179. 3 Pricing Strategies for Coworking Spaces During Tough Times
Resources Mentioned in this Podcast:
Everything Coworking Featured Resources:
Masterclass: 3 Behind-the-Scenes Secrets to Opening a Coworking Space
Creative Coworking Partnerships: How to negotiate and structure management agreements from the landlord and operator perspective
TRANSCRIPTION
179. 3 Pricing Strategies for Coworking Spaces During Tough Times
00:00:01 Welcome to the everything co-working podcast, where you learn what you need to know about how the world wants to work. And now your host coworking space owner and trend expert, Jamie Russo, Welcome to the everything coworking podcast. This is your host, Jamie Russo. Here we are about three weeks into before the end of the year. And I think if you had asked me in say August,
00:00:44 when I would be thinking about at the very end of the year is I would be looking back at 2020 and saying, Ooh, glad that's over. And I feel like the year is going to be over, but we are still in a time of great uncertainty and stress for co-working space operators. So I totally hear that. And I hope you can enjoy some holiday season cheer despite the challenges that you are working through in your business.
00:01:16 We're going to talk about pricing today because looking ahead into 2021, we will still have some period of time before regular demand comes back. We have some optimism to get the vaccine on the way things are in motion to get us back on track and get people healthy and comfortable and ready to leave home and all those things. And hopefully all the factors that we've seen we'll layer into 2020 work from home,
00:01:46 et cetera, will start to play in your favor, but you're still trying to figure out how to run your business during very challenging times. So just some food for thought on pricing strategy. Before we dive in, if you are working on opening a coworking space, I want to invite you to join me for my free masterclass three behind the scenes secrets to opening a coworking space.
00:02:09 If you are working on starting a coworking space, I want to share three decisions that I have seen successful operators make when they're creating their coworking business. And I watch a lot of operators create their coworking business, and I want to share with you what makes them successful and fill up faster and attract their very best members. You can join me by registering@wwwdoteverythingcoworking.com forward slash masterclass.
00:02:39 If you already have a coworking space and you're looking at 2021 and thinking that you wish you had a professional peer group to bounce some things off of, to connect with, to really get behind the scenes of what's working and going on and others businesses. I also run a program called the flight and I have not historically really opened this up for folks to join.
00:03:04 It's really been for people that have gone through my coworking startup school and want to continue on in the group format. And it's also been for folks who have kind of found me and want to work in a group setting and are looking for, for this type of program. So well, but I recognize as we go into 2021, that there are a lot of folks who could use some extra support and some extra company on this challenging journey.
00:03:31 So if you're that, that sounds interesting. I'm not going to go through all the details here. There are a number of components to the program. You can learn more at everything co-working dot com forward slash flight group. This program is only open for registration this week. So if you're listening to the podcast that week, okay, December, if you're listening the week of December 15th,
00:03:53 ish, then you're good to go. If not, then you will get added to the wait list. Okay. So let's dive into our discussion today. So we're going to talk about kind of three aspects of pricing to think about. And pricing is challenging because it's really a science and an art. And so it's hard to coach it's, especially we,
00:04:13 in these challenging times, it's much easier to coach in normal times when someone's opening their business. I give them all sorts of advice about pricing and you know how to look at the competition and how to create the right packages. But there are a lot of factors outside of our control right now, and our competitors are doing some weird wild things. And so,
00:04:33 and we feel desperate. So yeah, you need to do what's right for you and what you feel comfortable for doing, but I think comfortable, sorry, comfortable doing, and I'm just going to give you some food for thought while you're making those decisions and thinking about how to approach early 2021. So the first thing I want to talk about is flexibility.
