352. Top 5 Coworking KPIs - Part II
Resources Mentioned in this Episode:
Feasibility study for landlords - evaluate a coworking business or partnership with clarity and confidence with industry-benchmarked coworking financial metrics and a pro forma customized to your market and your project.
Everything Coworking Featured Resources:
Masterclass: 3 Behind-the-Scenes Secrets to Opening a Coworking Space
TRANSCRIPTION
352. Top 5 Coworking KPIs - Part II
00:00:00,"Welcome to the Everything Coworking podcast, where every week I keep you updated on the latest trends and how tos in coworking. I owned and operated coworking spaces for eight years and then served as the executive director of the Global Workspace association for five years. And today I work with hundreds of operators and community managers every month, allowing me to bring you thought provoking operator case studies and inspirational interviews with industry thought leaders to help you confidently stay on top of what's important and what you can apply to your own role in the co working industry."
00:00:43,"Welcome to the Everything Coworking podcast. This is your host, Jamie Russo. Thank you for joining me today. We are back for part two of the KPI episode. Are you ready? If you missed the first episode, part one, go back to last week. So one episode back on your podcast player and listen to that one first before we dive in. If you are a landlord that is thinking about adding co working to your business, or you've been approached by a co working operator and seen a proposal for a partnership and you're trying to figure out are these numbers industry standard?"
00:01:27,"What does a partnership model look like? Is co working really right for my building? We are here to help. We have run this process for a number of landlords this year, and so we're more publicly opening up that offer. If you would like to get an industry benchmarked pro forma and a deep dive on whether or not coworking works for your building in your market, our feasibility study is for you."
00:01:54,"You can go to everything coworking.com feasibility, and if you have questions about how the process works, you can book a quick call with us. The link to book a call is on that page. Everythingcoworking.com feasibility okay, are you ready? We'll do a quick review of the KPI's from last week. So we covered two KPI's. The first one is whether or not you're delivering on your brand promise and business model."
00:02:28,"The second KPI was around desk revenue and pricing strategy. So again, I'm not going to go into a detailed review. If you missed last week, head on back. So we're going to start today with KPI number three, sales funnel efficiency. I talk about sales funnel all the time because while it is really important that you're delivering on your business model and that you're managing your revenue, your sales funnel efficiency kind of drives well."
00:02:57,"It drives both of those things in a sense. But this is really the focus on the efficiency of customer acquisition and the effectiveness of your sales funnel this really matters because whatever your why is for operating a co working space, you need members in order to deliver on that why. And so this is really a customer acquisition business. Most, most businesses are. It's not a real estate business."
00:03:26,"Traditional real estate we could probably think of as less of a customer acquisition business because a landlord is signing a five or ten year lease with a tenant, and so you're only acquiring a customer every five or ten years. How amazing would it be to go to bed every night with a little lease signed under your pillow and not having to worry about where tomorrow's revenue is coming from?"
00:03:47,"This model is not quite the same as a hotel where inventory turned over almost nightly, but we use monthly recurring revenue, which is actually not a KPI that we talk about but probably should be. Again, we had to pick only five monthly recurring revenue because it's really about how much recurring revenue you have on a monthly basis in terms of memberships and memberships under contract. And that is probably the bulk of your business."
00:04:18,"Even if you have other sources of revenue like meetings and events. In both cases, your more variable revenue meetings and events, or your more consistent revenue which probably comes from your offices and virtual mail program, your sales funnel has to be rocket and rolling right from the beginning. So here are some of the key metrics. Lead generation so this tracks the number of leads entering the sales funnel from various sources like websites, social media and local search listings."
00:04:50,"Your Google business listing conversion rate the percentage of leads that convert into membership, which helps in assessing the effectiveness of your sales processes and marketing campaigns. So how many people are coming into the door and how many of them are converting into members? Another important metric here is sales cycle length. So how long does it take to convert a lead into a member? And if there are any bottlenecks that you can eliminate to make that go faster, then you want to do that."
00:05:17,"Sales cycle length tends to be pretty short in our industry in general. Certainly there is the segment of folks who are getting to know, co working and really thinking about whether it's right for them. Those folks are probably not office members. Those are probably flex members. So not the bulk of your revenue, but if somebody needs an office, they need an office and they're generally touring spaces and making a decision fairly quickly."
