Opening a shared workspace can be a smart venture in today’s market. More and more SMB and enterprise companies are embracing flexible and Coworking spaces while the number of startups, freelancers, and remote workers continue to consume space-as-a-service products. With the growing real estate footprint of shared office space come new market competitors such as commercial real estate giants, property management companies, and hobbyist coworkers.
While more operators enter the market and competition heats up, what does the mean for existing operators and seasoned players? They must compete harder than ever before and keep a sharp eye on core business metrics that determine their success. In this article, we outline the importance of reporting, space occupancy dynamics, and other metrics that are vital to sustain, grow and predict the future of their business.
The bulk of flexible workspace reporting is based on the origin of revenue streams, namely two: license fees or memberships and services. License fees and memberships are the recurring rental income from tenants or members, renewals or expansions. This recurring revenue is a solid baseline from which you can then determine your profitability beyond a certain occupancy percentage. A good benchmark for success is when monthly rent constitutes 80% of your workspace’s total revenue.
The remaining 20% of revenue comes from services, typically consisting of meeting or conference room bookings, IT and telecoms services, events, beverages, food services, postage and an extensive list of various others.
The primary driver of your revenue, therefore, is your space occupancy. Before you categorize the different revenue streams your workspace brings in, make sure you understand how to determine the value your space.
Space is the one constant within this ever-evolving and growing market. As a rule of thumb, especially for new or aspiring operators, you must fit out your space to optimize what UK operators refer to as Net Internal Area (NIA), and US players refer to as Rentable Square Footage (RSF). Measure space meticulously, being consistent about including or not including corridors, meeting rooms or common areas, thus ensuring accuracy when calculating conversion rates in your reports. The quantity of square footage will be what you base your revenue calculations upon. All of this considered, you must track the basics…
The primary revenue driving force for your workspace is occupancy rate and it can be evaluated by spaceand by workstation.
Space occupancy rate is a percentage calculated by dividing occupied square footage by unoccupied square footage (RSF or NIA), multiplied by 100.
Rigorously tracking occupancy means calculating space occupied per square foot over multiple time periods. For example, run your occupancy reports on a monthly, quarterly, or yearly-basis, conducting frequent spot checks in between to evaluate and adjust your business priorities as necessary.
It’s key to remember that there isn’t an exact occupancy percentage that will determine profitability for operators across the board. Every model and workspace are different, so it will ultimately depend on how your RSF space is distributed across common areas, hallways, private offices, and Coworking space. However, in our 16 plus years of experience working closely with operators, developing workspace management tools and running centers, we’ve found that most operators are profitable at an occupancy of between 80 and 85%.
Workstation occupancy rate is a percentage calculated by dividing the number of occupied workstations by the number of available workstations.
This is much more challenging since desk configurations and usage are constantly changing. Having software in place that tightly integrates your booking system, inventory and reporting capabilities can facilitate these calculations for a 360-degree view on business performance based on occupancy.
In terms of revenue generation by workstation, there are two key metrics by which you can evaluate business performance: REVPOW (Revenue per Occupied Workstation) and REVPAW (Revenue per Available Workstation).
This is the total amount of revenue generated from each occupied workstation and is generally a weighted average over the year.
This is the amount of revenue generated from the total number of workstations listed across your center (or centers). Operators must be sure to update their inventory for accurate calculations and, of course, bill for each workstation being utilized.
REVPOW and REVPAW are key metrics that have historically been used by large operators such as Regus and operators previously acquired by Regus. They are calculated on a monthly basis and are key indicators of overall performance across your business.
Below we outline other vital figures operators consider when working with their budget to determine the return on the overall capital invested in the real estate. The task requires measuring rates over time, site performance, and forecasted revenue.
Operators should calculate the occupancy percentage needed to break-even each month after covering their monthly costs. Knowing this number, you can work towards your minimum goal.
The amount an operator aims to generate from the workspace or building lease for a total return on capital invested. It’s easy to get lost in the day to day or month to month, just making your rent payments. However, not losing sight of this number is key to profitability.
Once the break-even and profitability numbers are known, an operator can then determine at what price per square foot they should be renting the space for. Grading your workspace against certain parameters will also help to stay competitive within your local region and market. In a previous article, we discussed additional factors that impact how to price your workspace.
Run a quarterly forecast of your revenue based on contract start and end dates (or calculate workstation count occupancy) to project your business success over the upcoming periods. You should always know where your business will stand in three, six or nine months’ time. Your forecast will give you an idea of revenue to allocate to rent, improvements around your workspace or sales and marketing initiatives, and will serve as a benchmark to achieve and, ideally, exceed.
Track how your renewal rates are fluctuating. If they are increasing (or decreasing) over time, it may speak to a more significant trend of your overall workspace rental prices and the need to take a deeper look at how the market is impacting pricing and your overall customer base. While you’re at it, it’s worth reporting the lifetime customer value of the customers in your workspace. Perhaps it’s cheaper for you to reduce the price of a lease renewal that it is to win a new customer logo, especially if your cost per acquisition is high.
Measure the current month’s total rate per square foot and historical rate over time so you can consistently compare business performance over time. More granular reporting will give insight into recent deals to determine if they are equal to or greater than deals made last month so you can adjust business decisions if needed.
Successfully operating a shared workspace requires constant scrutiny of your entire real estate and business profile over time. Comparing your square footage and occupancy against actual performance gives you benchmarks for accountability and profitability. Neglecting the metrics and operating as you go may be acceptable when the market is performing well, but when it dips, you could find yourself in trouble. Metrics are a beacon that guides operators intelligently towards the future.
Data attained from your workspace management software can be used to estimate revenue goals, track real-time occupancy trends, and help operators hold their staff accountable for performance. It seems obvious to say, but visualizing your data in graphs and tables and reviewing it on a regular basis will guarantee a consistent bird’s eye view of how your business center, Coworking site or overall portfolio is running.