the capacity of your community to integrate and collaborate, the stronger your Unique Selling Proposition gets and the more revenue your business generates.
- Investing in Smart Marketing
Marketing is another key aspect of generating revenue and growing your business.
Before we dive into the various ways you can market your space to boost customers and profit, do not forget that your existing customers are the best way to expand the reach of your community. Word-of-mouth always proves to be an extremely helpful way of welcoming new people into your business.
You may choose to provide discounts for people who join on the recommendation of a set few loyal members or those with premium memberships.
Good marketing can help attract more consumers into your coworking space. Here are a few ways to do that:
- Create Your Website– A well-designed and accessible website go a long way in your marketing plan. You may use popular service providers such as Wix and WordPress to do the same. Make your website as user friendly as possible. A website that is aesthetically pleasing creates a positive impact on potential clients. Make sure to specify your vision and mission on the website so the viewers understand your brand to its very depth. All essential information must be included such as pricing, discounts, location, timings, the various plans, your facilities, etc.
- 2. Social Media Marketing– You can either hire an intern to market your company on various social media platforms or do it yourself extensively. Platforms like Twitter can be used to directly engage with the members and potential future members. Platforms like Facebook and Instagram can be used to promote your business and regularly update the various events you’re conducting, etc.
You may also consider investing in social media ads such as Facebook and Instagram to expand your reach.
Some tips to consider while marketing in social media:
- Maintain the same theme through all platforms. This might be one solid color or a specific aesthetic.
- Decide the look of your pages– do you want it to be minimalist or over the top?
- Respond to comments and queries on a regular basis
- Keep updating offers and discounts on your social media pages to attract more customers.
- Content Marketing- Hire content writing interns, or generate blogs yourself in your website related to coworking. Provide well-detailed resources to various aspects of coworking so as to attract more viewers to your page. Make sure to be well versed in SEO optimization while doing the same.
- Planning Social Events– Hosting well-organized social events is not only crucial to keeping the culture of coworking alive but can also be a great marketing strategy. If your business is set in a very socially-active locality, then hosting frequent events can attract a lot of new members.
- Create Membership Plans Wisely– Attractive discounts and coupons can pave the way to new customers. Plans curated specifically for freelancers, etc- can reach out to set target audiences and prove to be profitable in the long run.
- Advertise in Common Places– Based on your budget, advertise in public places like transportation hubs or popular hotels. Choose to invest in posters, etc if you are looking to advertise in frequently visited public places.
As we’ve discussed above, coworking is all about integration and collaboration. Running a coworking space paves the way for you to connect with various local enterprises that will help enhance your own business and the quality of your services and membership plans.
Good partnerships benefit you in the following ways:
- Give an added value to your members
- Boost revenue
- Generate new leads
- An opportunity to advertise your business
Most of the time, partnerships also prove to be cost-cutting methods, thereby helping you grow revenue. For example, instead of having a restaurant in your coworking space and having a section of your revenue regularly go into maintaining and running that restaurant- you may choose to partner with a local cafe near your space and have them supply and promote their food, snacks, beverages, etc. Not only does this provide room for socializing and act as an add-on amenity for your customers, but by offering discounts exclusively for those who use your space, the local business grows too and is therefore a win-win.
As a coworking business, you may partner with:
- Local cafes and coffee shops
- Fast food joints and restaurants
- Local breweries (All of these promote your members to further socialize which strengthens the coworking business model)
- Gyms and yoga studios (perhaps for a select few membership packages so they can benefit from physical exercise after long hours)
- Spas & Massage centers for your members to relax after a long day of work.
Good, long-term partnerships may save you on a lot of costs whilst providing for your customers the best of amenities.
These are some of the major aspects to consider while steering your financial model towards the direction of growth and profits.
Ways To Increase Revenue: Your coworking Business Model
Now that we have a clear idea of how to remodel our business plan towards growth, here are a few methods with which you will be able to do so:
- Enterprise-Centered Business Plan
When you observe frequent check-ins into your space by a said group or enterprise, you can offer that enterprise specially crafted amenities and rates. Amenities for enterprise-focused plans may include:
- Private Office Spaces
- Conference Room Privileges
- Special events to promote that enterprise
- Customized amenities- You can allow these enterprises to customize their own plan, like in a flexible membership plan, have them choose the amenities they require based on their expectations and needs, and have the pricing adjust according to the amenities they choose. You can also give packages where you reduce the pricing when they look to purchase more than X number of amenities, in a way where they save money when compared to buying those amenities individually.
Enterprises can be great sources of revenue if managed well.
2. Implement a Credit- Based System-
Another way to grow revenue is by using a credit-based system for your members.
Members can buy credits ahead of time and can then redeem these points for various amenities such as
- Utilization of wanted space for an additional duration of time.
- Passes for events
- Privileged access to the conference room
Once these credits are easy to use and transferable, it will do wonders to your business’ growth.
3. Vertical Integrations-
As discussed previously, this is nothing but extending yourself to strategic partnerships and providing other services such as food, fitness, and childcare in your coworking space. This attracts more customers into your space, retains existing customers by meeting their needs in different ways possible, as well as helps ride out the competition.
4. Increase Space Utilization Through The Day
A coworking business model is all about flexibility, there is no hard and fast rule that members must utilize your space in peak hours and complete a daily 9-5 routine. Most freelancers prefer coworking spaces because they can rule out the limiting boundaries of conventional offices.
Offer lower rates for non-peak hours, it will help you maximize your space’s utilization throughout the day. As discussed above, such discounts may prove extremely advantageous to freelancers and other workers who are looking to escape traditional office timings/settings- thereby encouraging them to become a permanent member in your space.