00:04:53 If you are a long-time podcast listener, you know, that I take a pretty firm stance on being very careful about offering part-time memberships. My stance is that if you're going to offer a part-time membership, it should be expensive and not very attractive because here's the thing. There are 20 working days a month. And most of them, our flex members, maybe some of our dedicated desk members,
00:05:21 aren't going to come in every day. And so 20 days a month, if you offer a 10 day pass every month, that is half of the working days in a month. And that's just about perfect too, for many folks, maybe even more than some folks need. And so why wouldn't everyone want a part-time membership? You probably wouldn't have very many flex members who would pay,
00:05:45 who would, who would get a full-time membership and the chair, cheers. It's not great for our business model, right? So if you can sell a very high volume of part-time memberships, then it's okay, philosophically, you can meet people where they're at and you can just sell more to make the same amount of money. I think we probably learned from the fitness industry that this is,
00:06:07 you know, not the approach that they take. You can't go to a gym and only pay for the five days a month that you're going to work out. Right. We go to the gym with great optimism that we're going to go five days a week. And so we sign up for full-time and then we, you know, use it much less than full-time,
00:06:26 but we don't question the fact that we need to pay for it full time. So the gym industry understands that in order to stay in business, they need people to pay for access, not for what they use. So I think that that applies to the coworking business. You can offer short-term options, but make them really expensive. The challenge is that I think what's happening in these times of uncertainty and times of people literally being stuck at home,
00:06:55 kids at home, not allowed to leave home. The state of California at this time is still back on a shutdown basically. So our schools are not open. We all the most gut K through two, at least, sorry, you know what? Some schools are open in some, a couple of counties, but largely in the state, not open.
00:07:15 Still lots of people cannot leave their homes because their kids are at home or maybe one spouse can leave, but the other can't leave. And so people are very aware of their limitations. So they are not walking up with this great optimism and this new routine of thinking. They're going to show up everyday and put their pants on and get great coffee and meet amazing people.
00:07:33 They know that that's not their reality right now. And they're much more aware of that than they would normally be. And so they're looking for flexibility. They're hesitant to commit to something that's, full-time when they're not going full time, and this may not be in your market. I should share. You know, we have lots of folks in across my programs,
00:07:54 my flight group program, my community manager, university program, reporting that folks that in some markets, folks are joining folks are coming in. They're out of that mindset. You know, that they're, they need to stay home. Or even in some markets, one operator that I know in California and he's in a downtown location. And he said, he's got people in residential buildings.
00:08:14 You just can't work in their apartment anymore. They're coming out. So it is happening here and there, but largely you're probably still seeing a lot of people who come in and they want to come in sometimes. And they know it's only sometimes. And so they don't want to pay for a full-time membership when they know they're not going to be full time.
00:08:33 So in these times you may want to meet them where they're at, because you need to pay rent and you need to pay staff and maybe you get lucky and get to pay yourself. And so we're going to do make some pricing decisions in these times that we would not make in normal times. So offer a flexible package that is related specifically to COVID make it temporary.
00:08:54 Right? So it, that, it's a special flexibility option that you're offering right now, but it will go away at some point, maybe it's for Q1. If we're going into 2021, and maybe you have to extend it a little bit, depending on how things go, but you have the option to flip people over to full time when you, when demand starts to return and you don't want that to be an option anymore,
00:09:16 you could always grandfather those folks in and simply take the new option off of the website and off of all of your, of your marketing materials. So be aware that folks are looking and aware that they're not going to use the space full time. We've even seen folks offer offices fractionally. And we are used to the idea of maybe an office being reserved for day use.
00:09:40 So like a conference room, but for one person that is more typical, but now people are offering fractional office memberships. So an industrious, they have a program called Oasis. They've shared this publicly, both Jamie and an Olympian who runs their coworking division, spoke at the GWA conference last week and talked about this option. So they're always, as members are considered full-time members,
00:10:06 they get all the benefits, but they have access to office space only some hours or days during the month. So they're basically sharing office hours with someone else. They don't have a dedicated office, but they want private space. So that may be something that you do. Sarah TRIBErs from work bar. I mentioned her a couple of weeks ago on the podcast shared that they're really catering to providing space really on demand for companies.
00:10:34 So, you know, people get up in the morning and literally look at their schedule and say, Oh, I have a lot of like really focused work I need to do. I'm going to go into the coworking space to do that because home is a little crazy town still with, you know, kids and spouses and dogs and all the things happening.
00:10:51 I actually just had to start recording. We recording this podcast. I was well into it and I had to stop and start enough times that I thought it was too much of a mess. We have a smoke detector that went crazy and kept going off. And I had it sitting next to me and thought, it's not going to go off anymore. And it kept going off.