00:05:43,"This is not like a sales force sale where they might work on a contract for two years and then finally get it signed. Cost per acquisition calculate the cost associated with acquiring a new member, which includes marketing spend and sales expenses. So I'm going to run through these in a little bit more detail. So again, lead Gen, the number of leads entering the sales funnel. We just had a community manager university call and one of the questions was around getting more tours and Kim Lee was leading the call and she's like, everybody wants more tours, right?"
00:06:18,"Yes. You always want more leads into the top of the funnel. Ideally you want them to be reasonably qualified leads. You don't want them to be spammy leads who aren't interested in co working, but interest that hits your website, interest that sees you on social or is searching and finds you in search results for local listings, and a couple of things you want to think about here. You want to."
00:06:41,"Your SEO has to be really good. Also on that call, one of our members said one of his responses to how do you get more tours? Because people tend to brainstorm really creative things like yard signs and co promotions with other businesses, which totally can work, especially in smaller markets. But he said you need to show up first in the search results. The easiest way to get customers is having them be solution aware and finding you when they're searching for that solution."
00:07:13,"So he's in a market, he said he's actually fairly close by to some other co working spaces. And so he said if they happen to find those co working spaces first, they might tour, a potential customer might tour that location and then Google search on their phone to see what other spaces might be nearby that they could check out. So he said he gets a lot of walk in tours, which I know drives us all crazy."
00:07:37,"But he said he would never get those walk in tours if he didn't show up first in the search results from a local search perspective. So you got to show up first, you got to be findable. And if you're not diligently, passionately working on your Google business listing every month, you should be. And if you're not, then put your community manager into our community manager program. Because we talk about it all the time."
00:08:01,"We dedicate an entire month to it, and we have a lot of resources on creative ways to update it and efficient ways to make sure you're keeping it active every single month. But this is not a podcast about Google Business listings. One other thing I want to say about lead Gen is if you are listening and you are not opening a typical co working space. So typical. By typical I mean there's a fair amount of offices."
00:08:29,"Most of your revenue is going to come from office memberships, even if you have other types of revenue, if you are doing something more co working adjacent, and I see this all the time, we have a couple of these in our co working startup school. I get outreach about these from folks who listen to the podcast. So I know you're out there. This is going to be much harder for you because I spend my shower time thinking about these problems."
00:08:57,"If you have a model that people aren't searching for, then you're not going to benefit from that traffic and that sales funnel, that sort of traditional sales funnel, right? So the traditional sales funnel is. I'm aware that I have a problem. Let me search for it and let me see what comes up in the search results. Let me go visit one and pick one. That's easy. If you have a creative solution that involves just serving in a way that is not super traditional, then you are going to, there's not going to be a name for what you do, right?"
00:09:34,"If you don't identify as co working or office space or flex office space, you're not going to come up in the search results the same way unless you're really diligent about pulling that part of your solution out on your website and having landing pages dedicated to it and making sure that you're really working on the SEO on those landing pages so that you do show up as a solution."
00:10:01,"I see a lot of models that are kind of multipurpose, which I love. In theory, I think I would like to use one of those spaces very much. But again, because it's less traditional, it may not identify on the Internet as co working, then people looking for co working aren't going to find it. So if you're starting a business that's a little bit unique, you have to really think about how people are going to find you."
00:10:26,"And if you can't pull an easy lever like a Google Ad or like your Google business listing shows up for anybody looking for that, it's going to be a more challenging path for you because you're going to have to work a lot harder for your leads. So just something to think about is I, again, I love creative non traditional models. They're harder to market. Conversion rate is another key metric under sales funnel efficiency."
00:10:51,"So how many lead, how many people show? I usually think about this. So you can think about conversion rate in a couple of different ways. Leads to members or like tours to members. So when you're thinking about your sales funnel, again, this is not an entire episode on sales funnel, which we certainly can do and have done. The you want your website, your top of the funnel, lead sources, your website, your Google business listing to be really effective and to drive people to book a tour."
00:11:24,"That's what you want them to do, right? You want them to book a tour. Because what that conversion rate is probably you should, which is what we're talking about here. If they come in the door, if they come in the door, they're qualified to a high extent. They're searching for space. They probably have budget for space. When I say space, I mean a membership, a place to work, a place to do whatever it is that you offer."
