358. Getting Real on Coworking Revenue Streams - Benchmarks and Action Items

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358. Getting Real on Coworking Revenue Streams - Benchmarks and Action Items

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."

00:00:45,"Hey there. Before we dive into this episode, I want to share with you something that you may know. If you're a longtime listener to the podcast, virtual mailbox services are really taking off, and your coworking space is in the perfect position to benefit. If you are ready to kickstart or level up your virtual mailbox service and add a reliable revenue stream that grows and compounds to your business, we've got just the thing for you."

00:01:12,"We're excited to open up the mailbox moneymaker challenge again. Starting on September 16, we'll spend about ten weeks guiding you through the entire process, step by step. We'll cover everything from setting up with the post office to finding clients, pricing strategies, marketing your virtual services on your coworking website, and more. You'll get everything you need, the forms, the templates, the sops that you need to keep things running smoothly."

00:01:40,"And we'll even show you how to operate your virtual mailbox service without losing focus on your core business. This is a common concern that we hear. The best part, you could have your virtual mail service up and running by November. Registration starts on September 3, but you could get on the waitlist right now@mailboxchallenge.com. last time, one of our challenge members secured nine leads in just one week. We hope you'll join us."

00:02:08,"Get on the waitlist@mailboxchallenge.com. dot welcome to the Everything Coworking podcast. This is your host, Jamie Russo. Thank you for joining me today. So we're going to talk about revenue streams today, and we're going to talk about that in terms of benchmarks, what's happening in the marketplace, and how you might think of think about increasing your revenue and profit, because revenue with associated expense is not what we're looking for, right?"

00:02:41,"We're looking to increase our profit. You might want that for take home pay. You might want that to invest in a new location. There are a lot of reasons why, um, you're always thinking about how to optimize your profit, assuming that's your goal. You might be a not for profit space, but even if you are, you're probably still looking to make sure you're optimizing your model so that you can reinvest in the business or in your programming, in your members, et cetera."

00:03:11,"So here's what we're going to talk about today when we think about revenue. First, if your bookkeeper is not breaking out your revenue, they're not helping you. You really have to understand where your revenue is coming from at a very detailed level. Now, there's some balance here. I do this when I operated co working spaces, I had a number of line items on my p and L to help me understand the source of my revenue, percentages, et cetera."

00:03:48,"Now, we can get too granular on this at some point, but on the other hand, most of you probably aren't going far enough. I look at a lot of p and ls for operators who are in business. Our team does. We work with operators on optimizing their business. We work with landlords who are taking over spaces and have an existing p and l. And oftentimes we've just got one bucket of income."

00:04:13,"Maybe it's split out between workspace meeting room, that's usually about it. And this does not help you get really real with your numbers, right. In order to get really real with your numbers, you have to know what revenue you're getting from what categories of how much revenue you're getting from each category of revenue, so that you can make good decisions about what to focus on and what's actually working in your business and what is not serving you anymore, and should either be removed or optimized in some way."

00:04:47,"So we've been talking a lot recently about the demand for on demand, the resistance that we see our users having to making a long term commitment. Most of that is in the co working bucket, which is either a dedicated desk, a hot desk, a day pass, that kind of thing. So office revenue should be one category, and the other categories that you're looking at should really be broken out so that you can see what you're selling and what percentage of your revenue it's contributing."

00:05:23,"So even to the level of again, if you sell 20 different plans, we don't want to see them all p and l, but the main ones, five day passes, ten day passes, meeting room revenue, and make sure that's broken out. Now, of course, you can do further analysis through your space management platform, which should give you some analytics so that you can use that for further decision making."

00:05:49,"So we probably don't want to see meeting room revenue by meeting room on your p and l, for example. But you should be able to pull that from your billing system and review it and understand, okay, how much utilization am I getting out of my boardroom versus my four person huddle room versus my day office or whatever kinds of assets you have. You want to be thinking about that and looking at that because otherwise how do you know what to focus on?"

00:06:17,"How do you know how to optimize that physical space? You want to be looking at those categories and understanding what are you marketing, what's working? You may find that, oh, we're really down versus a year ago. And that's another thing you want to look at when you look at your numbers is what are you doing versus a year ago. It's really hard to look at what are you doing versus last month because our industry has cyclical patterns based on the weather, based on holidays, based on vacation times."

00:06:48,"And that can vary based on where you are in the US or in the world because you're the weather patterns are different. So very hot out. People might be sitting at home using their air conditioning, or they may be leaving town, or you might be in a tourist destination where a certain month happens to have a lot of day passes. So you don't want to necessarily judge your day pass volume versus last month or the month before."

00:07:17,"You want to look at versus a year ago to see the trends now post pandemic. And you'll hear this when we're talking to podcast guests. A lot of folks have seen who used to do well with flex desks that demand has really been reduced, at least for the full time membership. So we're seeing people wanting to really only pay for what they use. They're comfortable at home, they have a home office, and they're just resistant to commitment."