00:11:08 And so there are a lot of reasons why it's hard to be at home right now, but sometimes people aren't willing to commit to that ahead of time. And they want to decide that morning that they're going to go in. So offer flexibility, if you need to, to meet your members, your potential members where they're at, but keep it limited in terms of timeframe.
00:11:29 Also keep it limited in terms of options, don't offer, you know, 10 different membership options that is too many choices for people and it will paralyze them and they will not be able to pick, or they won't pick what you want them to pick. So I've talked about the study before I talk about it all the time with my coworking startup school members.
00:11:47 And I've probably mentioned it on the podcast. I'll put a link in the show notes to it. There's an article by, in the Harvard business review, it's called more. Isn't always better. And it's about a study that was done in 2000 on how variety impacts purchase. So I'm just going to read a quick excerpt on one day shoppers at an upscale food market.
00:12:09 So a display table with 24 varieties of Cormay made jam. Those who sampled the spreads received a coupon for $1 off any jam. On another day, shopper saw a similar table except that only six varieties of the jam were on display. The large display attracted more interest than the small one. So the people were interested in the 24 variety versus the six.
00:12:33 They came over more, but when it was time to purchase people who saw the large display were one 10th as likely to buy as the people who saw the small display, the only difference was the number of options. So the folks that saw the large number of options were one 10th as likely to buy. And so if you have, so while it's tempting to really meet any member where they're at and offer lots of options,
00:13:05 please be very, very careful about that. Please pick a couple of flexible options and go with those and also be careful about how you name your options. So I see a lot of folks name their memberships aligned in some way, aligned with their brand name. This is maybe not very clear to your potential members. They're burning a lot of calories to read through these titles and descriptions and figure out like,
00:13:30 what does this really mean for me? Keep it super, super simple. People are not willing to work very hard to figure out what they want on your website, make it really clear. And even your followup, marketing tour, marketing materials, if it's after a tour, keep it really, really simple and easy and maybe not quite as a marketing sexy fund.
00:13:52 Okay. So the second thought I want to plant is I want you to consider trying to avoid offering rock bottom pricing. So I go to websites and I see these popups offering 40% discounts on memberships and offices. Here's what I think. People who are not ready to leave home, it doesn't matter if they can't leave home or they're psychologically not ready to leave home and go back into a public space.
00:14:24 You cannot lure them in with rock bottom deals, right? If they don't want what you're selling yet, you can't talk them into it by making it an incredible deal. Maybe that happens with like VCRs. That's a terrible example, best buy deals, VCRs from the 1980s, you know, some sort of like deal at, at a retail store. That's like a small dollar item,
00:14:53 right? Like maybe you buy something that you're not actually going to use because it's an incredible deal. And you just can't resist the deal. That is certainly behavior that people will exhibit. But when we're talking about an office, I don't think that you're convincing people to rent an office by making it super, super, super cheap, right? You want to attract people who are ready and willing to leave their house or able to because of their family situation and also have a business that can afford to pay because with these 40% deals,
00:15:27 my concern is, Hey, it's not going to work very well. And be the people you're going to get, or like the people who are ready and willing to leave, but can't really afford you. And so what happens when you go back to regular pricing? So let's be careful about that. We'll talk about doing deals offices in a minute, but think about their psychology.
00:15:48 And so instead of focusing on pricing, focusing, consultative selling, and this may be a time to invest in training for your team on consultative selling. So versus talking about, you know, here's the office and it holds as many people and here's what you get with the office. Why are they leaving their house? How can you, what you offer,
00:16:10 provide the transformation that they're looking for is it that they realize their business is suffering because they're not networking? Is it because they aren't doing well in their business because they simply don't have a work environment at home that matches, you know, how they do their best work. Are they looking to be more productive? Are they lonely? Do they need some work friends?
00:16:30 You know, do they need a place to record a podcast in silence without the fire detector going off? And I just said deposit because my dog started barking at something that was not actually at the door. So I, you know, talk to their pain points, covered their pain points in your discussion. When we put 40% off pop-ups on our websites,
00:16:50 we are not getting to their pain points. We can't do any consultative selling because they're walking out the door thinking only about pricing. So be careful about that. So I suspect that folks who have the discount pop-ups on their website and are thinking about doing deals. I see this in Facebook groups, too. What deals are you doing for January? And that makes me very nervous.