00:11:47,"They have seen your website, they've seen your Google business listing. They want a solution that you offer and they've booked a tour. So now they are yours to convince in person, which is gets you much further down the customer journey than someone just hitting your website and then leaving. But so you want to look, when we're thinking about what's, what could we improve in our sales funnel, you want to be looking at, in trying to improve the percentage of people that hit top of the funnel that actually book a tour."
00:12:21,"And then you want to work on, okay, of those that book a tour, what percentage of them actually join? And I would caution you here, social media is on here. In some markets, social media is going to be very relevant. In other markets, social media is not going to drive tours. So it might drive awareness. It's probably not going to drive tours. You want to be careful how much time you spend on that or how much you rely on it."
00:12:44,"So if you don't have a marketing budget and you're thinking, I will just rely on social media, I will remind you that organic social posts reach 10% of your audience. So if you get to a thousand followers, 100 of them will see any post that you produce. So it's very noisy. It's very hard to get in front of your followers with organic, unpaid social media. So keep that in mind."
00:13:08,"Okay, let's talk a minute about conversion rate. So what do you want to look for here? You want to look just to see that you're converting folks that come into the space. And we could use some work on industry benchmarking. This, in my mind, you're looking for 30% to 50%. I think it's hard to get over 50%. I don't like to see under 30. So there's a range in there where you're trying to convert 30% to 50% of the leads that come in the door."
00:13:35,"You. I think it's really important to track conversion rates by lead type. So if someone comes in and they're looking for an office, what is that segment of leads? What's their conversion rate versus someone who comes in and is looking for a flex desk. Most other meeting rooms, et cetera, probably aren't touring unless they're doing an event. So you could also track event space leads and that conversion rate."
00:14:00,"And this is going to help you really understand your business, how much effort it takes to make money from a certain segment. And then if you decide to create a second space, this data is going to be really invaluable. And this data is frankly what usually drives people to create more offices and focus less on flexpace. Because the reality is that Flexpace members don't need membership. They want a membership."
00:14:29,"They're going to come in, they're going to have more objections. They're going to maybe have more budget concerns because it's not a need, it's discretionary. So they're going to be harder to convert. They're going to go home, they're going to think about it. They're going to say, maybe I'll do it next month. And so it's going to take longer. And you're converting. So you're going to, your conversion rate is going to be lower, generally on flex desks."
00:14:52,"And that dollar amount per conversion is lower. So you're going to convert offices. So maybe your office is $1,000, you're going to convert half of the people who come in at $1,000 until your offices are full and your flex members, you're going to convert at maybe 25%, maybe 30% at $200 a pop. So it's going to take longer to add those members at lower price points. So that's going to help your business grow faster."
00:15:21,"Sorry, it's going to, it's not going to contribute a lot to helping your business grow faster unless you have a unique model. If you're following switch yards, then you're arguing in your brain about what I'm saying. I think that is a very unique model with some secret sauce that does not generally tend to work. So they're doing amazing. I'm not saying they're not working. It's absolutely working very well for them to date."
00:15:45,"And they're like a boutique flex space, social club or work club kind of model. And they convert like crazy. They sell out their spaces before they open. So it's not impossible. I'm just telling you what's typical. Okay. Sales cycle length, again, not as relevant here, but it is good to track. How long does it take you to sell any particular segment? And this might be good data for products like a larger team suite because you'll know that when that team suite opens up, you will have some data on how long it takes you to fill it."
00:16:20,"So it might take you absolutely no time to fill a one person office. Maybe you have a waiting list for those. If you have a ten person office, that might take you three months to fill when you have an opening. And so the action item there would be, if you know that, then you're being very vigilant about whether that group is going to renew. Maybe you have a 90 day renewal notice in that agreement and you're marketing that office like crazy when you know that you're 90 days away from that opening up because it will take you that long."
00:16:53,"You can't start marketing when it opens. You have to start 90 days in advance because that's how long the sales cycle length is. Same thing for events. Large events may also have, or maybe you have shorter sales cycles, but they're booking out in advance. That's not really a sales cycle thing. But it happened to pop into my brain that if you are launching an event space and you want to book holiday events, you're really booking those in September."
