256. How to Price Your Coworking Space Offices
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Creative Coworking Partnerships: How to negotiate and structure management agreements from the landlord and operator perspective
TRANSCRIPTION
256. How to Price Your Coworking Space Offices
00:00:01 Welcome to the Everything Coworking 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. I'm so glad to be here with you today. We are recording this at the beginning of June.
00:00:36 My daughter has four and a half days left of the school year, which is crazy. We're a little bit under camped this year. If any of you are hosting camps at your coworking space, please let me know we're in the market. So we are going to talk about pricing. I saw a post in the Facebook group that prompted me to think this would be a good topic to cover.
00:00:59 It might be a little bit of review for anybody already has this space, but I think it's always good to kind of think through how to talk about pricing with potential members, particularly office members and anybody who's new to Coworking, more focused on office. Let's focus on flex or dedicated desks. Before we do that, I want to give a huge shout out to our most recent certified managers,
00:01:26 certified Coworking community managers has Cinta Alicia at Los Supremo work. It's just lasted per month. I always want to call it less. Department works, lots Suprema in Tucson and Jesse DEFAT at co-lab connect in Santa Rosa. They've been in the program for a while, but we just did a big relaunch of our certification program and they went through the work and completed their certification,
00:01:51 so congrats to them. Okay. So if you want to know more, before I jump into our pricing discussion, if you want to know more about getting your Community Manager certified, you can find more at Everything Coworking dot com forward slash Community Manager. Okay. So pricing, there's a couple of things about pricing that I want to talk about. So the question that came up in the Facebook group was about how to price versus market rent.
00:02:21 There are a couple of kind of bigger picture things that I just want to talk about. First one is that you want to be able to charge two to three times a market rent. So if this is easier, if you're leasing, probably if you're not leasing, you should still know what market rent is. If you are paying $2 a square foot,
00:02:41 that's annualized, then you want to be able to charge $6 a square foot. So if you're analyzing a market, some of the things that will impact your ability to price are how available is smaller office space. How available is office space in general, but usually our are looking for smaller sizes. They're not going to take their own 10,000 or 20,000 square feet.
00:03:05 So how available is it? How nice is it? What's the pricing, what's the commitment, et cetera. There are some markets where you simply cannot find small spaces. So the mere fact of the you're willing to take 10,000 square feet and chop it up is a huge value add to potential members. And you'll be able to price for that. Usually you have the most pricing power in an expensive market where you're taking out a big risk and a long-term commitment,
00:03:34 but it's really unreachable for others to do that for smaller businesses to take on a five-year or a 10 year lease and to pay, you know, market rate for Elise and all the other things that come with it. So it's kind of one of those things where, you know, the harder the market is to get into for you. It's also hard for others.
00:03:53 And so the risk that you take probably has more upside. So besides the two to three times market rent rule of thumb, the other kind of metric that I look at with my startup school students is baseline 25% margin. So if you create a proforma or you're running a space, and that's what shows up on your P and L, this is before taxes,
00:04:16 et cetera, that's just operating margin. You want to shoot for a minimum of 25%. Now, again, anybody listening is going to have, there's going to be a big range. If you are over 25%, you probably have a bigger space. You're efficient with your staff. You maybe own the building, or you have some sort of creative arrangement with your landlord,
00:04:39 or you're just in a market where maybe you're paying, you know, a good like market or slightly below market rent. And you have strong pricing power. You've got your product exactly right. You probably weighted more towards offices than not, or you're really overselling flex space, which is not overly common, but it happens. I'm going to reference once again,
00:04:59 Sarah Travers, CEO of work bar and her discussion on the flex uncensored podcast, but she hasn't aired yet. Okay. Maybe she's airing when this goes live. So, okay. Hopefully we'll line that up. Anyway. If your margin is below 25%, you probably have a smaller space. You probably have fewer offices, or it's not as dense or you're in an expensive market.
00:05:24 And for some reason, your product offering is not allowing you to price what you should be able to price. There are lots of more reasons, but those are just a few, but let's anchor on a minimum of a 25% margin in this business when you're signing a lease and taking the kind of risk, you know, that this business requires you probably don't.
