We’re excited to collaborate with Abigail Schilling from Space Savvy Studio for this insightful piece on making coworking spaces profitable. Abigail is a renowned expert in the coworking space industry, bringing over two decades of leadership experience in business and marketing. As the owner and operator of three successful coworking spaces in Oregon, she’s faced firsthand the challenges and intricacies of managing such ventures. Through her agency, Space Savvy Studio, Abigail offers a range of services aimed at enhancing coworking operations and member experiences, from administrative support to marketing and custom tech solutions.
Her strategic vision and leadership have made her a crucial figure in empowering others within the coworking community. Connect with Abigail on LinkedIn and learn more about her work at Space Savvy Studio’s website.
Making Coworking Profitable
In today’s changing work environment, coworking spaces are leading professionals to a more flexible and community-oriented work environment.
This raises a critical question: Just how profitable are coworking spaces?
With recent forecasts by Statista predicting the global number of coworking spaces to exceed 40,000 by 2024, the importance of understanding their profitability has never been more preeminent. This guide aims to unravel the economic fabric of coworking, weaving together data-driven research, industry insights, and pragmatic strategies to shed light on the profitability of these dynamic spaces.
The Current Landscape: Are Coworking Spaces Profitable?
A recent survey by Deskmag provides a compelling insight: 72% of coworking spaces turn profitable after two years in operation.
But what drives this profitability? And how do coworking spaces navigate the challenges of their initial non-profitable years? Let’s explore.
Decoding Coworking Profitability: Key Metrics
On the path to profitability for coworking spaces, different factors have unique impacts. This breakdown shows how each element contributes to overall profitability, with percentages reflecting their relative significance.
Membership Structure
The structure of membership fees is pivotal to the financial health of coworking spaces, contributing to half of their profitability. By providing a varied assortment of membership options, such as day passes, hot desks, dedicated desks, and private offices, coworking spaces can cater to a wide range of needs and preferences. This flexibility not only broadens the appeal to various demographics but also maximizes the potential for revenue.
KEY INSIGHT: Research shows that coworking spaces with up to 60 members often just manage to break even or may even face losses. Profitability tends to kick in once the membership count reaches approximately 100, with profit margins generally improving as the number of members increases.
Location and Overheads
The choice of location is pivotal for coworking spaces, influencing their success in two major ways: member attraction and operational costs.
Member Attraction: A prime location in the city center can significantly boost the appeal of a coworking space, making it more desirable to potential members who value convenience, accessibility, and the prestige associated with such addresses. Being situated in a bustling area can also provide networking opportunities, access to nearby amenities like cafes, restaurants, and public transportation.
Operational Costs: While a metro location offers numerous benefits, it also comes with higher rental costs. These expenses form a substantial part of the overhead costs for a coworking space. In addition to rent, other expenses such as staffing, utilities, maintenance, and insurance also vary by location.
To optimize profitability, coworking spaces can make strategic decisions when it comes to lease negotiation, space utilization and coming up with inventive new revenue streams.
Other Revenue Streams
Beyond memberships, successful coworking spaces tap into additional revenue. Hosting events, offering consultancy services, or providing amenities like cafes can increase profitability.
Real World Profitability: Streamlining Operations and Boosting Efficiency
When I first opened my own coworking space, I was focused on long-term members and office sales. After a few months I realized that this traditional focus was limiting the number of people I could convert, and I was missing out on a large market segment that was active in my region.
Not wanting to miss out on potential revenue, I decided to diversify my service offerings and target a broader audience. I saw the untapped potential of non-members and the rising demand for flexible options for room bookings and day pass users.
I developed a public online signup and booking page, making it effortless for anyone to discover and access the coworking space. I also integrated self-serve automations for both bookings and day passes to cut down on the work that would be required to onboard and serve these bookings.
The ease of online bookings attracted new users, significantly driving up utilization rates and diversifying revenue streams. But, let’s take a look at another owner/operator that I’ve worked with through my agency, Space Savvy Studio.
Joanna, another coworking space owner, was grappling with financial strain. Her space suffered from high operational expenses, compounded by a high staff turnover and excessive payroll costs. Despite her best efforts, the space’s financial health was deteriorating, and things were just getting worse as she struggled to look at the right data and relied on ineffective marketing strategies.
Joanna realized her approach needed a complete overhaul if her space was going to survive! Together, we undertook a thorough review of her business operations.
We identified key areas where expenses could be cut without compromising service quality. We recognized the need for “the right person in the right seat” and agreed that there was no “unicorn” – no one single person could handle all the tasks. This led to outsourcing certain operations, such as marketing and financial management.