00:17:20,"So you have to always be thinking really far in advance for some of these things that are either booked far in advance or have a longer sales cycle length. Okay, cost per acquisition. This is, I think, important to think about in a couple of different ways. One is you want this to be as low as possible, but in the sense that it's still effective and it's bringing in the number of leads that you need."
00:17:45,"So the easiest example to think about this is around running Google Ads. So if you're running Google Ads, then your Google Ads manager is going to be telling you what your cost per acquisition is for these leads. So if you run ads and you get ten person, ten leads in the door in a month, and you closed two of them, what did it cost you? An ad spend to get two new members?"
00:18:14,"And then you'll calculate the LTV, etcetera. That's really important. The way I don't want you to think about this is making this as cheap as possible, because this goes back to my lead gen example. If you have a unique model, or you've opened and you spent your entire budget on build out, and you don't have a marketing budget, you might be thinking, I need to make my cost per acquisition essentially nothing."
00:18:41,"So I'm going to use social, organic, social media, I'm going to use referrals, I'm going to use word of mouth, I'm going to use cross promotions with other local businesses. All things that can work well to fill in a core strategy. But anything that's free is generally going to take a long time and not bring you a high number of leads. So your cost per acquisition might be low, but it's going to take you too long to build up your membership base."
00:19:13,"So when you're thinking about cost per acquisition, it's really in the context of how much did it cost you to acquire. What is the lifetime value of that customer, and do you still make the margin that you want to make on that customer? So we could dive into all of those individual metrics. We could spend days on this podcast, but we're not going to. Okay. So we're going to leave."
00:19:37,"Okay. One more thing I'd like to say about sales funnel efficiency is that probably most of you do not spend nearly enough time on this. And I think this is really a challenge for folks in our industry. If you are a single location operator, you probably just don't have time. You've got other things going on. You don't have the resources, you don't have a head of marketing. So it's challenging to stay on top of these metrics, but they really do matter."
00:20:08,"And so try not to feel overwhelmed by the idea of tracking these things, putting together a simple spreadsheet and just do it. Even if it's a grade c, you're not going to give yourself an a plus. You're going to give yourself a c. At least you're doing something because you will identify holes and you will, if you try to improve these metrics, you will figure out which levers work for you and which don't."
00:20:35,"And you will know, do I meet what's standard for the industry or not? Now, lead Gen is going to be really hard to benchmark because that depends on how big of a market you're in. Your website traffic, for example, in a small town, is going to look very different than if you're in London. So there's not a lot of industry benchmarks there. But you want to track these metrics and know, start knowing what looks good for you, how things vary seasonably, seasonally."
00:21:08,"And you, you want to try to improve these numbers and you want to look for tools and systems that help you get better at these. Like I was talking to someone earlier about the fact that I think a lot of operators don't use a CRM. And a CRM is not your billing platform. It's not office R and D. It's not an exodus. It's not proximity. Those are billing platforms."
00:21:35,"A CRM is a customer relationship management system, but it should really be called a lead management system because it manages your leads before they become customers. To a great extent, you're still going to keep your customers in your CRM, but you don't move a customer into your billing platform until they're ready to get billed. So your lead gen and your conversion rate tracking and all of that happens in a CRM."
00:22:01,"And so you really want the rigor that a CRM puts in place. So my takeaway is stay focused on your sales funnel. It's an important way to grow your business and identify what's working and what's not. And also, you can't over engineer it. You want to keep it scrappy. If you're a smaller space, if you're getting into multiple locations, then you want to get more rigorous about your sales funnel."
00:22:27,"Okay, KPI number four member retention rate. This is really important because we just talked about sales funnel and how complicated it is and how it can cost a lot of money to acquire customers and take a lot of time. So the, what do they say? The least expensive way to get a new customer is to keep one that you already have. So true. So if your lifetime value, LTV for short, is long, so that means if your average member stays for a year, that's a whole year."
00:23:01,"You do not have to worry about marketing to replace that revenue. Again, this is just, this is like cold hearted looking at the numbers. Of course, you also want to adore your members and you want them to stay forever. And also this is a really great indicator of the health of your operations, your hospitality, your team. So when we talked about delivery on brand promise and business model, your membership retention rate is going to be a great indicator of that."
