Owning or managing a co-working space can be incredibly rewarding. They emotional benefits associated with fostering a community are clear, albeit hard to measure. However unless your co-working space generates a financial profit, none of the other benefits remain possible. Thus, it is vital you understand your co-working space’s key business metrics.
Here are six key business metrics your co-working business should pay attention to:
Metric #1: Square Feet Per Member
A lower overhead workplace is one of the many reasons companies are shifting towards co-working. Making it important to avoid too much space, and too much cost, per member.
Of course, the goal is not to go as small as possible either. Your amenities (conference rooms, kitchen area, etc.) impact your revenue. Both directly through increased spend, and indirectly through demand for rent.
Metric #2: Total Revenue Per Available Seat Per Day (RevPASD)
Of all the business metrics, RevPASD might be the most important. To calculate RevPASD, add up all of your sources of revenue: seat and suite rental, day passes, conference rooms fees, printing, your cafe, parking and everything else. Divide that number by the maximum capacity of your space.
Your primary focus should be on the recurring membership. This is likely the bulk of the dollars. In many cases, it will also be the most consistent source of revenue in good times and bad, especially if you have longer-term contracts. Make sure to pro-rate multi-month pre-sales, minus any discount, when calculating total monthly revenue. For other revenues, review your historical trends to help make forward-looking estimates.
Due to the newness and fragmentation of the industry, comparison RevPASD data is hard to find. That is not an excuse to obsess over this key business metric. Know your historical RevPASD and your revenue sources. You should understand changes, good or bad, to your RevPASD. You should also know which revenue sources are increasing in importance.
Metric #3: Leads and Conversion Rate
In order for your co-working space to generate revenue, you’ll need to generate leads. There are two factors involved with lead generation.
- The number of qualified leads
- The conversion rate. The conversion rate calculation is the number of qualified leads that become members or tenants
There are many ways to increase member leads. One is to use a digital visitor management system like Greetly. This tool will track who visits your space to meet with members or attend events. They are much more likely to already have affinity for co-working and your space. Other marketing tactics include:
- Having an active social media presence
- Content generation and distribution
- Running events
- Public relations and advertising to your target community
- Referral services
- If you have a strong community, ask for referrals
Again, due to lack of industry data, it is unclear what a good conversion rate is. Various experts recommend between 5-30% for this vital business metric.
Metric #4: Cost Per Acquisition (CPA)
Cost per acquisition and conversion rate are closely tied business metrics. All of the lead generation tactics mentioned above can bring in paying members. Some are paid, others are free. (Although “free” tools often are very time intensive, so understand the true cost.)
Your cost of acquisition takes into account how much it costs in marketing, staff time and materials it takes to generate each new paying member. For your business to thrive, this cost should be significantly lower than your lifetime value, discussed below.
More advanced operators will look at the cost per acquisition of each individual marketing tactic. Consider putting more resources into low CPA tactics. It is also important to constantly try new promotional ideas to see if they generate members at little cost.
Metric #5: Average Revenue Per Member Per Month
RevPASD measure revenue per available seat. It is also important to understand revenue per actual member. Meaning if you have $100,000 in revenue, and 100 total seats, your RevPASD is $1,000. However each member actually generates $1,250.
This business metric is key to understanding how much you make from each new member. Much of the cost to acquire a tenant is spent upfront. So this data point also tells you how long each member must stay before the effort has a positive return on investment.
Metric #6: Retention Rate and Lifetime Value (LTV)
We all know the adage that it easier and costs less to retain a customer than to acquire a new one. Retention rate measures the number of members who leave each month or year. Vice versa, churn is the percentage of members who leave. To calculate churn, divide the number of members who left from that number at the beginning of the month. Your retention rate is 1 minus that number.
A related business metric is your lifetime value, or LTV. You can determine each tenant’s LTV by multiplying the average revenue per month by the number of months they will rent in your space. Once again, you want your LTV to be higher, ideally much higher, than you CPA. Perhaps this is the second most important of all co-working business metrics.
How to Improve these Business Metrics
Ultimately, your business success involves improving key business metrics. An effective way to improve metrics is to leverage technology and automation.
- Install Greetly’s iPad receptionist app to capture more leads. It will also improve your retention rate by creating a great visitor experience.
- Use forums to connect members. Collaboration is a key reason your members rent from you. Technology can help connect make connections beyond even the best community manager’s abilities. This is especially true if you have multiple locations. This will reduce your churn rate.
- Automate conference room bookings, day pass reservations and the like. Be able to confirm your reservation will increase utilization and associated revenue.
- Following the hotel model, allow members to pay for items from your cafe with their member number. Deferring payment will increase purchase incidence and your average monthly member revenue.