When you plan on opening a coworking space business, you must understand how to turn your revenues into profits. In simpler terms, you need to understand how much you will need to run a coworking space and how to break even.
According to the Global Coworking Survey, 90% of coworking spaces that are profitable have at least 200+ members and have been operational for more than a year. Additionally, 1/3 of coworking spaces operate a break-even and a further 1/4 are operating at a loss.
How do coworking businesses make profits?
Unlike other businesses, coworking spaces feature a unique business model, and so are the revenue streams. If you intend to start a coworking space and hoping to maximize your business profits, here are examples of revenue streams to factor in.
Membership fees & desk rental
Almost all coworking spaces typically charge membership fees which give coworkers access to the amenities. The membership fees can be monthly, quarterly, or even annual, allowing the coworkers access to primary and advanced amenities depending on the fees paid.
In addition to membership, many coworking spaces also give customers the ability to rent out desks by the day or a week. Although not a primary source of revenue, and less attractive than locked-in monthly memberships, desk rental fees provide coworking owners with extra revenue, especially when the coworking space isn’t at maximum capacity.
Typically membership fees and one-time desk rental account for 80% of coworking spaces revenue. The rest come from additional revenue streams as described below.
Renting conference and meeting rooms
Coworking spaces provide the coworkers access to fully-furnished meeting rooms and conference rooms. Depending on the membership, the meeting facilities may feature private audio or video call booths, printers, soundproofing, and other amenities. This can either be included in a membership fee, or sold as an additional service.
Coworking spaces add virtual office offerings to their business models. Typically, a virtual office gives entrepreneurs a premium address and access to office-related services, enabling them to have a primary address for their businesses and avoid the need for employing administrative staff.
Events & workshops
The diversity in terms of companies, work structure, and employees in coworking spaces enables the owners to use them for promotional activities. Therefore, workshops or training events at these coworking spaces serve as opportunities to promote products and services at a fee.
See below an illustrative revenue breakdown of a typical coworking space. Membership fees are by far the most important revenue stream (typically 80%).
What’s the average turnover for a coworking?
According to Zippia, the average annual revenue of a coworking building is $505,200.
What’s the average profit margin for a coworking?
According to Levels.io, the profit margins of coworking spaces are pretty tight and they usually maintain a 10% profit margin.
However, the figure is based on assumptions. The actual profit margins will depend on factors like:
- The size of the coworking space
- Building rent
- Number of staff
- Total members using the space, etc.
In comparison, Denswap says that the average profit of coworking spaces is $4 per square feet. Now, as the average size of a coworking in the US is 9,799 square feet, that’s an average profit of about $40,000. This seems about right compared to the average annual revenue above: that’s an average profit margin of 8%.
How much does it cost to run a coworking space?
There are various recurring costs of running a coworking space and they include:
- Rent: You must pay rent for the space
- Salaries: You must pay salaries to your staff
- Marketing: You need to spend money on marketing your coworking space
- Utility & Janitorial Services: These are the operating costs that you must incur
- Bookkeeping: You will need an accounting software, or you may opt for an accountant
- Insurance: You will require a business insurance, workers’ compensation insurance, and other relevant insurance
On average, it costs $32,000 – $36,500 to run a 3,000 SF, 100 desks coworking space.
For more information on how much it costs to run a coworking business, read our article here.
How much profits does a coworking generate?
Based on our own analysis, coworking spaces can reach profit margin (EBITDA margin) of around 10-20% once they manage to reach full capacity, typically 12-16 months after opening.
The expenses, expressed as a % of revenue, can be divided between:
- Rent (30-40%) depending on the location and surface. Prime locations will likely spend 40% or more whilst tier 2 locations spend 30% or less
- Salaries (25-30%). Salaries vary depending on the type of services you offer. For example, a community manager may be a great addition for large coworking offices with workshops and events, yet cost anywhere from $50,000 to $75,000 per year
- Marketing (5-10%)
- Operations and other (15%): includes janitorial services, maintenance, etc.
- Capex: these are capital investments incurred at the start of operations (e.g. refurbishment of the building, equipment and workstations, etc.). Although significant, the amount varies a lot depending on the size of the coworking and the quality of the amenities.
See below an illustrative cost breakdown of a coworking space. Unsurprisingly, rent, salaries and marketing represent ~75% of total expenses.
Yet, you shouldn’t expect to realise profits in the first year of operation. The initial investments (capex) and the likelihood that your coworking space will not be a full capacity at the beginning may result in an operating loss instead.
What is the break-even point for a coworking?
Break-even is the point at which total costs and total revenue are equal. In other words, the breakeven point is the amount of revenue you must generate to turn a profit.
Because you must at least cover all fixed costs (that aren’t a function of revenue) to turn a profit, the break-even point is at least superior to the sum of your fixed costs.
Yet, you also need to spend a certain amount for every $1 of sales to pay for the variable costs.
Luckily, coworking have very high gross margins. That’s because almost all expenses are fixed costs (mostly salaries and rent).
The break-even point can easily be obtained by using the following formula:
Break-even point = Fixed costs / Gross margin
Using the same example earlier, let’s assume your coworking has 200 members paying each $200 per month. That’s a monthly turnover of $40,000.
Now, assuming the cost structure below:
|Operating cost||Variable vs. fixed||Amount|
|Rent, utility bills||Fixed cost||$12,000|
|Utility, janitorial services||Fixed cost||$5,000|
|Bookkeeping, other||Fixed cost||$2,000|
In this case, because all costs are fixed, the break-even point equals fixed costs:
Break-even point = Fixed costs = $35,000
In other words, you need to generate at least $35,000 in revenues to turn a profit.
How to increase coworking spaces’ profits?
Here are a few examples of strategies you can use to maximise your coworking space turnover and profits:
- Host events, workshops, and classes and charge your members for attending them. Some examples will be:
- Skill development and training
- Fitness classes
- Counseling sessions
- Team-building workshops, etc.
- Offer lower rates for non-peak hours to maximize space utilization (this can attract freelancers)
- Charge members for conference room with customize amenities, utilizing unused space (you can charge hourly or at a fixed rate for a certain number of hours), etc.
For more information on how to increase your coworking space sales and profits, read our article here.
Unfortunately, coworking businesses’ profits are capped
On the other end, due to their business model, coworking spaces cannot easily increase their revenue past a maximum point.
Indeed, as they’re constrained by capacity (the maximum number of members you can have), there are only 2 ways to increase revenue once you get to full capacity:
- Increase prices (e.g. membership fees)
- Offer additional services (e.g. virtual offices, etc.)
Yet, these 2 levers have their limitations. For example, you won’t be able to increase prices by 15% without losing some customers to competition.