00:23:35,"Are they getting what you promised and are they having a great experience? And are you delivering the thing that your best customers want and that may evolve over time. So you want to pay attention to this member retention rate because if it starts going down, you want to dig into that and see what's going on here. And you know what? I'm going to circle back to the sales funnel efficiency."
00:24:00,"I just wanted to mention conversion rate because it's made me think about team. So there are a lot of technical things that can go into sales funnel efficiency, but team matters a lot when it comes to conversion rate. Who's doing the tours? Are they well trained? Is it a great fit for their personality? Do they know how to close a tour? What questions to ask. This conversation also came up on our last community manager call, which was awesome."
00:24:28,"I love talking about that topic. I think closing tours is a source of anxiety for a lot of community managers because they don't really think of themselves as salespeople. They're community builders or community managers. So they're not salespeople. They don't want to think about it that way. They want to invite people into the special thing that you're building. But tactical sales, sales tactics may not be something they have experience in."
00:25:01,"And so we actually have a training module that we have done live a couple times on sales for the non salesy community manager. So we try to really ease into some of the little things they can do to to a tour to increase that conversion rate. But this is an area you really want to keep an eye on because if it's going down, it could mean that the tours aren't going well or that the follow up is not going well."
00:25:27,"You want to make sure that you've really outlined a process for your team to follow, to follow up with tours. Every lead that comes into your space, I'll tell you how we work, and we just do it. Every lead lives until the lead says no and turns you down. So you want to manage that lead really carefully for a couple of weeks, which is usually what the sales funnel time is."
00:25:52,"And then after that you want to nurture them with a newsletter, maybe invitations to your events, etcetera, until they say unsubscribe, basically until the unsubscribe or tell you they're absolutely not interested. But that conversion rate is something you want to track because it's usually a symptom if it goes down, that there's something not working very well that you as the owner need to address. And so member retention rate is definitely one of those things."
00:26:20,"It could mean you don't have the right team in place. It could mean you're not taking care of your facilities. It could mean a heck of a lot of things. So this is really looking at how long your members are staying, and that reduces cost per acquisition. So you will take a look at, and this is tricky to track. So your space, your billing platform, so your office, R and D, your nexodus, etcetera may help you with this."
00:26:48,"What is especially challenging is if someone joins and then they change their membership. They start with a dedicated desk, but then they move to an office, or they start with a day pass and then they join and have a flex desk. So you may have to make some accommodations for those movements. But you really, if you can't track this with your billing platform, you need to track it manually and look at it every so often."
00:27:11,"You want to ideally have a KPI tracker that you're updating. I talked about this in episode one. Worth repeating just for a little bit. Even if you as the owner don't do it. I don't pull my own KPI's. I have a team member put them into our KPI tracker and then I just look at them. If I had to pull all the numbers, it would not ever happen."
00:27:30,"That's not my personality and I don't have time to do it. So have someone else do it for you. Have a va, have your community manager do it if they have the capacity, but make sure it gets done. But you want to be looking at this number every single month because you want early indicators if this is going down. And again, this can be little things from, hey, you're not stocking the almond milk that I like and I'm going to go next door cause they have better snacks and they have the almond milk that I like to you got a new community manager and they're just not the same."
00:28:02,"They're not a good fit for the space, they're not connected, connecting with members the way that your other community manager did and it's not a good fit and so it's no longer the same experience. And people lift their head up and say, what else is out there? I'm going to look around. So this member retention KPI is just, I mean, these are all really important. This one is probably one of the easiest to track and just a really strong indicator."
00:28:26,"If you aren't keeping members, then the, your cost per customer, your cost of acquisition per customer might stay the same, but you're going to spend a lot more in marketing because you're replacing more customers more frequently and it's likely just not the business you want to run anymore. Right? I am sure that everyone listening here wants to run a space with an exceptional experience for members. No matter what that looks like."
00:28:54,"It could have a hundred different flavors for everyone that's listening, but you want it to be a great experience no matter you know exactly what it looks like. And so if your retention rate is going down, that means you're not delivering on what you want to deliver, which is a great experience. So what are some things that you can do here? Retention strategies focusing on engagement can be one, although be wary that engagement does not necessarily equal LTV."
