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Why freemium doesn't work for coworking

8 minute read
by Alex Hillman

In the last 4 years, I’ve come up with some pretty wacky ideas for how to get IndyHall into the brains of more people and, more importantly, the coworking concept into the mindshare of the ever-changing workforce.

I’ve noticed a relatively typical trend in that the kind folks who operate places where coworking takes place seem to struggle with how to market it and build a sustainable operation to support it.

I’ve been guilty of parroting the “build the community first” as the solution to nearly every problem that brand new coworking spaces encounter. It’s not a silver bullet, and it’s not meant to be. What it does is put the person who’s in the leadership role in the right state of mind – that of a leader and not just a proprietor – of the community space they’re about to attempt to operate. Being in that state of mind puts you in the most advantageous place to solve the typical, un-special problems that you’re bound to come across. That makes solving the weird, hard problems your focus. And if you give it enough time, they will show up.

But that’s not the point of this post. Lets say you’re doing a great job of developing the community before you’ve even got a space, and now you want to start converting those people to paying members so you can support a home for them to work in.

Freemium doesn’t work with coworking.

Free trials are an epidemic with new coworking entities.

It seems to make some sense. Coworking is a new concept, so charging a new member-potential to try something new raises the barrier far too high for them to walk in the door at all.

Except now you’ve created a new problem for yourself. That member-potential has significantly diminished value associated with what you just provided them. How are you supposed to charge them for the same thing the next time they come in?

In most cases, free coworking is being offered by prepubescent coworking spaces. Those coworking spaces lack the critical mass of smart, interesting, creative people that represent the primary attraction for most of the members they don’t have yet. Once you have that, it’s easier to diminish the value a little bit because you’re starting from a much higher offering of value.

But if your goal is to get people in the door that will stick around and help you sustain the business that will operate their clubhouse, you’ve gotta charge from day 1.

Case Study – The Free Trial of Doom

I got a panicked email from a coworking space owner who I’ve corresponded with a fair amount in the past, and I have full confidence is in this for all of the right reasons. The space was only a few months old, but she felt her runway shortening and was concerned about their member acquisition rates. 8 members had joined in 3 months (which, by the way, isn’t that awful when opening a space with 0 members). She was doing all of the things I typically prescribe: get out there and meet your potentials. Find ways to support them. Get them involved. Here was an excerpt from the email:

Many come and try out the space (we offer a one week free trial) but they dont come back, sometimes even after the first day. They all say they love it, the vibe is great, etc., but wtf. For the life of me, I don’t get it. We follow up, send emails, and even anonymous surveys to figure out what we are doing wrong, and people usually respond with either “it’s too far” or, “I absolutely love your space, and will sign up soon.”

Soon. Soon doesn’t come soon enough. Rent in our area is high, and even though we got an AWESOME deal on our rent, we aren’t anywhere near break even.

How many times I’ve heard this isn’t a number I care to count, and it breaks my heart.

We offer a one week free trial. Kiss of death.

My response included the following:

A one week free trial is WAY too much. In fact, I don’t believe in free trials at all. You’re devaluing your Workspace before people even walk in the door by making it free.

Don’t be afraid to exchange money for goods and services. It’s the only hard rule of business 🙂 You’re using free space as a “bell and/or whistle” to get people in the door, but it gives them zero reason to stick around. If you can’t get them hooked in an hour, you’re not going to get them hooked in a week.

She took my response to heart and immediately made some changes. Among them was dropping the free week trial.

A few weeks later, I got a follow up:

…over the past week and a half, we’ve gotten 13 new members!!!! I guess I may have spoke to soon… not to mention that a one day trial as opposed to one week has made a HUGE difference! People come in, love it, and sign up!

In 10 days she had more than doubled (nearly tripled) membership growth that had previously taken almost 10x that long to achieve.

These specific results are admittedly anecdotal, and your milage may vary, but this isn’t the first time I’ve seen this sort of course correction.

I also included:

There’s nothing [inherently] sticky about that onboard process that you described. Show up … for free, and then a wishy-washy “I’ll sign up when its right for me”.

Not only does charging from day one give us the ability to maintain value from the moment the member-potential walks in the door, but it provides us with an extremely effective conversion point. It works like this.

Your first day is $25. But if you decide to sign up that day, we’ll happily apply that $25 towards whatever level of membership you’re interested in!

Which works nicely when our basic membership is $25, the same price as our drop in day. So you essentially get 2 days for the price of one just for signing up, and then your 2nd day lets you explore Indy Hall as a member, rather than a drop-in.

Also, because we have the aforementioned critical mass of smart, interesting, creative people, the rate that drop-ins sign up for ANY level is extremely high. We convert our paying drop-ins at a rate of 2:1. That is, for every TWO people who drop in, ONE of them typically joins at some level of membership. At our spring 2010 drop-in rates, that’s a relatively consistent 10 new members a month, and the numbers only climb as our presence grows in our region.

Other things to consider

  • Not charging for drop-ins (who contribute relatively less) for the access to space that you charge to members (who contribute relatively more) is disrespectful to the people who pay their hard earned money and contribute
  • What kind of people continually use something that provides value and are OKAY with not paying for it? Now compare that with people who happily pay for the things that make their lives better. Who would you rather spend your time doing business next to?

So free is bad?

Absolutely not. But it’s unwise in an early stage business to give ANYTHING away that you wouldn’t otherwise charge for. Instead, give away things that cost you nothing!

  • Run free events and make them awesome and open to anyone. Work with local businesses as sponsors. Find a local bar or restaurant and make them your watering hole. They’ll appreciate you consistently bringing them customers, and you’ll love having a place you can walk into and have a good chance of bumping into someone you know.
  • Partner with other local organizations and cross promote ideas, events, and opportunities when your core values align. Don’t be a logo slut: make sure partnerships are mutually beneficial, and you’re giving with purpose.
  • Share knowledge. Collective knowledge is at the core of coworking and a great way to get people in the mindset of sharing is to lead by example. What have you learned that you can give away and will be interesting and of value to your member-potentials. Who else has interesting valuable things to share, and what formats can you help provide for sharing that?
  • Start or support a local Jelly! Many have said that Jelly is a gateway drug to coworking, but I’ve discouraged coworking spaces from hosting Jelly in their spaces for all of the reasons I’ve outlined in this piece. Instead, participate in a local Jelly as members of your coworking space and go with the intent to meet people, not with the intent to recruit. Help a Jelly get started, but I wouldn’t run your own. Heck, even send the people who don’t want to pay for your membership to a Jelly as a free coworking alternative. Let them get hooked on a free version of coworking…there’s a great chance they may end up back on your doorstep wanting “Jelly Everyday” and decide to try out that membership after all.

P.S. Hey Alex, what about offering TOTALLY free coworking all day, every day?

That’s another post, another day. 🙂

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Alex Hillman I am always thinking about the intersection of people, relationships, trust and business. I founded Indy Hall in 2006, making us one of oldest fully independent coworking communities in the world. This site is packed with the lessons and examples I’ve learned along the way. You can find me on Twitter, too! 🐦 Say hi.