00:07:48,"They'll buy day passes, they'll buy five or ten day passes, or they'll buy part time private offices, which I encourage you to consider, but it's hard to get them to commit to full time co working. So that's still something you're selling. You can keep it, but you should know what that looks like and what the trends are because you need to prioritize your offerings on your website, on your Google business listing."

00:08:08,"So you want to list them in the order of demand. Because if you know what people are looking for, don't keep trying to sell them what they're not looking for just because it's what you want to sell. And I know that's really hard. As a business owner, you want to be really paying attention to what's trending on a macro perspective. What's trending? Office space, private office space, small offices, not giant team suites in most markets, never say never."

00:08:33,"And I'm generalizing, but to talk about trends, I have to generalize a little bit. Meeting room revenue, event space, if you're willing to do it. And of course, virtual offerings, identity packages, the use of an address, virtual mailboxes, etcetera. Let's talk about these revenue streams and what they tend to look like on a pro forma. So let's just use an example here. I am actually going to screen share, so if you're watching on YouTube, you're in for a treat here."

00:09:08,"For everyone else listening, I'm just going to walk through these numbers, which might be hard to process, but I, I'll do my best. Okay, so easy math. Let's take 10,000 sqft. So you have a 10,000 square foot space. Your revenue is 700,000. How would I get to that number? $70 a foot is kind of like a lower baseline of what we like to see for a co working space of this size, of typical cost with a typical cost structure."

00:09:40,"So if you happen to have some crazy deal on rent, you own the building, something like that, you might be able to come in with a revenue number that's lower than $70 a foot. Why does it have to be roughly $70 a foot? Because of the cost structure of running a space. Because of the Internet, the janitorial, the community manager, all of the operating expenses that go into a p and l."

00:10:07,"If baseline those, then you need this much revenue in order to cover those and hit a a 25% margin. And you may not be at 25%, you may not be at $770 a foot. If those things are not the case, there's probably some optimizing that you can do in your offerings, in your sales funnel. So anyway, let's assume $70 a foot. So if we break that $700,000 in annual revenue out by percentages, you're probably going to see roughly 70% of that revenue is coming from offices."

00:10:44,"And this may hold true if you've got a typical mix of offices. Most of the folks that I talked to who don't go through our startup school or don't have decades of experience in this industry, put in too few offices, we see that over and over again. But for a healthy pro forma that's kicking out 20% margin 25% margin, and that can be higher if you own the building."

00:11:13,"We see roughly 70% of revenue coming from offices. Co working revenue is probably about 15%. This doesn't mean you don't offer plenty of co working space. It doesn't mean you're primarily an office based business. But what it probably means is that it's harder to sell co working day passes, et cetera, and then meeting room revenue about 15%. We are seeing that for sure trend higher. So for folks who are focusing on meeting room revenue, that percentage will start to build."

00:11:45,"And if you are paying attention to trends and making sure you're really optimizing for meeting room revenue, you're working on your SEO, you might be running ads, you have really easy to book meeting rooms on your website, super user friendly e commerce enabled booking of your meeting rooms on your website. You're seeing that number trend up, which is great because that can offset the reduced flex desk co working memberships that you might be struggling more to sell."

00:12:15,"So 7015. So if we take that and apply a 25% margin to it, that's $175,000 in profit per year. That's assuming you're paying someone to run your front desk. So if you're not seeing the this revenue rate per square foot and these margins, your space isn't optimized. It's probably not dense enough in terms of offices. You have a really high rent rate and you can't price for that, or your sales funnel is not functioning as it should."

00:12:50,"So the other thing I want to bring to your attention is that because we have these challenges with the increasing demand for on demand, you want to think about ways to add revenue to your pro forma, especially if you are under optimized and not hitting that $70 a foot and you're not hitting that 20% to 25% margin. And you don't, you can't invest in adding more office space that's not in the cards for you."

00:13:20,"You don't have the funds to do it, you're too close to the end of your lease, etcetera. So how do you make up for revenue? One way to do that is to add virtual services, meaning virtual mailbox services, business identity packages, virtual office with access to day offices, meeting room packages, et cetera. So I want to walk you through what that might look like. So, same space. And we're going to say, look, we can assume that if you focus on a virtual program, virtual mailbox, access to meeting rooms, Google business listing access for folks who physically access the space and your average price on these packages, we, we like to see premium packages offered."

00:14:10,"So this is going to be an average price in a typical market of $49. For folks who focus on this and build for a couple of years, you can hit 200 members of this, of these products. That's realistic. And so that would be an extra $9,800 a month in revenue, which is 117,600 annually. Now, let's say some of this comes with marketing fees that you're paying to lead gen partners."