00:29:22,"For example, you might have office members that are, say they're service professionals, say they're attorneys and tax professionals. They're busy, they have clients, they have families at home. They're making money. They don't have time to go to happy hour. They may not want to go to happy hour. You know what? They have buddies that they golf with on the weekend. They've got friends of the family that they hang out with, their kids."
00:29:47,"So they're just not in your space to make friends or even network. So they don't come to stuff. So low attendance to your community events is not necessarily a problem. So we talk about this a lot in our community manager group. Still, do your events still try to figure out what aligns with what your members are interested in? Because this can help a lot. Because often at events is where we make friends."
00:30:17,"And if you have even one friend at work, your engagement in your workplace goes up exponentially. There's lots of data on this in the corporate environment, and I think it absolutely holds in the co working environment. So do your best here. It's not necessarily applicable for every type of space. Okay, gamification. I think I might have brought this up in last week's episode, so I might have to repeat it."
00:30:46,"I am not sure this is everyone for everyone. I can tell you we're going to start doing more of this in our programs because I think people respond to it. It's just human nature. People respond to games, to points, to deadlines, to anything that encourages them to take action and not be distracted or stay stuck. So I think I mentioned on the last episode that Anna Levine, who's the head of co working at Industrious, I might be getting her title wrong."
00:31:13,"She presented at Juicy in April and basically said that they had started doing an experiment around what gets people to come to the OR. Sorry, what drives LTV. And essentially what she thinks is playing out is that the more people show up to the space, the more, the longer they stay. And so they were experimenting with some gamification techniques to encourage members to show up more, which they think drives LTV."
00:31:41,"There's very early on in this experiment, but if this resonates with you, give it a try. You could do simple, a simple point system or a leaderboard to track how many times somebody comes into the space every week. You could give out prizes for it. I am sure you could get much more creative. I know your community managers are pretty creative, and so they can probably come up with some ideas here."
00:32:05,"And actually, as I'm saying that out loud, we might have to put this on our resource list for our community manager program, how to gamify things in your space. I like that. Okay, so getting regular feedback, conducting regular feedback surveys to understand member needs and make improvements that can enhance their experience and loyalty. So this is the almond milk thing actually happened to me to some extent. We had a community manager who was a higher out of desperation."
00:32:35,"It's embarrassing to admit, but I know you've been there. And she was not paying attention to basic things like making sure we had half and all the types of milks that people in California need at all times. And so I had a member who'd been there for a long time and he literally said, I'm annoyed because there was no half and half this morning. And so I googled and I found another co working space, and they have amazing snacks and plenty of half and half, and I'm going there."
00:33:05,"Okay, so that's a big red flag. And that community manager lasted probably zero days longer. You want to keep an eye on those things, especially if you are as an owner, not in the space every day. These things can really slip through the cracks. And so you really want to be getting feedback for your members, both formally and informally, making sure you're in the space often enough to get the vibe of what's happening."
00:33:28,"And watching that LTV, if you like, have your little spidey sense or your little voice tells you that this is not an optimal situation, it's probably not. And you'll start losing members. So you can't sacrifice on the quality of the member experience that will start to show up in your metrics. Okay, we're going to move on to number five, Ebitda. Earnings before interest, taxes, depreciation and amortization. I suspect some of you do not like to look at this number."
00:33:59,"It's like earmuffs. Ignorance is bliss. If I don't know what my profit is, I don't have to think about the fact that it's not what I want it to be. So EBITDA just means it is just your simple profit number. It's revenue minus expenses is the dollar amount, and then you create a percentage out of that. I'm not going to do the math for you. You can google it if you would like."
00:34:22,"So it just doesn't it. From an accounting perspective, you might think about taxes and depreciation and amortization of assets and blah, blah, blah. We're not going to get into that accounting technicality. So it's really just revenue minus expenses. And what is that number and what is that percent of revenue? So what you're left with, what's the percent of revenue? We like to see that at about 20% in real life."
00:34:52,"On a pro forma, I like to see that higher. So my co working startup school students, we like to see that 25, I like to see a 30 because our performers are a little bit optimistic. So I'm not saying you can't hit in real life a margin over 20%, but if you are thinking about starting a space and you're running your pro forma, and if you're doing that on your own, I don't know why you would do that."
