The Complete and Latest Coworking Space Business Model 2020

The Coworking Space Business Model

Coworking as a culture has been lapped up enthusiastically by the working population. 

Not just the working population, research scholars, freelancers and students have also started enjoying the benefits of coworking spaces.

Coworking spaces offer a wide range of benefits that most other work locations fail to provide. 

One of these multiple benefits is high affordability. Coworking spaces offer seats at prices that are seldom rivalled by traditional office spaces. 

Providing the perfect ambience for work while maintaining reasonable pricing is a big reason why more and more people are flocking to coworking spaces.

All this sounds really nice. But did you know that only 40% of coworking spaces are profitable?

This statistic is enough to scare anyone who’s looking forward to setting up a coworking space.

However, we need to look at why 40% of coworking spaces are profitable and follow this profitable model in setting up our coworking space.

Coworking spaces are generally not built to create profit but to improve the working lives of its members by forming connections through networking and creating communities. However, this cannot mean that coworking spaces operate at a loss. Every organization needs to earn profits and coworking spaces are not exempted from this law.

The 40% statistic about coworking spaces is also misleading because most coworking spaces break even after thirteen months of operations. By this time, coworking space owners have a fair idea of how to optimally price and manage coworking spaces.

Coworking space owners are always seeking coworking space business plans through which they can maximize profits.

But before the need to increase coworking space profitability, there is a major question that needs to be answered.

How do coworking spaces earn profits?

Let’s wash our hands and dive deep into it!

Profit = Revenue – Cost

This is the equation that you are interested in.

So, to understand the source of revenue, you need to look at the sources of revenue and cost.

Revenue Sources

coworking space profitability statistics

Workspace Options

Private Cabins

Private Cabins are for those who want privacy in a coworking space.

It is customized according to your needs. It comes with its own storage space.


It’s like your own private office at much more reasonable prices.

Private Cabins come at higher prices than other workspace options such as Flexible Seats and Dedicated Desks. They are less in number compared to other workspace options.

A big part of the revenue from workspace options comes from Private Cabins.

Dedicated Desks

A Dedicated Seat in a coworking space is a workstation that is all yours. 

For the period of your membership, no one else but you can use the desk and all the amenities it comes with.


Dedicated Desks are largely popular among people working at coworking spaces. They offer all the benefits of coworking spaces as well as the security that they ask for.

These are priced very reasonably and are large in number. Most coworkers choose dedicated desks so the revenue earning from this source is high.

Conference Rooms
These are usually not used for regular office work but for client and team meetings.

Impressing clients is something everyone aspires to do.

It doesn’t send a nice message if you take your client to the nearby cafe, however suitable it might seem.

This is where coworking spaces step in with their conference rooms. You can book the room for a fixed number of hours and have your client meeting there.

These client meetings are equipped with ergonomic furniture as well as electrical outlets and screens.

Conference Rooms are a major source of revenue as every working professional, including freelancers have clients and it is imperative that the client meeting takes place in an ambience that encourages professionalism.

Food and Beverages

Another source of revenue for coworking spaces is the sale of food items and beverages. 

People working at coworking spaces work on an average of 6-7 hours. 

Visiting the cafeteria for a bite or a cup of coffee is something all coworkers do. Most coworkers do not bring their own tiffin and it is not convenient to carry food items from home or order them from outside. 

It costs more when food is ordered through food delivery apps so buying it from the local cafeteria is always a better option.

This proves to be an area of revenue for coworking spaces. 

Event Booking

Coworking space owners also rent their space to organisations or people for events.

Since coworking spaces have working professionals, many people or organisations see this as the perfect target audience for workshops and events.

Workshops, seminars and other promotional events that are relevant to the people working at coworking spaces can be a win-win situation for both the audience and the people hosting it.

And it also serves as a revenue stream for the coworking space that rents them out.

Printing Services

One revenue stream which might not be very obvious is printing.

Printing is one of the most used services at any office. 

At coworking spaces, it is no different. 

Coworkers using printing services can add a huge amount of money to your revenue stream. 

Cost

Lease Expense

This is the biggest portion of cost expenses borne by coworking spaces.

Coworking spaces approach an existing space, negotiate with the landlord and buy the space on lease for a fixed period of time. 

Rental lease agreement form on an office desk.

The lease amount is usually large, depending on factors such as the location of the space, per square feet area of the space and others.

In fact, the first few months or in some cases, years, are taken trying to reach to cross the lease amount.

Maintenance Expense

The second most obvious cost expense that is borne by coworking space owners or organisations is the cost of maintaining the coworking space.

There are numerous aspects in a coworking space that need proper care and maintaining. 

Furniture, electrical appliances, leisure amenities are just the tip of the iceberg when it comes to items that require proper maintaining. 

Repairing also takes up a big portion of maintenance expenses.

Electricity

In a coworking space, there is a multitude of electrical items such as air conditioners, different types of lighting, printers, TVs, heaters and so many more. 

The presence of so many electrical appliances brings with them a hefty electricity bill.

Nowadays, coworking spaces are shifting to electricity saving appliances which cut the bill and also help save the environment. 

Salaries

A coworking space doesn’t run by itself.

It requires a well-functioning team. 

Coworking spaces are run by community managers and are maintained by janitors, receptionists etc.

