A financial model defines the way a business is meant to work out.
Unlike traditional offices, where the employees need to occupy the space provided, coworking space is a place where workers want to spend their time. This means the infrastructure has to be appealing and attractive and convenient in order to retain clients. So this means employees get paid to occupy an office and customers pay to use an office.
So how will the flexible workspace operators drive more revenue by focusing on designs? Let’s begin by crunching some numbers.
Each workspace is different therefore it is important to understand which type of spaces you want to offer and can afford. This will help you in building a business model that you want to adopt and the type of members you attract.
Even though you can mix and match your workspace offering, it is important to have a clear intention as to which one is your priority so as to focus all your efforts to drive most revenue.
Once you have all of this figured out, now you can begin thinking about layouts, designs, furniture, and the investment that will be needed.
An ideal Coworking Space financial Model should be:
Things to consider before starting a Coworking Space:
- Location: A coworking space depends on the variations of location. Prime locations can be a benefit. Good or ideal location can drive much more than a place in a laid back area. It pays to be a part of the happening hub which is what companies need.
- Community: It is an important part of coworking space. It has to be taken into consideration as to who and what kind of companies or entrepreneurs in your priority.
- Pricing: Getting the price fixed per desk value considering all the expenses is vital for the model. You need have a clear definition for standard hours and also a good negotiation for the bulk desks. Apart from determining the cost of the land or space, coworking has other loops to take care of as well.
- Influencing: Since the business is a startup technically, it is important to get maximum attention and generate as much interest through influencers.
- Competition: Every business faces some sort of competition and since coworking has been in a sunrise startup and has been trending competition is bound to be more.
There can be ways to make a better offer from the competitors in the form of promotional offers or discounted team packages, or a different variety of packages according to the needs of the members.
Example: Coworking Space Financial Model
|Location – Bangalore (Koramangala)||Area – 10,000 sq. ft|
(Number of seats – 333)
|Fixed Expenditure (One-time + Rent)||Monthly Rent|
Rate: Rs. 70 per sq. ft.
|Furnishing Cost: |
10,000 sq. ft x 2000 = Rs. 2 Cr.
|Recurring Expenses (Monthly)||Maintenance – 3,00,000/-|
(Staff, Marketing, Electricity, Tea/ Coffee, Cleaning etc)
|Per Seat Revenue (Monthly)||Average price – 8500/-|
Best Case #1
( 333 seats x 8,500) = Rs. 28,33 lacs per month
|Monthly Net Profit: |
Revenue: 28.33 Lacs
Net Profit: 18.33 Lacs
|65% occupancy- 18.36/- lacs per month||Easy calculations now, based on above formula.|
|40% occupancy- 11.30 lacs /- per month|
Worst Case #3
|Below 40% the company will bear the loss|
Building more revenue streams:
With the development of the space as a service industry, selling you space is not going to be enough. You need to sell the benefits of a coworking space, the amenities you can offer or work in a coworking space is better than working at home or coffee shop or even why it’s better than the tons of competitors available to the prospects.
So creating multiple revenue streams and meeting the members demand it will give away to profitability.
Let’s have a look as to how you can build more revenue:
- Discover new revenue streams –
One of the ways you can maximize revenue even if the workspace isn’t booked with 100% capacity is to create some offers like various membership options or offer as many hot desks and dedicated desk as your space will allow. You can also provide these desk at or below the price of the competitors to make a strong selling point. You can also price the conference rooms and dedicated desk at double or triple the rate of a hot desk. Understanding this ratio is utmost important.
- Meet the members’ demand –
There are needs that the members working in a coworking space have become accustomed to expecting like the amenities such as coffee, high-speed internet, comfortable furniture, access to the printer, enough meeting rooms, and a reliable support.
The amenities add a lot of personality to your space which had a great impact on the members. Various events can be organized to attract members as well.
- Creating new opportunities –
Using the analytics data can help to make the decisions regarding the empty spaces more beneficial and use these in creating new opportunities. If there is an area which is being underutilized, it can be transformed into something beneficial for the workspace like a snack bar, or a bookshelf with a small seating area etc. These amenities can prove to be beneficial in retaining the members.
- Competitive price model –
The rental price of a desk should be as per the competitors in the local market. If the prices are too high people will not go there and if the prices are too low it will start questioning the offering and the status of your coworking. The cheap and best is a rare combination to find. Therefore a great service at your workspace and a high price as per the competition but negotiable with increases number of seats is a good idea.
- Minimise operational cost –
It is important to keep a check over the operational cost. If there are too many work staff like the managers, organizers, the maintenance guy, and other personnel for the workspace then the operational cost can go high. It is important to provide good services but it is equally important to keep a check on the cost bearing along with it.
- Upscaling business –
A particular workspace can’t go beyond its level of capacity therefore to upscale it is important to set up units in different locations in same or different cities. It better to rent a place in the initial stage rather than purchasing it since if the workspace is not able to succeed to make the profit you always have an option to set it up in a different area or city. So start with a workspace which is not too big and eventually upscale it.
Types of coworking space:
- Sector Specific – dedicated coworking for a vertical.
- Coworking for large enterprise/ Business centre(Regus, Vatika)
- Coworking Aggregators(Coworker, Coworly, PivotDesk)
- Coworking Marketplace (PeerSpace)
- Cafes/Restaurants/Pubs as coworking space (MyHQ, Coworkyard)
- Co-living spaces (CoHo)
- Co-working for the community. Eg: women (The wing, Wsquare, Cowrks)
Users of Coworking Space:
- Full-time freelancers
- Remote employees
- Enterprise Companies looking to open small offices in new cities
Problems Coworking Spaces solve:
- Diverse community comes together and take feedbacks and increase their knowledge and may even some cases find your first customer.
- Wastage of unused spaces can be avoided.
- Reduces the cost of setting up an office.
- A good alternative to working from home or cafes.
Facts on Coworking space:
- Already established coworking spaces like 91springboard are expanding its chain of coworking space.
- We work raised a fund of over $4.6 Billion and will soon enter India.
- Big companies like Awfis has raised $20M and Innov8 raised $2m and are opening chains of coworking spaces and expanding into a franchise model.
- More Incubators are setting up and are offering a free workspace.
- Joint ventures Real estate firms, landlords have begun to build a coworking space in their building as an amenity. A professional coworking space operator manages them
- Tie up with coworking aggregators to generate more leads.
- Coworking space management platforms. Dedicated CRM systems to manage the Coworking space.
- Addition of green areas in coworking space is something being demanded by people for the coworking space atmosphere.
- Coworking space for females. Workspace only for women makes them feel safe and cater to their needs.
- Investors are always looking for a good startup. Build a relationship with them and help them raise funds.
- Try to build an Elite class of people working out of your space.
- Get reviews from people who are or have worked out of the coworking spaces.
- Crowdfunding for purchasing or renting the building and turning it into a coworking space.
- Start pre-booking the space in advance to launch a maximum capacity.
- Do not have an assumption that since you built it they will come. Spend on community building and marketing.
- Keep your members happy since they are one of the sources to generate more members.
- Do not try to overprice or underprice than your competitors massively.
- Take care of all the legal and financial matters efficiently since they are very important.
- Get a coffee machine or rent it out. Coffee otherwise can turn out to be really expensive.
Please feel free to share your thoughts in the comments section below, Would be happy to respond.
Co-Founder at MyDesk Spaces.