How Co-Working Spaces Make Money?
In the previous article, we studied the co-working business model. We also saw the pros and cons of this business model from both the consumer's as well as the investor's point of view. Just like the business model, the revenue model of the co-working spaces also needs to be studied closely.
In this article, we will have a closer look at the various sources of revenue for a co-working business.
- Space Rentals: The first and most obvious source of revenue is space rental income. A co-working space leases out large office spaces. Typically, entire buildings at prime office locations are either leased out or purchased outright by these companies. They then offer the same space for rental on a retail basis.
Co-working spaces offer small cubicle spaces for rent. They may also enclose some cubicles and sell that space as a private office within the co-working space. However, customers typically have to pay a higher price to obtain any kind of privacy.
- Infrastructure Rentals: Some companies do not want to rent out only cubicle space. Instead, they want to rent out the entire office infrastructure. This means that they want to rent out office desks, chairs, computers, printers, and even servers. This equipment is quite expensive and can require a significant cash outlay. Hence, many companies prefer to rent this equipment from the co-working space as well.
Co-working spaces have established vendors which provide this equipment to their customers. Since the co-working spaces require this equipment in bulk, they can take advantage of economies of scale. They can offer to lease the equipment at a lower price while still earning a decent profit margin on the same. Infrastructure rentals are the second most important source of revenue for co-working spaces.
Also, co-working spaces tend to offer conference rooms, storerooms, and such other rooms to rent separately. In many facilities, companies can hire these rooms by the hour. Renting out conference rooms and other conference facilities also provides a significant source of revenue.
- Virtual Offices: There are many start-up companies that have adopted the work from home model completely. However, even such companies have a small physical presence. There are many co-working spaces that offer such virtual office facilities.
They allow the companies to use their office address as a registered corporate address in return for a fee. They also provide other facilities such as collection and forwarding of mail to alternate addresses. The popularity of virtual office spaces has also increased making it an important revenue option.
- Commissions: There are a lot of facilities such as restaurants, cafeterias, cab services, facilities, printing and stationery, etc. which operate in conjunction with office spaces. These ancillary facilities can also act as significant sources of revenue.
Many co-working facilities have their own subsidiary companies which provide a lot of these services. However, even if the co-working space owner is not able to provide these services on their own, they subcontract it to a third party in lieu of a commission.
There are many different types of contracts structured between co-working spaces and third parties. Sometimes, the co-working spaces receive lumpsum payments whereas at other times they receive a percentage of the overall revenue.
- Promotional Activities: The companies which operate on the premises of the co-working spaces are also consumers of a lot of products and services. For instance, every company requires a marketing agency or a public relations agency.
Hence, co-working spaces are actually the perfect marketing venue for other companies that want to sell goods and services to start-ups that operate on the premises.
There are other companies that want to sell products to the employees that work within a co-working space. For example, credit card companies may want to sell credit card products to the employees of the co-working space.
Co-working spaces often lend out lobbies and other common areas to companies for performing promotional activities and below-the-belt marketing activities. The temporary lending out of such areas can also contribute a lot towards the overall revenue of the co-working space.
The bottom line is that co-working spaces have several revenue streams. It is possible for the co-working space to become even more creative and add new revenue streams to its revenue model. The multiple revenue streams help to enhance the basic return on investment. They also help diversify the risk inherent in having a single revenue stream.
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