00:14:41,"So let's say your margin on this is not 100%. Let's also assume you might need to hire somebody to come in a couple of hours a day to help support that. With 200 members, the heaviest, the biggest weight on your team is going to be the setup of those members because of the CMRA requirements. And after that, it's not going to take a lot of time to process your mail."

00:15:06,"Roughly 30 minutes a day per 100 members is the industry benchmark. Unless you have some heavy users, and then you should be charging them more. So anyway, let's say you're paying a marketing fee for some of these leads and you hire somebody to help. So let's say your margin is 60%, not 100%. That would be an extra 70,000 to the bottom line. So now, instead of 700,000 in revenue in the same space, you have $770,000, um, in revenue."

00:15:34,"So you're dropping an extra 70, uh, on top of that 175,000 to the bottom line, which, again, can go to owners pay, it can go to invest in a new location, it can go into your capex fund for things that need to be repaired, or a website update or whatever that might be. But this is an annual number you would, once you start to build that business, start to see that recurring revenue, and you're building on it."

00:16:00,"It is easier to build a virtual mail business because there's no physical cap, mostly in your offices. Again, most of you probably have too few offices, unfortunately, and it may be very hard to address that problem. So you have a cap, no matter what, on how many offices you have. You can't sell 60 offices if you only have 50 of them. And so your occupancy is going to sit at 85%, maybe 90%, depending on the market you're in."

00:16:30,"And that's about it. And you're going to churn every single month. Whereas virtual businesses, virtual clients, are very sticky. And what I mean by sticky is that once you have your business address somewhere, a lot of work to change it, right? You have to change it everywhere and people just generally don't bother doing it. These are assuming that you're getting good quality leads, that your price is high enough to deter the riff raff who just comes in and pops out again."

00:16:55,"But for legitimate businesses that need a business address, access to meeting rooms, that part time office, or just have mail that they actually need to have scanned or forwarded to them, et cetera, they really value that service. And so that tends to be sticky and it compounds. So instead of that being stuck like your co working memberships, you might have the challenge where you're like, look, I have 50 members and I can't break that ceiling."

00:17:22,"And it's really hard. No matter what, I don't seem to be able to break that ceiling. If you are in a reasonably sized market, if you're in a very small market, this might be harder, but you absolutely can grow that business month over month. You have less trouble compounding that business and taking it from zero to 200 to 300, etcetera. Over time, going to be a slow build."

00:17:47,"But as they say, when's the best time to start your mail program? If you haven't done it already, then today is the best time to start and start building that. So I just want to offer that as a solution for those of you who are noticing that you're not able to hit those industry benchmarks in terms of revenue and margin. It could be other factors, like your sales funnel, like your close rate, like the pricing that you have."

00:18:13,"It could be your website, it could be a lot of things. And also it could be that you feel like you're doing everything you can and just not getting there. And adding that virtual mailbox, virtual office, business identity packages can really help. So we like to help you solve your problems because we're really committed to helping you run profitable businesses. This is why we run the startup school, to help people really get in front of creating the wrong product mix."

00:18:41,"So for those of you who are listening, who don't have a space open yet, please make sure your product makes this optimized. And please check out. You can do our we talk about this mistake that people made in our masterclass, which you can find at everything coworking.com forward slash masterclass. But for those of you who are already open, who are struggling with how do I increase my revenue?"

00:19:04,"What are these opportunities? And you haven't set up a mail program, or it's not really optimized and you haven't spent much time on it. This is a way forward for you to do that, and so we like to help. We launched in June our first mailbox moneymaker challenge, so our first cohort went through that program. It's a really in depth program with a ton of support. We do almost weekly live trainings and office hours."

00:19:31,"We leave room in there for you to catch up and implement the things that we're suggesting. But we review websites, we review pricing packages, we answer questions. We help you get into the CMRA database. We do everything along the way. We also provide standard operating procedures, templates, blog posts that are SEO optimized for your website. It's really an all in one solution if you're looking to start or optimize your mail program and we're opening it back up."

00:20:02,"We were opening it for registration starting September 3. So if this sounds like something you're interested in, get on our waitlist to get all the details. You can do that by going to mailboxchallenge.com. so we're opening it September 3 and then our kickoff call is going to be September 16. So if you know you're interested, block off. I think it's going to be 10:00 a.m. pacific time, 01:00 p.m."

00:20:29,"eastern time on the 16th of and get on the waiting list and then you'll have the opportunity to register, ask us questions, et cetera. Okay, that's it for this week. I hope you're having a great week. Hope this is food for thought and we will talk to you next time. 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."

00:20:55,"It makes a huge difference in helping others like you find us. If you'd like to learn more about our education and coaching programs, head over to everythingcoworking.com. we'll see you next week."

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