5. Update Your Amenities
Keeping your budget in mind, offer add-on amenities that would instill value in your core product. Some of these include gym, childcare facilities, converting an unutilized or underutilized part of the land into a small movie room, etc.
Updating your amenities from time-to-time gives another reason for your customers to stay within your business, and attract new customers as well.
6. Classes and Workshops
Hosting events, classes and workshops can also be another revenue-generating option for your space through tickets for the same. You may want to find out from your existing customers what skill they might want to learn as a group and have those workshops hosted in your space.
Some of the events and workshops you can host are:
- Opening Event– what you’d host when you first launch your space.
- Skill- Development And Training Workshops– upon asking existing customers the skills they expect to develop.
- Group-focused Workshops– this might be specifically curated to certain individuals/enterprises, providing resources on how to grow their business, such as workshops specifically meant for freelancers, digital nomads, etc.
- Team-building Workshops– The essence of coworking is integrating ideas and experiences. Team building workshops enable active socializing that better the culture of coworking.
- Fitness Classes– If you have a fitness center in your space, this might be useful. A Zumba class every now and then or perhaps an aerobic trainer who’ll prove useful to your members. This can also be included as a part of your membership plans, that would be an innovative way to attract members.
- Counseling Sessions– Working together might prove to be hard at times, to overcome the challenges of socializing and bringing together ideas and different people, you may call an Organisational Psychologist to come and lecture your members on successfully overcoming these challenges. These classes also promote motivation and teach your members methods of productivity and concentration.
These are some of the key ways to grow your revenue and your business.
Common Losses In The Shared office space Business
When assessing how to improve profits, it is imperative to understand the commonly met losses in this business. They help you give a better picture so that you can equip your business model in a way where you can avoid these losses as much as possible.
Here are the most common losses coworking spaces face:
- 40% of the total losses are said to be incurred from renting the space from the owner of the property.
- 15% of total losses are observed to be operating costs.
- Marketing is said to be a huge expense.
- Salaries and benefits to the employees.
- Maintenance costs
- Equipment installations.
Analyzing Competition In The Co-Working Market
Competitor analysis cannot be ignored when looking to grow your business. With more and more startups springing up in the coworking field, you must be well equipped to ride out the competition. Here are the ways you can do so:
- Determining their profits
This includes knowing their revenue streams, main profit sources, cost structure, methods of business growth, liquidity, their resources- human capital and amenities provided, etc. You must understand the profitability of your competitors in order to build a sound financial model and grow revenue.
2. Understanding their Market Share
This starts with knowing the number of coworking spaces that you have to compete against in the area you are looking to establish your space in. You will have to compare their share of revenue and success, the profits they are making, and their share in the market to the overall national or local average of the coworking market.
Large market shares do not make your competitors undefeatable, it only means you have to come up with ways to aggressively ride out the competition- with your USPs and niche.
3. Knowing their USPs
We saw how important working on your own Unique Selling Points are, understanding that of your competitors is an important aspect of competitor analysis. This will also help build your own USPs and know what and what not to include.
4. Their Target Audiences
Observing and understanding your competitors’ target audiences and types of customers will also give you an edge over deciding your own. Moreover, since target audiences are important for profit generation, this will also help you understand their profitability and analyze the amenities/facilities they provide to keep their customers with them.
This will in turn enable you to provide the facilities they don’t or provide it better.
5. Utilization Rate of Space
The utilization rate of space is used to analyze the quality of your competitors’ service in the coworking field.
- Take the national growth rate of coworking spaces to be X%,
- Approximate that and apply it to your city, this will give you a measure to know how many new spaces can open.
This involves checking measures such as:
- daily peak utilization
- average peak utilization
- checking which businesses are proved to be the most active customers during observed periods.
Important Metrics To Be Calculated For Business Growth
The following metrics allow you to calculate important aspects that will determine, analyze, and further enable you to predict the growth of your business.
This is based on the origin of revenue streams. License fees and membership are the recurring rental incomes from tenants or members. A good indicator of success is when monthly rent constitutes 80% of your workspace’s total revenue. The rest 20% will come from the amenities/services you provide (conference rooms, food, etc)
RECURRING REVENUE = LICENSE FEES + MEMBERSHIPS REVENUE
- Occupancy Rate-
Calculating this over frequent periods of time would refer to “rigorously tracking occupancy”.
There isn’t a benchmark occupancy that indicates profitability, it is subjective to each business.
- Workstation Occupancy Rate
Calculating this, in particular, is challenging because desks and usage of other workstation units are constantly changing. Having software to help with occupancy calculations might help arrive at the required results.
In terms of revenue from occupancy, there are two metrics to keep in mind:
- Revenue Per Occupied Workstation (REVPOW)
2. Revenue Per Available Workstation (REVPAW)
Other important metrics include:
- Rate Per Square Foot
- Forecasted Contract Revenue
- Renewal Rates
- Current and Historical Rates
To learn and understand more such metrics, click here.
We then looked through the costs involved in running a coworking business after which we analyzed the various revenue streams in the business and how they’re beneficial.
Then we learned the key aspects of building a business model that will help grow your profit and revenue.
We moved on to analyze the different ways to improve/increase revenue from your coworking business, before diving into familiarizing ourselves with common losses that come with this business.
Next, we studied competition analysis and, lastly, we briefly looked at important metrics that indicate business growth.
I hope this guide took you through the different ways you can build a profitable coworking business.
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Happy Coworking : )