This strategic realignment and outsourcing led to a strong turnaround – operational costs were reduced, and the effectiveness of marketing efforts improved, attracting more members, room bookings and boosting revenue.
Joanna’s space now operates more efficiently, with a leaner, more focused team and external partners, like Space Savvy Studio, that drive success.
How to Make a Coworking Space Profitable
Every inch of your coworking space should be designed with profitability in mind. While community areas encourage networking and collaboration, they must be balanced with revenue-generating spaces or you must be able to prove they are generating other revenue or profitability via retention metrics.
Utilization is a key metric in knowing your profitability. If you look around your space at any given moment and see a certain percentage of space is not being used – your #1 priority is getting it to generate revenue.
- Community Space Optimization: Essential for networking, community areas should be strategically placed to not encroach on spaces better suited for revenue-generating activities like private offices. Integrating communal spaces with areas like kitchens and hallways maximizes valuable real estate and allows for multifunctional use, including hosting events.
- Space Utilization: Balance member satisfaction with profitability by creatively repurposing areas for multiple uses, such as transforming open areas for events or underused corners into quiet zones, thereby maximizing space efficiency and meeting diverse member needs.
Optimizing Coworking Space with Strategic Floor Planning
Maximizing the utility and profitability of your coworking space hinges on effective space management. Utilizing visual aids such as floor plans is crucial for this purpose. These tools do more than depict space layouts; they are strategic assets for optimizing space use.
Strategic Visualization: Advanced tools, like Archie’s floor plan feature, are instrumental in visualizing space allocation. They enable easy identification of underused areas and help predict and quickly fill vacancies. This visualization also facilitates strategic grouping of members or businesses, enhancing collaboration and networking opportunities.
Creative Space Maximization: Embrace creativity in utilizing every square foot of your coworking space. Strategic floor planning allows for the assessment and repurposing of underutilized areas, adapting spaces for various uses throughout the day, and redesigning for improved flow and interaction. This ensures that every area of the space contributes to its vibrancy and supports a diverse mix of uses, enhancing both the community atmosphere and revenue potential.
Insightful Usage Analysis: Understanding member usage patterns is key to adapting and enhancing your space for profitability and satisfaction. Tools like Archie offer insights into how spaces are utilized, highlighting trends in occupancy and identifying rooms that could be better served as dedicated workspaces or private offices.
Key Metrics for Analysis Include:
- Utilization Rate: Indicates how effectively resources are used.
- Occupancy Trends: Helps assess space appeal and usage.
- Customer Retention and Repeat Business: Essential for long-term profitability.
- Operating Expenses per Square Foot: Evaluates space utilization efficiency.
- Acquisition Costs and Lifetime Value of a Customer: Crucial for strategic planning and resource allocation.
Engaging Feedback Systems: Actively seek and analyze member feedback on space usage and preferences. Utilizing QR codes for feedback collection and engaging in direct conversations can provide deep insights. This community-driven approach fosters a responsive and adaptable coworking environment.
By strategically leveraging floor plans and actively engaging with member feedback, coworking spaces can enhance their operational efficiency, member satisfaction, and overall profitability
Generating New Income Streams Beyond Membership Fees
While membership fees are a crucial income source, exploring various revenue streams is essential for growth.
- Host Events and Workshops: Utilize your space to organize paid events or workshops, tapping into different interests and industries
- Get Local Sponsorship: Find local businesses to provide food or drink for events, and pay an additional fee to be the official “sponsors” of the event itself.
- Food and Beverage Services: Offering on-site refreshments or partnering with food vendors can enhance the member experience and generate additional income.
- Mail Handling Services: A virtual mail service adds convenience for members, attracts a new audience of customers who might not need workspace, and provides another revenue channel.
- Virtual Assistance and Reception Services: Help members manage their workload with administrative support services.
- Office Amenities: Charge for printing, scanning, and access to office supplies.
- Merchandise: Sell branded merchandise. Bonus — free advertising when your stickers and sweatshirts are spotted around town.
- Pop-up Shop: collaborate with local artists and creators for a pop-up shop within your space.
- Consultancy Services: Offer business consultancy services, workshops, or mentorship programs as premium add-ons.
- Tech Tools: Rent out high-tech equipment or software licenses that startups might not want to invest in initially.
- Wellness Programs: Introduce yoga classes, meditation sessions, or health workshops, turning your space into a holistic work environment.
Expanding into these areas not only increases revenue but also enriches the member experience, making your coworking space a more valuable and integral part of their professional lives.
