The Coworking Space Business Model — Explained

The foundation of the coworking business model is relatively simple — you sell space to others to cover your own costs.

But if you think that’s where things end, think again. 

Today we’re unpacking exactly how coworking spaces make money, and more importantly, how you can optimize your business model to ensure profitability long-term.

The knowledge in this article is based on our 10+ years of experience in the coworking industry working with hundreds of owners and operators to run successful, profitable coworking businesses.

Now, we’re sharing the knowledge with you.

What is the coworking space business model?

The coworking space business model is to buy or rent a building and sell the use of that building to others in the form of desks, meeting rooms, and private offices at a mark-up.

The model can be applied to any shared workspace whether it’s a medical facility shared by doctors, a warehousing facility shared by entrepreneurs, or a salon shared by beauty professionals.

Let’s take a look at an example to see this in action.

• Rob leases a small office building in his neighborhood for $10,000/month
• He has a few recurring payments and staff that puts his total overhead at $15,000/month
• He converts the space into 10 private offices at $1,200/mo, five dedicated desks at $550/mo, five hot desks at $35/day, and 2 meeting rooms at $60/hr

In this example, Rob is able to cover the costs of his coworking business at 100% occupancy of his private offices and dedicated desks. Assuming 1-2 hot deskers a day and occasional meeting room bookings still doesn’t leave much room for profit.

So how else are operators able to generate revenue?

How coworking spaces make money

Although the business model is simple, there’s a lot more to making money as a coworking business than just selling space. Yes, many operators are able to achieve profitability through selling space alone (in fact, some consultants say you should be able to).

But many other operators prefer having a diverse range of revenue streams for a healthy coworking business.

Coworking spaces can make money through selling membership plans, day passes, event access, meeting room rentals, partnerships and sponsorships, virtual mailbox services, digital community access, and food and drink services.

Let’s take a look at each one in more detail below.

Membership plans

A membership plan is any recurring subscription for coworking services. This could be a $1,200/mo private office plan, a $550/mo dedicated desk plan, or even a $150/mo flex membership plan that includes access to a digital community and five hot desk days a month.

Membership plans are the bread and butter of the coworking business model, and they’re what most coworking operators aim to acquire more of. Locking in recurring revenue via membership plans helps with financial forecasting and ensures healthy predictable revenue streams month over month.

Day passes

Day passes are one-time subscriptions for coworking services. It typically grants access to use of a single resource, like a hot desk, for the day. Some spaces, like Brooklyn Hourly Offices, even offer hourly on-demand bookings.

Day passes generate more revenue per desk than other membership plans. For this reason, new operators are often tempted to crowd their space with drop-in desks. The challenge is, drop-in day passes are unpredictable — and in the post-COVID era, they can be the hardest seats to fill.

Events

Coworking events have exploded in popularity post-COVID. Our clients use events to build community and provide value to their members. Events range from after-work happy hours to educational workshops to early morning fitness classes.

They will sometimes make the events free for members and charge non-members for access — not only does this generate revenue from non-members, it also can be used to generate leads and convert casual users to dedicated members.

Room and space rentals

Room and space rentals include the rental of a meeting or conference room on an hourly or daily basis, as well as rental of the entire space or part of the space after-hours. 

In a Coworking Resources webinar, consultant David Walker from coworkingconsulting.com mentioned that he had seen a lot of success with operators renting their space to the broader community after-hours. Coworking spaces are one of the few venues that are able to accommodate larger parties, so they serve this need well.

Partnerships and sponsorships

Partnerships and sponsorships can be a very lucrative revenue generator when approached strategically. Niche coworking spaces are in a unique position to capitalize on this opportunity because of their focused audience.

For example, Steve Krueger, Founder at ECOMsquare, developed partnerships with brands like American Express and Lululemon wherein they sponsored events or activities in exchange for access to his membership base of professionals in ecommerce.

Virtual mailbox services

Like events, virtual mailbox services are rapidly growing in popularity amongst coworking owners and operators. Members pay a small fee (anywhere from $30/mo to $100+ depending on the services provided) to use the coworking space as their business address and have mail sent to their address. 

Operators often see it as a form of “passive income”, but managing physical mail and sometimes receptionist services can be anything but passive. We recommend having dedicated community managers on your team to handle this type of service. 

Digital community access

Online communities give members access to a group of like-minded individuals to connect with. Operators can create an online community using a technology platform like Optix and grant access to it at a set cost of $15-$20/mo. 

It’s a small enough cost that people will be willing to pay for it, and it can even serve as a way-in to a bigger ticket item in your community.

Food, drinks, and cafe services

Some operators choose to offer premium food and beverages at a cost to members, like some candy bars in the kitchen at $3 each. Some operators take this one step further and build out integrated cafe offerings. 

Flockd in Australia is one such space. They offer a cafe on-site as an amenity to their members.

Members love the one-stop shop, and their team is able to generate additional revenue from food and beverage purchases throughout the day.

Is coworking a good business model?

To answer the question of how good the coworking business model is, it helps to look at the pros and cons of coworking as a business.

The pros of the coworking business model

• Opportunity for diverse revenue streams: coworking spaces can generate revenue from various sources.
• Straightforward and accessible: the business model is fairly straightforward, with one just needing a space and some furniture to get started.
• Addresses a growing need: coworking is growing in popularity, making it an attractive business venture for many aspiring entrepreneurs.  
• Can be a long-term investment: for operators who buy their building, coworking can be a great long-term investment in the real estate market.