00:05:43 I, when I taught work with my Coworking Startup schools, if we have to fight for that 25% margin, then I'm pulling some levers to get there. I want a bigger space. I want more offices. I want, you know, something so that we can get to that. Another just kind of high level thing to think about in terms of pricing is let's think about protecting your margins through this time of inflation.
00:06:08 So that 25% margin or whatever your emergent is, will start to erode as inflation goes up and you may not be feeling extreme impacts yet. Your rent has a fixed rate of increase every year, but probably there are expenses that are starting to get passed through to you. So we want to be careful about that. Look for opportunities to increase your pricing,
00:06:32 where there's high demand for something you offer and some price elasticity. So if you offices are one, as you have office turnover, if you have high occupancy on your offices, 95%, then as offices turnover, you have a waiting list or it's easy to refill them. You want to nudge up that pricing always be doing that, or have a 5% annual increase that might be variable with inflation or look for other offerings that you have maybe meeting rooms or event space or offsite packages that are in high demand and have less price sensitivity around them.
00:07:11 Can you move the pricing up on those? We had this discussion in our, what used to be our Flight Group program. Our monthly calls is now the Everything Coworking academy group. We talked about pricing and inflation and the general consensus was we're probably not taking pricing on our hot desks Coworking. Although we had at least one operator who was taking a small increase for her flex desk memberships.
00:07:36 So take it where your members are willing to pay and things that are of high value to them like offices, meeting rooms, offsite packages, et cetera. Hey, I just wanted to jump in really quickly before we continue with our discussion. If you're working on opening a co-working space, I want to invite you to join me for my free masterclass three behind the scenes secrets to opening a coworking space.
00:08:00 If you're working on opening a coworking space, I want to share the three decisions that I've seen successful operators make when they're creating their Coworking business. The masterclass is totally free. It's about an hour and includes some Q and a. If you'd like to join me, you can register at Everything Coworking dot com forward slash masterclass. If you already have a coworking space,
00:08:23 I want to make sure you know, about Community Manager, University, Community Manager, University is a training and development platform for community managers. And it can be for owner operators. It has content training resources templates from day one to general manager. The platform includes many courses that cover the major buckets of the Community Manager role from community management, operations, sales,
00:08:49 and marketing, finance, and leadership. The content is laid out in a graduated learning path. So the Community Manager can identify what content is most relevant to them, depending on their experience and kind of jump in from there. We provide a live brand new training every single month for the Community Manager group. We also host a live Q and a call every single month so that the community managers can work through any challenges that they're having or opportunities get ideas from other community managers build their own peer network.
00:09:23 We also have a private slack group for the group. So if you're interested in learning more, you can go to Everything. Coworking dot com forward slash Community Manager. Okay. So the question that came up in the Facebook group was around pricing offices. The question was, I think this was somebody who owns the building. And so they're not thinking in terms of,
00:09:45 well, I have to charge more than what I'm paying for the space because they're paying a mortgage or maybe they own the building outright. So they were wondering, you know, how much over market rent do I pay? And am I pricing by square foot? I suspect the person asking this question has not been pricing per square foot, but was kind of just revisiting,
00:10:03 like, do I have the right framework in place? And I think it's always good to revisit how you're doing things. So we don't want to price an office by square feet. Cause think about this. So say you have 500 square foot office, which is probably or 5,000 square foot office, which might be, you know, five people ish, Nope,
00:10:25 sorry I'm doing that wrong. Yeah. 500 suite 500 square feet. And they're at 100, I don't know. It's five to seven, 100 square feet per person. You might be more dense. Let's call it five to seven. You know, maybe your price on that office is $2,000. So they have access to this team space. That's got,
00:10:42 you know, five to seven desks in it and some shelves and you know, whatever, but they also have access to all of your common space, your kitchen, your cafe, your lounge space, you know, any knucks phone rooms. I don't know if we'll include meeting rooms in that, but if they have credits and they don't have to pay for it,
00:11:00 then they have some access to that as well, which is a huge value. So what if you have several thousand feet of common space, which you might, depending on the size of your space, that means they have a 500 square foot office plus access to say 2000 square feet of open space. So really they have a 2,500 square foot office that they can use and that suits their needs.