Manage Expenses, Not Just Revenue Growth
The key to profitability in a coworking space isn’t just about growing membership numbers. Keeping expenses down is just as important as generating revenue.
Strategic management of the physical space, along with diversifying income sources and making use of technology, can help coworking spaces stand out in a crowded market.
In order to keep expenses down, consider:
- Implementing automation for manual workflows that take up too much time.
- Adopting policies such as member-led self-help solutions that enhance operational efficiency.
- Outsourcing for certain functions that could be done remotely.
- Focusing on developing systems that can be repeated by anyone.
- Developing and retaining skilled staff.
These can all contribute to a more profitable business model, play a significant role in maintaining a high-quality service offering and sustain long-term success.
How Much Money Do Coworking Spaces Make?
Globally, coworking is expected to grow to a combined market size of $40.4 billion in 2028.
Individual space profitability varies significantly based on company size and location. Here’s a generalized breakdown:
- Small Spaces (up to 50 members): Often operate at a loss or break-even.
- Medium Spaces (50-150 members): Can expect profits in the 10-20% range.
- Large Spaces (150+ members): Often see profit margins of 20-30% or higher.
City-center locations in major metros can command higher membership fees, but this is offset by higher operating costs. In contrast, suburban or smaller city locations might have lower fees but benefit from reduced costs.
Whether operating in a metro or rural area, make sure that your offset still keeps you in an ideal profitability range.
City-center locations in major metros can command higher membership fees, but this is offset by higher operating costs. In contrast, suburban or smaller city locations might have lower fees but benefit from reduced costs.
Whether operating in a metro or rural area, make sure that your offset still keeps you in an ideal profitability range.
Understanding Costs in Coworking Spaces:
Coworking spaces have a mix of fixed and variable costs, some of which offer direct ROI while others are essential expenditures.
Fixed Costs (One-time Investments):
- Furniture and Infrastructure: This includes tables, chairs, lounges, and other essential furnishings to set up the coworking space.
- Tech Installations: Setting up Wi-Fi systems, security cameras, or other tech installations come under this category.
- Initial Marketing and Branding: This includes costs related to launching the space, like opening events, initial digital marketing campaigns, and branding materials.
- Construction costs: This could be remodeling work, such as painting, flooring, electrical updates, plumbing modifications, and installing partitions or private booths. Additionally, costs may cover compliance with local building codes, accessibility improvements, and the customization
Ongoing Costs:
- Lease: One of the most significant monthly expenditures, especially for spaces in prime locations.
- Utilities: This includes electricity, water, and other essential utilities.
- Staff Salaries: Salaries for community managers, cleaners, and other essential staff.
- Maintenance and Cleaning: Regular upkeep of the space.
- Software and Internet: Costs for coworking management software, high-speed internet, and other tech services.
- Sales and Marketing: Advertising, outsourcing to specialty contractors, and hosting events.
- Supplies and Community Events: Everything from toilet paper to refilling the keg – these amenities help build community.
Strategies to Increase Profitability
Promote Your Coworking Space to Non-Members:
- Day Passes: make these easy to purchase and use so that travelers and other rare visitors and quickly and easily access your workspace.
- Meeting Rooms: Open your meeting rooms for external bookings. Local businesses or remote teams might need a professional space for occasional meetings.
- Events: Your coworking space can be an excellent venue for workshops, networking events, or even social gatherings in off-hours.
- Specialty Rooms: If your space boasts unique features like podcasting rooms, video conferencing suites, or brainstorming hubs, consider renting these out to non-members.
Fee Structuring and Pricing Strategies
- Annual Price Increase: Integrate a policy for annual price increases to keep pace with inflation and rising operational costs. Clearly communicate this policy to members to maintain transparency and manage expectations.
- Automatic Renewal of Office Terms: Establish automatic renewal clauses in membership agreements. Ensures continuous occupancy and revenue flow, while reducing the administrative burden of renegotiating terms.
- Comprehensive Pricing Evaluation and Competitive Research: Regularly assess your pricing structure to ensure it’s aligned with the market. Conduct thorough competitive research to understand the pricing landscape. Adjust your rates accordingly to avoid undercharging and to reflect any increases in costs.
- Passing on Credit Card Transaction Fees: Consider the possibility of passing credit card transaction fees onto members to offset additional costs. However, it’s crucial to first review local regulations and laws to ensure compliance. Transparently communicating any fees is also important for maintaining trust and goodwill.
- Incorporation of Joining Fees, Setup Fees, and Non-Refundable Deposits: Introduce one-time joining or setup fees for new members to cover the administrative costs of setting up new memberships. Additionally, consider implementing non-refundable deposits to secure bookings and mitigate the risk of cancellations.