00:35:17,"Join our co working startup school. We have exceptional, we have an exceptional template that we use. It's a model, so it's a plug and play model that lets you put in your inputs, we walk you through the entire framework and it spits out a proforma for you. So if it is not hitting 20% on your pro forma, then this is not a good deal. You've got your real estate model is not working, your product mix is not working, your pricing's not working, something's not working because the margins are fairly tight and it's very risky."
00:35:48,"If you're going to pro forma 20% and you can't actually, then you open and you're at ten. That's a really low margin for the expense of getting into a business like this and for the liability of signing a lease. So we really want to work with you, our student, when we have students in our startup school, to pro forma and realize in real life, 20% plus, that's on a lease, by the way, if you own the building, it kind of depends on how you run the accounting for the lease."
00:36:18,"Do you have a lease? Are you not charging yourself rent? You can get a much higher profit margin if you're not charging yourself rent, obviously. Okay, so how can you manage EBitda? You want to manage EBITda before you even open. So that is the reality. And that is really the why behind why we run the co working startup school. Because if you have not gotten a number of things right before you open, then it's very hard to increase your profit because it's driven by your rent rate."
00:36:57,"So your lease, your deal that you sign, and your product mix. So do you have the right number of offices and do you have the right density of offices and the right pricing on your offices to make the pro forma work? And this is, it's a pretty sensitive model, meaning that if you change the number of offices or you change the pricing on those offices, you get a very different number."
00:37:21,"So there, there's not a lot of wiggle room in these models. You have to get things really right in order to actually hit the goals that you have. Again, this is really oriented towards folks who are trying to replace an income or create a really solid investment opportunity. So you may have, you may not have a profit goal per se. Break even might be totally fine for you and your business model."
00:37:50,"So this discussion is really focused on folks that are trying to create a profit. So in terms of EbItda, again, this is the managing. The EBITda really happens before you open. So I would encourage you, if you are thinking that you're going to run this process by yourself, that it's very risky. 100% of the folks that go through our co working startup school have assumptions that are not correct and that would cost them tens of thousands of dollars over the length of their business in mistakes, not to mention lost revenue."
00:38:25,"So we find those opportunities for every person that goes through our program when they go through our process, and we can see their inputs, their assumptions, and then the pro forma and work with them on finding a location, which leads us into the next piece. Your location is essential if you end up in a location that simply doesn't work, or again, it's too expensive or the you can't, you're paying too much for it and you can't charge enough for the offices."
00:38:52,"All of those things are going to have a significant input on the profit output. Product mix is another big one, which we've talked about. You need to have the exact right mix of services and amenities to track, attract and retain your ideal customers. Again, there is a typical way to do this. The most typical straightforward way to make a high profit on this model is to have a very office dense model."
00:39:18,"There are a lot of trade offs there. Those are expensive to build and may not be the exact model that you want to run. So there are trade offs to be made around the type of business that you operate and the profit that you can generate, size and scalability. So you can create a profit margin that is industry standard on a small space, but the absolute dollar amount that you can produce on a small space is going to be lower because you simply don't have the inventory to sell."
00:39:47,"So we talk about that a lot in other podcasts and other content. So if you're curious about that, just kind of search through our content. You can search through all of our podcast episodes on our website. By the way, if you go to everythingco working.com and you go to the podcast, there's a search bar at the top and you can search by keyword and then fix costs. I would say here's the thing about profit is you're really managing revenue in this business."
00:40:15,"You can manage costs to some extent and looking at your profit margin is a really good way to figure out where the issue is. It's possible that your costs are out of line. You've hired too many people, you're spending too much on marketing. So it's possible, it's not typical. I usually see operators that are underspending on marketing, underspending on staff, and their revenue is just not high enough."
00:40:44,"And that is back to do we have a large enough space in the right location with the right lease rate, with the right product mix. You have to get those revenue drivers right because the fixed costs are just hard to move. You can't make your Internet costs go down. You cannot make your staff costs go down. Assuming you're leanly staffed, you have to spend money on marketing there."
00:41:07,"You just, there's a lot of expenses that you have to spend in this business that aren't just particularly variable, you have to spend them. And so they're pretty fixed in terms of a square foot cost or a per month cost. It is the revenue side you really have to get right and you have to have the right levers to pull to keep that humming. Okay, that was five."
