When it comes to coworking occupancy, the higher the better is the conventionally accepted wisdom. So, why is 100% occupancy not the answer to the success of your flexible workspace? The overall balance against pricing is of course very significant to revenue, but there’s more to consider: satisfaction and reviews, running costs and community spirit all come into play.
Let’s address the elephant in the room - occupancy is always going to be a delicate see-saw with rate. If your occupancy is well above market average, there’s a strong chance that you have been leaving money on the table with your average desk rate. First, we explore this relationship. (Read on for tips on how to balance occupancy and rate, more on other metrics for measuring performance plus a review of other factors to consider with occupancy.)
Anyone managing a coworking space would look at a fully booked calendar and have a hard time not getting excited. The trouble with 100% occupancy is that it doesn’t necessarily translate into the highest revenue. Don’t forget to focus on the actual revenue and compare it to the potential of the property - market data can provide invaluable visibility when it comes to this benchmarking. In simplistic terms, even if you’re booked every night, you may still have made more revenue with fewer bookings at a higher rate..
For example, imagine that your 50 desks are 90% occupied at $500 per desk month, you’ll project a Gross Booking Revenue (GBR) of $22,500 for the month. Your neighbour meanwhile, is booking desks at $780 per month. They’re only at 60% occupancy, but their 50 desks will be making them $23,400. That’s 4% more revenue, which works out at a not-too-shabby $10,800 more per year. And all of that with 30% less occupancy. So it’s clear that revenue is also sensitive to desk rate.
And so, pushing your ADR (average desk rate) higher will have a very beneficial impact on your bottom line - even if your occupancy suffers a little. Referring to your workspace neighbours - either through manual rate shopping, or investing in coworking data to bring accurate and time-saving answers - will guide your occupancy targets and ensure that your ADR is aligned with your competition. With data it is possible to gain very specific insights - how are flexible and private desks in a certain zipcode priced throughout July? Benchmarking from market ADR means that you can control how your value plays to your audience and also maximize your revenue.
Your goal should be to balance ADR and occupancy as closely as possible, which could mean turning away low-ball tenants, or waiting longer to lower your rates during peak seasons.
In a moment we’ll go on to looking at other metrics you can use to gauge performance. First though, here are a few pointers to help you strike your best case occupancy vs. revenue scenario:
So, we’ve established that occupancy alone isn’t enough; there are better, more balanced ways to track and measure performance.
Occupancy levels, along with ADR and RevPAR have been the key metrics for revenue managers in the hospitality industry, and while the coworking and flexible workspace industry is still the new kid on the revenue management block, similar measures still ring true. As a flexible workspace operator you could utilize these tools to ensure that you are maximizing revenue, or, as a landlord or investor, these metrics should be core to your understanding of performance.
While ADR and occupancy are important, the relationship between them is the key - one is no good without the other. Other industries (hotels, vacation rentals) speak of RevPAR - revenue per available room. In coworking, we can refer to revenue per available desk. The brilliance here is that we are counting ADR and occupancy - revenue per available desk (ADR * booked desks / total desks made available) effectively gives an amount earned per desk available in a given time frame - clearly showing the balance between ADR and occupancy.
Using our previous example and looking only at occupancy, we would assume that an occupancy of 90% was preferable to 60%. Here, considering revenue per available desk, we would calculate $500 ADR * 45 booked desks / 50 desks available = $450 revenue per available desk. Our neighbour meanwhile - $780 ADR * 30 booked desks / 50 desks available = $468. We can clearly see which is superior.
In addition to clearly marking performance, playing with this formula allows you to test the potencies of different pricing strategies, and define occupancy targets.
Remember that neighbour we talked about? The one with 60% occupancy? Let’s think about the other benefits of that compared with our 90%.
So, if you can achieve similar revenue through a lower occupancy strategy - it seems worth exploring. Remember, occupancy is not the only measurement of success; project and measure using sensible and balanced metrics. Find the right balance, and you can turn a similar or improved profit whilst also maintaining a comfortable, clean and low-overhead workspace. As it turns out, sometimes the best tenants are no tenants at all.
Learn more about getting started with coworking data on our website: https://coworkintel.com/