Add Café and Refreshment Revenue:
- In-house Cafés: Adding a cafe to your space allows an option for busy professionals.You can also use on-site staff to help run both the cafe and the coworking space.
- Snacks and Beverages: Stocking up on snacks, coffee, or even quick meals to members who prefer to work uninterrupted. This not only enhances their experience but also adds to your revenue.
- Vending machines: Adding a self-serve option that manages inventory and cash flow for you allows for an additional line of revenue without the overhead of management.
Retail and Tech Offerings:
- Dedicated Retail Area: Utilize part of your reception area or cafe to sell non-food items. This could be a space for local businesses to sell their products, such as handmade candles or artisan crafts, creating a unique shopping experience within your coworking space.
- Tech and Office Supplies: Offer convenience by selling essential items like charging cables, adapters, notebooks, and pens.
Dynamic Pricing Models:
- Demand-based Pricing: Adjust prices based on demand. For instance, if your coworking space sees more traffic on weekdays, prices for those days can be slightly higher.
- Bulk Booking Discounts: Offer discounts to members who book spaces for extended periods or large teams.
More tiered membership options:
- Lounge Membership: Ideal for those who desire a relaxed environment to work and connect but don’t need a dedicated desk or round-the-clock access.
- Access Membership: gives access to the space and a discount on booking day passes, desks, or meeting rooms.
- Part-time membership: An option that gives members a certain number of day passes per month.
- Social membership: A membership offering that gives access to networking events, community events, and online resources, plus discounts on day passes and meeting room rentals.
- Flex Desk Membership: For members who prefer flexibility, offering an open seating plan where they choose an available desk on arrival
- Dedicated Desk Membership: members who prefer having their dedicated space, ensuring consistency and a personalized workspace.
Utilize Software Analytics to Optimize:
- Advanced Management Software: help to gain insights on space usage, enhance bookings, and optimize billing processes.
- Data-driven Decisions: Harness the power of analytics to understand peak usage times, member preferences, and more.
- Tracking the sales funnel: By monitoring the journey of your prospective members, you can ensure no one is falling through the cracks. You can also gauge interest and tailor your pitch for increased conversions.
- Churn and Expansion Analysis: Understand why members leave (churn) and how many choose to expand their workspace or services. This helps refine offerings and improve retention.
- Space Utilization Metrics: Use software tools to track which parts of your coworking space are frequently used and which aren’t, helping in informed space rearrangement or allocation.
- Revenue per Square Foot: This metric provides insights into how efficiently space is being utilized concerning revenue generation. High-performing areas can serve as models for other parts of the workspace.
Strategies to Attract, Win, and Retain Customers to Increase Your Bottom Line
- Acquisition Focused: Implement campaigns targeting freelancers, startups, and remote teams, showcasing the benefits of your coworking space. Offer promotions or trial periods to attract new members.
- Retention Focused: Design campaigns for existing members highlighting premium services, loyalty discounts, or referral bonuses. Use utilization data and automation to drive space utilization.
- Local Businesses: Collaborate with local cafes, gyms, or stores. Members can get discounts, and in return, these businesses get increased footfall from your coworking space.
- Online Tools & Software: Partner with software providers to offer members discounted or exclusive access to tools that can enhance their work.
How to Streamline Operational Expenses
Reducing operational costs is key to enhancing profitability. Here are effective strategies to consider:
- Energy Efficiency: Adopt energy-saving initiatives to lower utility expenses.
- Bulk Buying: Save money by purchasing coffee, stationery, snacks, and other amenities in bulk.
- Outsourcing: Utilize virtual assistants, contractors, and specialty services to minimize in-house staffing costs and broaden skill availability.
- Event Management: Eliminate events with low participation and use data analytics to guide event planning, ensuring resources are allocated to high-demand activities.
- Technology and Automation: Employ software solutions and automation for efficient guest management, reducing the need for manual processes and labor.
Example P&L for a Coworking Space
The Future of Coworking: A Pathway to Profitability
As we look to the future, the success of coworking spaces will increasingly hinge on their ability to innovate as well as respond to the evolving needs of their members, ensuring they remain at the forefront of the changing landscape of work.
In navigating the complexities of the coworking industry, spaces that marry strategic financial planning with a strong commitment to community and adaptability will thrive. By leveraging data-driven insights, optimizing operational efficiencies, and diversifying revenue streams, there’s enormous potential for coworking to be profitable and serve an important function in the future of work.