The cons of the coworking business model

• High operating costs: managing overhead costs, such as rent, utilities, and staffing, can be challenging, particularly in high-rent areas.
• Hard to acquire and retain members: maintaining a consistent member base is difficult, with high member turnover.
• Lots of market variability: success can be influenced by local economic conditions, real estate market trends, and demand, all of which fluctuates regularly.
• Large start-up capital requirements: starting a space may require significant upfront investment in lease agreements, furnishings, technology, and amenities.

As with all businesses, there are pros and cons to coworking. Ultimately, you are the only one who can decide if coworking is a good business model for you.

Table Summary

How to price your coworking products

An important part of the coworking business model is setting the cost of your offerings. There are many ways to go about doing this.

One way to set the cost of your coworking products is to work backwards from your total operating costs and desired profit. 

Going back to our earlier example, if it costs Rob $15,000/mo to run his coworking space and he wants to make at least $10,000/mo in profit to start, then he will have to price his coworking space so that it generates at least $25,000/mo.

This may look like: 

• 5 hot desks x $35/day = $5,250
• 5 dedicated desks x $550/mo = $2,750
• 10 private offices x $1,200/mo = $12,000
• 2 meeting rooms x 60/hr with an average use of 2 hr/day = $7,200

We always recommend experimenting with your pricing and iterating until you find the sweet spot — a cost that is high enough to generate profit, but still perceived as fair by the community. A big part of figuring out your ideal pricing is trying different things and seeing what works.

Setting coworking KPIs

So you have a starting point with your business model. How do you know if it’s working?

The standard way of measuring your success in your coworking business is to set coworking revenue key performance indicators (KPIs). KPIs are metrics that you track that help show how your business is performing over time. 

The most common KPIs for coworking operators include:

1. Number of members (by type)
2. Member churn rate
3. Occupancy rate
4. Tours completed
5. Revenue per member

We recommend tracking a variety of KPIs for the most comprehensive and accurate view of  your business performance over time. 

How to use a Coworking Growth Calculator to set your KPIs

The Coworking Growth Calculator from Coworking Resources can be used to determine important benchmarks your space will need to reach within a 12 month period. It can help you:

• Develop growth projections
• Explore various revenue scenarios with changing variables
• Provide support in the absence of a dedicated business analyst or accountant

Let’s say you have a goal to grow to at least $100,000 just in member revenue by the end of the year with the same amount of space. You currently have 60 seats occupied and a turnover rate of four seats per month. 

This tool will calculate how long it will take you to reach capacity and what turnover rate is needed to reach this goal. You can use these numbers to then set KPIs for your business over the course of the year to keep you on track to succeed. 

How to use Optix to set your KPIs

If you’re an Optix user, you can always use the data and analytics tools available in your admin dashboard to gather insights into space performance.

Optix coworking software will show you a variety of analytics related to your business including:

• Revenue growth
• Revenue breakdown by type
• Account growth
• New plan subscriptions
• Resource utilization

There’s even a check-in heat map to show you what the most popular check-in times are in your coworking space. These analytics can support you in building out comprehensive KPIs. Learn how Adam from KoWorks uses Analytics to set benchmarks for his team using Optix.

3 tips to optimize your coworking space business model

From offering the right products to improving space utilization, here’s how to optimize your coworking space business model for revenue.

1. Avoid relying on membership revenue alone

While you can grow your revenue with membership plans alone, growth is always going to be limited by the amount of space you have available. Therefore, most operators choose to incorporate other offerings into their product mix, like some of the examples discussed above.

Events and space rentals can be huge for growing your business revenue and the potential for growth is much higher than relying on selling more hot desks each day.

You may also want to consider offering additional services or amenities including:

• Gym facilities
• Daycare facilities
• Secure lockers/bike rooms
• Wellness programs and workshops (yoga/meditation room)
• Dog-friendly areas for an added fee

The more diverse revenue streams you have, the better.

2. Think creatively about monetizing space

A few weeks ago while visiting a local coworking space, we learned that one operator uses a private office space as a hot desk option while they’re between tenants in order to maximize profits from a single resource.

Operators who think creatively and strategically about monetizing space are more likely to find long-term success. 

Another operator splits his private office between two members, with one using the space on Tuesdays and Thursdays, and the other on Mondays, Wednesdays, and Fridays. He then charges more for this custom arrangement than he normally would for a private office.

3. Be intentional with how you charge for add-ons and services

When it comes to charging for add-ons and services, like gym facility access for example, there are two common structures that we see.

Membership plan bundle. Here, operators bundle some or all of your additional services with different tiers of membership. For example, Basic memberships get access to the space ($), Pro memberships get access to the space and select services ($$), and VIP memberships get access to the space and all services ($$$). The advantage here is that you can typically charge a higher base price across all memberships because the value-add service is included.

Add-ons only. Here, operators offer add-ons and price them individually, such as $5/mo for Adobe photoshop access, $80/hr for massages, and $10/mo for virtual community access on top of a hot desk plan. The advantage to this structure is you usually have the potential to generate more revenue. However, this revenue is not guaranteed. 

One thing to keep in mind — while it’s great to offer your members lots of options, you don’t want to offer so many add-ons that your pricing is confusing and members are unsure as to what the space is really offering. 

Striking a balance in your membership plans between included and add-on services and offering a mix of both can help you avoid this.

Getting started with coworking

Coworking spaces are in a unique position to serve the growing need in the community for a third space. 

To succeed in this field, you need a smart business plan, happy members, and good solutions for people who work today. As work keeps changing, coworking spaces are leading the way, offering both a chance to make money and to be innovative in this growing industry.

New to coworking? Check out our collection of articles on starting a coworking business.