00:17:12 Why are we doing deals for January? Why aren't we just messaging to people to tell them that, yes, what you're looking for, we have, because in January, people are making lifestyle changes, right? They want something better for themselves in the new year and they're willing to pay for it. If that's what they really want. We can't talk people into something they don't want by changing the price.
00:17:36 Let's talk about local competition. I have a lot of my students reach out and talk about how they are in a market, where there are national brands that are doing literally whatever it takes to get members and fill their offices. That's hard. So that's hard. I'm sorry that that's happening to you. And generally it will be because that location has been given permission to not be profitable and to just get whatever revenue they can in the day or,
00:18:04 you know, to keep going. And that's really hard to compete with. So again, little bit of art and science and a little bit of like your situation and you have to figure out how to handle well that, but here's what I would offer. No, your strengths and know your competitor's weaknesses. If they're focused on pricing, as we just talked about,
00:18:26 they're only talking about price, right? So what is it that you do that is different and can meet somebody else where, and they're at also make sure go shop them and figure out what are you getting into. If you take one of those deals, are you committing for a year? What are all the, all the cart items that you're paying for?
00:18:46 Do those add up to more than what your office costs, because some brands will also charge for coffee and conference and all the things on top of the office, fear the membership fee. So make sure you know, what you're really comparing to and know what kind of commitment that that brand is asking for. If you get that rock bottom deal. So that at least you can talk to that when people come in for tours,
00:19:12 but really you're going to have to try to sell on something. That's not price because you probably can't afford to do what they're doing or else you'll go out of business. And you simply won't be able to pay your expenses. So if you though are going to offer a discount on an office and that happens, we know that happens, be intentional about it.
00:19:31 So know ahead of time what your, what your range of discount will be and what you're willing to do. Don't let you talk, somebody talk you into, you need to know when you're going to let them go, right? When am I going to say, I can't do that. Some other space is going to be a better fit for you.
00:19:48 So, and then put a clear date around it. So this can be really hard. This is why I counsel you to be very careful about doing deals, especially on offices, but really on any membership is people really get used to that price point, right? And so when you want to go back to your normal normal time list, price people don't,
00:20:08 I don't like that change. And so when you go, you know, have that conversation with them, they will push back and push back and say they can't afford it. And their business, you know, is still recovering and they can't afford it. And so that you can't really win in that conversation, right? They can't afford it. You can't afford it,
00:20:25 but they're sitting in the office. And so probably you're going to let them stay at this ridiculous price. But what you want to be able to do is frankly replace them if they can't afford it, but the domain and starts to come back in, then you want there to be in their agreement and end date on that rock bottom deal so that you can replace them with a new member who can afford it,
00:20:48 and you can pay the list price and can help you run the business that you thought you were going to run. So just make sure that you are very, very clear, you know, pricing will be reviewed once a month or, you know, whatever it is, or simply put an end date on it and start auto charging them the correct price when that is over.
00:21:07 If your deal is for three months, put it in the system and then have the price change automatically. After that, don't go sit and have the awkward conversation. You're never gonna win on that. And if they come back and say, they can't afford it, you just have to be prepared. Can they stay? Or can they go? And maybe they can stay,
00:21:23 but they, they go. As soon as you have somebody who's ready to pay the full price, Try To also consider creating a more competitive package. Again, if you're thinking about competing with local competition, that's doing crazy deals that don't cost you as much. So things like give them more meeting time. If there's some value in that meeting room time,
00:21:45 or, you know, when we can, this may not help right now, a free event, space rental once a quarter or a flex membership with an office, because probably you're sitting on a lot of flex space. So if an office, you know, they want to take a smaller office, but sometimes they have team members that come in. What if you tack on a flex space for them,
00:22:03 you know, give them things that aren't very painful, but try to get the price point that you think that you should Be getting. And again, try to give yourself the ability to get back on track with your proforma and with Mike market pricing when that demand returns. So anything you do should be framed as a temporary COVID accommodation and that, that will change Going forward.