00:41:29,"So again, we could talk for a long time about a lot of different metrics and a lot of different KPI's. If you have favorite KPI's, please let me know. Okay, let's do a quick rundown of the five just in review. Number one, delivery on brand promise and business model. If you're not delivering on what you're promising to your members, then the rest of the metrics are not going to matter because they're not getting what they came for."
00:41:54,"The second one is desk revenue and pricing strategy. And this kind of feeds into a common theme that we've been talking about, which is that the pro forma on a co working space is very sensitive to each of the individual inputs. So if you run your proforma and you think you're going to get $300 per desk and instead you only get 275, your revenue, monthly recurring revenue over ten years is going to multiply and it's going to be a magnitude of difference."
00:42:23,"So the price, the ability to price how you think you can and to maintain price increases as inflation increases or rates in your market go up, you need to pay attention to those things because that your, your p and l is going to be very sensitive to price changes. Sales funnel efficiency is number three, which we talked about today, and we could talk about the sales funnel all day long, but you want to be looking at things like how many leads are you getting?"
00:42:52,"Do you need to run ads to get more leads? How many are converting into a tour? Do you need to make it easier to book a tour? If you make people fill out a form, then you've made a big mistake. Please do not make people fill out a form on your website to book a tour because we're all lazy and we're busy. We don't want to do that."
00:43:09,"We want to open your calendly and we want to book when we want to book. So things like that will make a big difference in terms of your conversion from lead to tour and then your conversion from tour to member if that is not 30% to 50%. You want to well, and always try to make it higher. You want to make sure that you have a clear tour process in place, even a script."
00:43:32,"You want to practice with your team. You want to make sure your team is well trained. You want to make sure they're comfortable with the tour and the aspects of the tour that they have to focus on in order to drive conversions. Asking great questions, introducing potential members to other members, asking them if they're ready to join. Implementing the appropriate follow up process. If you give a tour and then you get really busy and you don't follow up with that tour for two weeks, but the guy down the street has already sent three emails and made a phone call and sent flowers, you're not going to get chosen."
00:44:04,"Member retention rate is KPI number four. So this one is pretty clear. But sometimes I think we forget we get into sales mode and focusing on the sales funnel and you forget that really you would have to spend way less time on the sales funnel if you kept your members. And I'm also going to add a quick note here. Sales funnel efficiency is especially important when you're in month zero to 18."
00:44:29,"When you're ramping up. You got to be super focused on sales funnel efficiency and then member retention once you get to the stabilization. So you're a couple years in and now you are replacing members that leave. Then maybe you take the pedal off of the sales funnel a little bit and you're really focused on member retention rate because you're closer to full and you just want people to stay as long as possible."
00:45:00,"And so pulling levers that help people want to stay and not look around for other solutions or go back home will make a big difference. Maybe you're spending a little less on Google Ads at this point, point, etcetera. And then the final one is profit margin. Earnings before EBITDA, earnings before interest, taxes, depreciation and amortization. So you want to get comfortable with that percentage, the year profit percentage, and you want to make sure it's at least 20%, and you want to keep an eyeball on that at all times."
00:45:34,"And if it's less than 20% you want to explore, is that something you can fix? It may be that your rent is too high. If your rent is too high, can you raise your rates and ask somebody else? Because you probably are hesitant to do so, but you may have no other choice. If you're paying too much and you cannot raise your rates, then you may be a little bit stuck with a low profit margin."
00:45:56,"Another way to increase your profit margin will be to add revenue by adding private offices. Because presumably you have more demand for private offices than you do for flex desks. That also costs money. So it's really hard to improve your profit margin if you're struggling because your rent rate is too high or you don't have enough of the things that sell and make you money, usually private offices."
00:46:21,"Okay, so thank you for joining us. That's it for the KPI episode. We will be back with more co working content. Same place, same time next week. Until then, have a great one. Thank you for listening to today's episode. If you like what you heard, tell a friend, hit that subscribe button and leave us a rating and review. It makes a huge difference in helping others like you find us."
00:46:50,"If you'd like to learn more about our education and coaching programs, head over to everythingcoworking.com. we'll see you next week. Bye."
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