Employing them requires money and hence they make up a substantial portion of cost expenses. The larger your coworking space or the better it is, the more you need to spend on your employees to ensure the smooth running of your coworking space.

This is a very important aspect of coworking spaces and should not be neglected.

Miscellaneous Expenses

Last but not the least, coworking spaces also have to bear the cost of miscellaneous expenses such as food and beverage items, equipment rentals and many other day to day expenses.

These might not look like much but add up, they do add a lot to the coworking space cost sheet.

Marketing and Technology Cost

Nowadays, coworking space owners are shifting towards automation.

They are adopting visitor management software that eases the functioning of the coworking space and also ensures the safety and security of everyone in the space.

Apart from this, marketing your coworking space also adds to your list of cost expenses. 

Nowadays, SEO and SEM save a lot as far as marketing is concerned, so you can adopt these marketing strategies if you want to save on expenses.

Now that you have had a look at the revenue streams and the cost expenses that a coworking space faces, you know where the profit can come from.

Now, it’s time you know how to maximise the profit in your coworking space.

How to Increase your Coworking Space Profitability?

Price your membership plans properly

Clearly defining your membership plans is probably the most important factor that determines if your coworking space will be profitable or not. Some common membership options are flexible desks, dedicated desks, work pods, and private cabin.

Understanding the profitability of different membership plans is a necessity. The disadvantage of having mostly fixed members is that it won’t help you to increase your coworking space turnover. 

On the other hand, having mostly flexible members in your coworking space means that you lose out on revenue-earning during vacations.

After a year, it will be clear to you which membership plans and what pricing are good for your coworking space.

 

coworking business model

Include a psychological factor in your pricing plans

The human psychology is a funny thing.

When you price two similar products at INR 4,000 and INR 3,999 separately, people will always go for the first option as they’ll think they are successfully paying less than 4,000 for a product.

The same logic applies to coworking space members.

 Including the Taxes in the final price of the coworking space rent is better than adding it separately. This makes it easier for members to know the final price and also simplifies their decision as to which membership to opt for.

 

Expenses of Coworking space

Free services and promotional offers

Offering free services might look like a sure shot of attracting and retaining members but it is seldom so. 

This is because free services are not valued by people. Free services should be offered on a limited basis, such as a free month on advance payment of five months’ rent.

Promotional offers are a great way to attract members into your coworking space once it has recently opened.

Promotional offers such as giving 40% discount to the first 30 members attract the first members to your coworking space and these are the members who will bring in further members to your coworking space.

Income of coworking space owner

Keeping the optimal number of membership plans

How many memberships plans your coworking space offers to potential members also goes a long way in deciding how many members do or do not opt for your coworking space.

Keeping the number of membership plans fixed to two or three simplified the sales process. There doesn’t arise a need to explain different membership options and the administrative process is much simpler too. 

The only disadvantage of keeping a low number of membership plans is that it limits the target market.

On the other hand, a large number of membership plans will help your coworking space to compete more broadly in the coworking industry. A large number of membership plans will also help your coworking space to reach different kinds of members with different preferences and needs. 

The disadvantages of this strategy are that a large number of membership plans can be overwhelming for potential members, just the decision for members whether to join the coworking space or not will be difficult.  In addition, the operational selling process also gets more complex to manage.

profitability of coworking space

Minimizing employee turnover

Building an efficient team that manages your coworking space is a very important step in creating a coworking space. 

What’s even more important is maintaining that efficient team. 

Employee turnover is a problem that most organizations face and coworking spaces are no different. A coworking space management team consists of the community manager, the janitorial staff, the IT team and any other person who is present in the coworking space on a day to day basis. These people are trained, which requires resources such as time and money. It is also required that they are provided with positive work experience, making sure that they motivated enough to continue working at your coworking space. This helps in keeping the employee turnover low.

Employee turnover costs the coworking space a huge amount of amount as it means that you have to reinvest the time and money in finding a new person and training them. 

Employee turnover can damage the coworking space community, which can, in turn, damage your financial standing.

What creates a community is having known people around each other who understand and bond with each other really well. This is one of the most important attributes of coworking spaces. 

If your coworking space members have to continually adapt and adjust to new coworking employees, then the essence that coworking spaces are supposed to provide is lost. 

Coworking spaces aspire to provide a personalized experience. If members are being robbed of the essence of coworking communities, then you do not only lose employees due to employee turnover, you also lose members. 

To conclude this point, here are some tips to minimize employee turnover:

  1. Coworking spaces need to provide a fair and positive work environment.
  2. Ensure that your employees take the necessary breaks to relax.
  3. Provide adequate remuneration.
  4. Give constant feedback on their performance.
  5. Include employees in the coworking space decision-making process.
  6. Revamp your coworking space management system with the latest technology.
  7. Celebrate their achievements.
  8. Offer learning opportunities.

Conclusion

The prime objective of creating coworking spaces is to form a community where freelancers and employees from different organizations can come together and work together. Maximizing profits was never the main goal of coworking spaces.

profitable Coworking space

However, it is not fair to expect coworking spaces to operate at losses.

A coworking space can only be profitable when everyone is happy: Your members, your employees and of course you. So, in other words, a profitable coworking space can also mean that you’re successful in your endeavour to create a community that coworking spaces strive towards.

If you want to know more about the coworking space business model or coworking in general, visit us at www.workstreet.in.

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