00:22:32 So that was really, actually my third strategy was just make sure anything you do has an end date, frame it as a COVID deal discount. Every you want to call it accommodation. I like accommodation. It sounds less car sales money and give them, you know, three months and then you can extend it if you need to, but it gives you the ability to reset your pricing and reset the members if they can't stay with that pricing.
00:23:01 So again, just to kind of review, let's be careful do what you need to do to get people in the space, but you don't want to, all of a sudden, in a few months when the demand returns have a lot of people in your space that are not paying market rates that are not the type of members that you want and that you can't get rid of.
00:23:21 So be very thoughtful and intentional have a plan. If you're discounting put timeframes around it and be very clear and have it in your written agreements, you know how this flows and when things change and you know, who decides what? And when, so that it's super simple and you're not having awkward conversations or feeling like you have to, you can't actually ask someone to leave,
00:23:43 make it really clear, you know, and try the consultative selling approach. If you're simply defaulting to doing deals, try to figure out what, why are people coming in what's important to them and how can you talk to those needs versus anchoring on price and going straight to price. And this is, you know, not that simple if your team or you are not used to that type of selling really,
00:24:08 really, you know, get to know your potential members when they come in the door. And if they simply aren't engaging, that's probably a sign that they only care about price, right? And typically, you know, we don't want those types of members. We don't, we're not really structured to have those types of members. Even if you have a very high office inventory,
00:24:30 if you, most of the folks, my students are creating sort of higher end spaces that were not built to be the cheapest guy in town. So make sure that you're staying consistent with your positioning or that you at least have an out so that you can get back to your positioning with the pricing when the time comes. So again, I know this is really a challenging time.
00:24:52 You're going to have to, you know, do what you need to do, but, you know, keep your ears out. Be very aware of what the other folks in the market are doing from a discount perspective. But also when things start to pick back up, don't be the last guy to reset your pricing. And I know that we can get really caught up in operations and being so excited that demand starting to come in,
00:25:15 that we forget to adjust those things. So be ready for that. Make sure that you have, you know, have a team member or have a reminder in your calendar to be checking on market pricing. You know, once a quarter, when you start to feel like tours are coming back, it's time to look at your pricing. If you've discounted it and start reverting back to what your normal pricing would be.
00:25:39 So anyway, lots of conversations to be had around pricing. We'd love to have you join us in the Facebook group and continue this discussion share what's working for you. You know, the more brains we put around these things, the better, it's hard to be operating in a vacuum. So please join us. Also. I have to put in a request,
00:26:00 if you enjoy the podcast, can you please go over to iTunes and leave a review? You actually have to actually open the podcast in iTunes. And then you have to click this little like gray text that says, write a review and then write the review. I had reviews for 2020, and I, I feel like I have not been walking the talk.
00:26:26 I talk about Google, my business reviews and how on top of them, you have to stay. And I just did it in my own business. So we just put it on our KPI tracker. It was not our API tracker. We track all sorts of other things. And somehow I had not tracked podcast reviews and they matter they help people find this podcast.
00:26:42 So if you find it useful, one of the best to thank you as you can do to me and to others that will come after you is to go into iTunes or wherever you listen to your podcast, doesn't have to be iTunes and leave a review. It takes two seconds. So I thank you to those of you that are listening. I emailed a couple of people,
00:27:02 but I know our loyal listeners and ask them if they might help me out, which is what you can do with your Google, my business reviews. Right? And even I felt like, Oh, people, what if they think I'm weird for asking? You know, I did all the things that you might do when you ask for Google review, but I did it anyway.
00:27:17 And every single one of them responded right back and said, Oh, of course. And they did it. So I now have five new reviews for 2020, which may or may not be showing in iTunes yet. But sometimes we just have to, you know, be a little uncomfortable for a few minutes and ask for the things that really drive our business.
00:27:35 So stay on top and you stay on top of your Google. My business review, I'll stay on top of my podcast reviews. And now they're on my weekly tracker and we have goals. And so we will make sure we don't miss that for next year. Okay. That is it for this week. I will see you next week.
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