Only 40% of Coworkings are Profitable: Know How to Improve Your Coworking Space Economy in 2020
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 2020.
When entrepreneurs start new coworking hubs they probably think of coworking economy as something evolving, developing, promising, the list goes on. Indeed, all statistics predict stable industry growth. But does it mean that your coworking space is going to be profitable?
According to the Global Coworking Survey, only 40% of coworking spaces are profitable, which means that 60% 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. A 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. 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 a 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.
Why is it worth to continue the journey for a coworking space operator? The reasons are numerous.
- It was a long way already and you can't give up halfway.
- You love what you do and people love your space.
- You have your community.
- You met so many talented individuals.
- You are helping people.
- You don't let talents stuck at home.
- Your space gives birth to innovative projects.
Your coworking is essential and you deserve substantial income!
There are cases when you don't need to think about profit.
- When you have venture capital funding.
- When you decided to become non-profit.
I am not going to focus on the above solutions and skip to the ones that are more relevant to your unique situation.
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.
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.
However, if you 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.
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, 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 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. Do you agree that vertical integration, offering more complementary services, and attracting bigger corporate customers can turn your coworking space into a money-making machine?
You are welcome to support or dispute my coworking monetization tactics. You can drop me a line in the comments and discuss the article with your friends on socials.
Anyway, 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 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 in a distance from noisy 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!