3 Top Tips to Improve Coworking Space Economy in 2021
There is much talk around coworking business priorities shift, increased community value, services quality growth and so on. All said above makes sense only if the end goal is revenue growth. Otherwise, it's better to rename a workspace into a charity organization. If you don't like the idea, follow me and we'll find out how to improve your coworking space economy in 2021.
When entrepreneurs start new coworking hubs they probably think of the coworking economy as something evolving, developing, promising, the list goes on. Indeed, all statistics predict stable industry growth.
“The number of coworking spaces worldwide is projected to reach almost 20,000 this year and cross over 40,000 by 2024. While the industry is set to grow at a slower pace in 2020, we expect growth to rebound and develop even more rapidly from 2021 onwards, with a yearly growth rate of 21.3%.” - Coworking Resources
But does it mean that your coworking space is going to be profitable?
According to the Global Coworking Survey, only 43% of coworking spaces are profitable, which means that 57% are detrimental.
Let's make a quick calculation to figure out the margin. Supposing you have nearly 100 members in your space. Each of them pays you $100 a month. Your earnings make $10 000.
Now you need to pay rent (around $3 000), taxes (around $1 500), and salary (around $1 500).
Replace my approximate numbers with real ones and you will get more or less the same percentage. The pure profit of the average coworking space is 10%. In my case, it's $1 000.
This is not much but it's too early to get upset as we are here to find working workspace monetization strategies.
Coworking business is not easy, it is low margin and low volume. I mean that you don't get a lot of customers each month and your prices are low as well, especially today, when clients have to be cost-conscious due to the general economic recession. Scaling up to higher volume takes extra effort to beat the competition.
As to the competition... Coworking business has low entry barriers. It's relatively easy to start a coworking space. You simply rent a building (a room), bring some furniture, and you are done.
It's rather challenging to differentiate in the coworking niche. It's easy to copy your inventions. Most of the coworking spaces have a similar look and feel.
Coworking businesses don't have economies of scale. I mean it won't be cheaper for you to run a workspace if you open 100 more locations. Firstly, you have low margins, secondly, you can't reduce your expenses without automation.
Implementing decent coworking software is probably the first and the foremost advice that will help you increase the profitability of your business.
Before we implemented coworking software, members came to the info desks and managers manually did the booking. It took a lot of their time. Now, andcards is saving so many managers' hours. In Korea, one working hour of coworking space manager costs around $10. If they spend in coworking 100 hours, it's $1 000 salary per month!
With andcards it's a saving of more than $1 000 and we can sell outside the coworking space. A person who is not our tenant yet can also use a meeting room paying for it via andcards with credits or credit card, which saves even more of our time. It's a great investment for us, an investment we have to do. Read the entire interview.
~ Ron Yang, Vice President at MY WORKSPACE, Seoul, Korea
Now, when we have a clear understanding of main pain points that potentially limit your coworking business revenue, let's think of the strategies that might boost it.
According to post-COVID predictions, demand for workspace won’t disappear, on the contrary, it is starting to recover already. However, there is a shift toward private offices that are most commonly requested and dedicated desks that are also needed.
Most companies today use a remote or hybrid workforce. And this won’t change in 2021. At the same time, they are not ready to transfer businesses online entirely. In some cases, it’s impossible, sometimes not efficient. So, the best options for companies in the post-COVID period are:
- Smaller private offices for local branches,
- Flex and super flex offices for the hybrid workforce,
- And dedicated desks for remote employees.
To come up with a proper cost-efficient solution for businesses, you don’t need any significant investments, just a bit of technology in place. For instance, a simple desk booking system will turn your shared amenities into super flex offices that can accommodate a company of 100 in a small office for 30.
The same technology will work for companies with remote employees. They can book their desks for a day whenever they feel like working from the coworking space, pay with a Company Bill inside the same app that they use for booking, and the company manager will be billed for the services they used at the end of the month.
There are two effective ways to do it.
Upsell with high-margin complementary services to earn more on your low-margin product, which is coworking.
- If you have a coffee shop at your spaces, members don't need to go for lunch elsewhere.
- Arrange a service to receive members' mail and packages.
- Offer tourist, business, and work permit visa services for members.
- You can offer a lawyer/accountant's services as well.
Pro tip: It will be easier for you to market your additional services if you feature them in a beautiful online catalog available inside your coworking space app.
Attract well-off customers.
If your members are mostly freelancers and digital nomads you probably won't get far in terms of revenue. They just don't earn much.
So, you need to expand your target audience and sell memberships to:
- Startups with remote teams like WordPress with its 500 employees spending hundreds of thousands on corporate retreats.
- Tech companies like Google and Facebook with 75 000 and 15 000 employees respectively paying their top talents $150 000 - $400 000 yearly.
- Big corporations like Coca Cola and Nestle.
How can you approach a large company? Just give them a call and offer to work at your space for a fortnight or a month. Most of the employees are happy to change the environment and experience the flexibility of a coworking space. They can download your mobile app and book desks from their smartphones for extra convenience and order.
In this case, the secret of high profit is going where the money is.
The essence of vertical integration is catering to most of the customers' needs so that they could literally live in your space.
Here is a brief list of amenities you can offer:
- breakfast, lunch, dinner,
- leisure, etc.
Even if your margins will still be as low as 10%, you will have many more transactions for one customer.
Think about it. You still have your 100 members (normally you will have more with that kind of facility and that level of services) and they pay $100 per month for coworking. On top of that, they eat at your restaurants, workout at your gym, take wellness procedures, and even sleep if you have sleeping capsules, etc. A monthly bill of every member will increase 10 times ($1 000) at the bare minimum. Your revenue will grow 10 times accordingly ($10 000 with 100 members, $25 000 with 250 members).
Just don't forget to automate everything (bookings, payments, access, and even printing) instead of hiring more personnel and spending more on salaries.
I have highlighted some of the most awesome ways to make your coworking space economically viable. We have discussed vertical integration, offering more complementary services, and attracting bigger corporate customers as tactics that can turn your coworking space into a money-making machine. I want coworking spaces to thrive in the coming years. That's why you need to evolve and adjust to market demand. I believe that experiments like combining coworking and coliving, coworking and gym, coworking with a social mission, etc. are going to bring good results. Some entrepreneurs are going to build coworking villages and even islands to meet the needs of the new generation of remote workers.
Do you think this may work? Maybe such coworking dwellings located at a distance from smoggy infected cities are the next step of the evolution of coworking spaces? Think about it, a whole island optimized for getting stuff done…
You see? Your market is almost unlimited, so go ahead and cater to your ideal audience!