“We have a simple rule of thumb – if the numbers don’t work, don’t open”
So says Don Ball, co-founder of COCO Coworking. For entrepreneurs looking to start a new coworking space, it’s sound advice; Don, alongside CEO Kyle Coolbroth, founded COCO in 2009 and grew it to 4 locations with over 1,000 members. The duo launched COCO during the recession, and they’re now on the brink of opening the doors to their fifth location in Chicago.
It’s an impressive story. Yet despite COCO’s positive trajectory and the coworking market’s rapid pace of growth, coworking is not without its challenges – nor its closures. Revenue and cash-flow have been the undoing of many promising coworking spaces, and maintaining a consistent source of income to cover fundamental costs like property leases, staffing, maintenance and insurance is no easy task.
So at Camp GCUC, the workshop for novice coworking operators on day one of this year’s All.GCUC Conference in LA, Don and Kyle took to the stage to share their learnings. OT’s Managing Editor Ceci Amador reports back:
COCO Coworking founders on finance
“We’re kicking off the day by centering on the bottom line, the nitty gritty numbers,” said Don. “You start with the space — it’s all about the lease or deal that you strike with the property owner. Obviously cheaper rent is good, but don’t sacrifice too much on space. If it’s too small it’s no good. The optimum balance is low rent and enough space to generate cash flow.”
Don explained that dedicated space members, ie. those who pay for their own private desk or serviced office, help cover your large fixed costs, while non-dedicated members top up your profit. These could be drop-in coworkers, daily tariffs, meeting room rentals, or those on a low commitment membership.
He urged operators to provide different lease term packages to attract a greater variety of coworker, and to encourage longevity. For instance, offer a 6-month package and then go month to month to encourage members to stay longer.
Don talked Camp GCUC through a number of potential revenue opportunities for coworking operators, including:
- Meeting rooms: Keep enough meeting spaces available for your members to use anytime.
- Drop-in space: Include informal drop in spaces in your flexible workspace to attract mobile and occasional workers.
- Event space: If space allows and if demand calls for it, use extra capacity space for non-members to rent by the hour for events. Events are also important as a community tool as they drive engagement and marketing efforts.
- Virtual membership: This allows users to attend member-only events and use the online network.
- Seek multiple revenue streams: Don recommends 40-50% group memberships; 30-40% individual memberships; and 1-5% events and programming. Top it up with as much sponsorship as possible and meeting room rentals.
Leases can make or break your coworking business model. If you’re competent enough, Don recommends negotiating one-on-one and working direct with the building owner to save money – it also helps instill financial discipline.
Have a fixed lease cost in mind, he says, and a deal that allows you to ease into the agreement before ramping up, which might follow one of these models:
- Percentage lease: base rent plus a percentage of monthly sales.
- Net lease: in addition to rent, tenant pays some or all of the taxes, insurance or maintenance.
- Double net lease: tenant pays rent + taxes and insurance.
- Triple net lease: tenant pays rent + taxes, insurance, and maintenance.
Try to avoid paying with cash and don’t be tempted to skimp on quality, Don warns. “You can always start with Ikea, but don’t buy the cheap stuff. Understand which products are going to be used more than others – for instance, be prepared to spend $400-$500 per chair, or else you’ll be throwing them away a lot.”
Take time to consider the design look you want, and shop around. Local manufacturers can often provide good deals and you should also seek unconventional financing options — such as furniture leases as opposed to outright purchases.
Expect the first space to be tough going, Don says. To help give your early sales a push, get ahead of the game and start marketing long before you open the doors.
Consider offering incentives for pre-sale memberships and tours of the raw space. Generate artist renderings to help provide prospective members with an idea of how the finished space will look and feel. For ongoing sales, Don urges operators to be proactive and to market dedicated spaces the minute they become available.
Discussing dedicated spaces further, Don says these are “the most stable” part of your business given their longer terms. In Don’s words, “learn about retention” and look after your dedicated members with everything you’ve got.
Flexible or non-committed members are the least stable — yet they’re a fundamental part of the coworking mix. Most of these members are cost sensitive – such as freelancers and solopreneurs – and prefer not to commit to premium memberships.
Work to maintain the balance and be sure to look for new members each month. As you’re doing this, keep in mind the cost of acquisition and onboarding — coworking spaces are highly fluid and you’ll need to account for regular overheads like this.
COCO chose to build their own payment and invoicing system, which is based around three core member models:
- Individuals – 1 payer, 1 member
- Business owners – 1 payer, multiple members
- Corporates – 1 payer, 1 decision maker, multiple members
When it comes to gathering payments, predictability is key. Therefore aim to set up auto-deduction payments whenever you can, which ensures money hits your bank automatically (ideally on the first of the month) and saves you the time and hassle of chasing up late payments.
Opening your doors
Finally, Don recaps the main elements that you need to be in the coworking business:
- Furniture + equipment
- Internet + telephones
Q&A with Don Ball
Wrapping up his Camp GCUC workshop, Don answered some questions from the audience:
- How many staff do you need to have?
o Just to operate, you need 1 or 2 people plus an on-site Community Manager and a team behind the scenes, but part-time staff also works.
- How do you forecast revenue? Per desk or by square footage?
o I would do a composite forecast – membership types, location, and activities.
- What percentage of your revenue end up as expenses?
o It depends on your location. Set a goal and backplan from there.
- How do you foster success now that there’s more competition?
o Niche spaces. We’ve always been very inclusive and diverse in the kinds of businesses that we take in, we like the interplay, but I can see how doing niche things will help you differentiate yourself from your competition.
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*Feature image: Vincent Perini