00:11:26 They have a place to lounge. Do they have a place to do heads down work? They have a place to take phone calls. They have a place to get their coffee. So you want to frame what they are buying and their membership as access to all of the common space plus their own office, not just their 500 square foot office Cain. Wilma is the CEO of IQ offices in Canada.
00:11:48 And we are working. We just delivered our first live cohort of a, we delivered the course to the cohort. It's called flex office academy for brokers. We're teaching brokers, how to sell flex to their clients basically, and how to translate requirements, how they get paid, et cetera. And this is a really important concept for them, but might also be a really important concept to any of your members that are coming from a lease or are used to thinking about what they're paying for in terms of square feet.
00:12:19 So you might run into people who really want to think about it in terms of square feet, to make sure you tell them you have 2,500 square feet for the office in the common space. And you also want to frame for them, all the things that they are avoiding by signing their own lease, which is a commitment for five to 10 years on a space.
00:12:40 They have no idea if that's the right amount of space or not. Maybe it comes with a personal guarantee they're paying for either they're paying more in a full service lease, or they're paying through a triple net lease cleaning internet, but also they paying for, you know, repairs, they're buying their own coffee snacks. They have to buy all the furniture to set it up.
00:13:02 And then when they're getting their own space, they may have to put in their own little cafe and their own restrooms, which means even if they take their own 4,000 square feet, that's not 4,000 square feet of workspace, right. They need the meeting room and the bathrooms and the cafe. And that takes up, I don't know, half the space.
00:13:21 So they really only have 2000 square feet of workspace. So also make sure you're framing that with them. Like, look, it's all included. You get access to all the things. You know, one question that came up from the brokers in the course, which you might get from some folks who are shopping with you is when should a group get their own space.
00:13:39 So at some point on paper, it will look financially advisable for the group to get their own 4,000 square feet of space. I'm just making, just using that as an example, right? That the premium they're paying for the flexibility and the plug and play workspace for that number of people is maybe a pretty big premium. And they start thinking they want their own space.
00:14:03 4,000 square feet is still only 20 people probably. And so on a 20 person team, there is no one in charge of real estate in that group, right? They're all working on the product or the service of the company. There's nobody, maybe there's an office manager. Who's never done anything with commercial real estate before who now has to figure out how to go see spaces,
00:14:28 deal with the lease deal with the build out deal with buying furniture and designing a space. All things that you know are incredibly time consuming and require experience. So that person does not exist on a 20 person team who might theoretically be ready for their own space, but still might be better off paying the premium and staying in a flex space. So just something else to think about that we've been talking to the brokers about as well.
00:14:53 I would say you certainly will get leads who, you know, don't value the price. I hear this a lot from some of the folks that I work do a little one-on-one work with is they get frustrated, they get leads, you know, they don't want to pay our prices, or sometimes they'll run Google ads. And the Google ad leads are just really budget conscious.
00:15:12 And they're not looking for, you know, sort of the all-in-one plug and play package that comes at the premium pricing that co-working spaces charge. And that's fine. That's a segment that you're not going to serve. They're going to go find their own, not super exciting, not super inspiring, you know, little office space, if that exists in their market or else,
00:15:32 you know, there'll be stuck at home, but make sure that you're framing the experience and the offerings and the, you know, the cost avoidance that folks have when they're using your space. Okay. So remember two to three times the market rate, 25% margin, protect your margins and make sure you frame up everything that your members get access to. Not just the square footage of their office space.
00:15:57 Okay. Next week on the podcast is Reuben Lau and Reuben is an online marketing strategist. He builds custom websites. He does SEO. He does SCM. He's been on the podcast before he runs ads for a number of coworking spaces. So I said, Ruben, I want to hear the themes. What is working for ads right now in general and for co-working spaces.
00:16:22 So he came on and gave us some great examples and talked about some new things that are happening on the Google platform. If you are thinking about running ads are already running ads and you haven't heard about these changes I had not and was pretty excited and pretty intrigued. So stay tuned, make sure you tune in next week for my conversation with Ruben, we will see you next week.
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