By Reagan Nickl
Customer Success Senior Manager
SpaceIQ

To the uninitiated, coworking spaces may seem like disasters waiting to happen. A space where anyone can walk in at any time and pay a small fee to use a desk doesn’t exude structure and order. Moreover, clumping a diverse group of working professionals in one big, shared area seems like a recipe for friction. So how does coworking space work? What allows it to be as successful as it is today?

Despite a lack of outward-facing structure, coworking is actually highly organized. Operators face many unpredictable, uncontrollable variables. So, they create a framework that supports optimal space utilization and management. It feeds into a viable business model and a great concept: A space for people who need it and a place where work gets done.

Coworking in a nutshell

What is coworking space? The simplest definition is “space supporting a group of people from different companies, working independently or collaboratively.” Coworking spaces are open to the public, aside from any membership rules.

Coworking goes beyond the space itself. It’s a philosophy rooted in bringing people together to get work done. Freelancers may work alongside remote workers while gig workers share a space with traveling professionals. No matter the background or the job, coworking environments provide people with a casual, professional space to focus, as well as networking opportunities and a social element.

Coworking is about more than good vibes and accessible office space. Space-as-a-service is a business model, which means it needs to turn a profit. How do coworking spaces make money?

The membership model

Like a gym, coworking spaces sell memberships by the month or year. This has two chief benefits. First, it creates a steady, reliable cash flow through recurring auto-charges. Second, it provides a baseline for determining working capacity.

Most coworking spaces will sell monthly memberships to satisfy space capacity—often in excess of 100%. The likelihood that everyone with a membership will show up on the same day, at the same time, is marginal. To that end, a coworking space with 200 seats may sell as many as 250 memberships (125% of total capacity), with the expectation of seeing 150 members at any given time (75% capacity). It’s a balancing act based on space utilization trends and membership figures.

Usually, memberships sell at a steep discount to one-time users—the goal is to entice one-timers to buy full memberships. Monthly memberships may cost $99, while day passes may run $20. Theoretically, they could use the space every day for ~$3 a month instead of paying $600 for individual day passes. Memberships may also come with perks, like access to faster Internet or seating by request.

The walk-in model

Not everyone wants or needs a coworking membership. Someone using the space only a few times per month will opt for the pay-per-use model. It’s harder to predict demand from these users, but revenue is higher on a per-person basis.

If a coworking space expects 75% occupancy by members at any given time, the remaining desks serve two purposes. First, they accommodate an influx of other members. Second, they serve walk-in patrons. The walk-in model has tiers in and of itself—pricing by time, workspace type, or amenities. Someone may pay $60 for eight hours of desk time, high-speed Internet, and access to a space with a view. Another person may pay $20 for six hours of desk time and standard Internet speeds. The goal is to fill unoccupied desks at a higher margin.

The chief problem with walk-ins is they’re unpredictable and variable. If a coworking space is 100% occupied, there’s no choice but to turn away a walk-in—even if they’re willing to pay 20 times the membership price. That said, walk-ins can be frequent customers, even if they don’t opt for a membership.

Organized seating and space management

It’s hard to explain coworking without mentioning the infrastructure required to seat every person using the space. This is the heart and soul of what makes coworking successful.

Regardless if a person is a member or a walk-in, they both check-in with an admin. That person logs them in, assigns them a desk, and provides the relevant details they need to get to work. This provides a real-time picture of occupancy and space utilization. It also highlights relevant information, such as the number of members vs. walk-ins, daily revenue, occupancy time left in certain spots, and types of spaces available.

Without this centralized management system and use of coworking software, coworking spaces don’t work. There’s no way of knowing who’s where, for how long, or what spaces are open.

Finding the right balance

Coworking spaces work when operators find the right balance of members and space allocation. The coworking model provides flexibility for users, which means it needs to be inherently flexible itself. Accommodating people on-the-fly is a product of having a well-designed, well-managed system for space management and the means to connect people with seats.

Keep reading: Who uses coworking spaces?