How long have you been staring at that spreadsheet trying to figure out the numbers?

Nearly every week I get an email from someone with questions about the financial side of running a Coworking space. And “memberships” seems to be among the most confounding of the questions; how should those memberships be structured? What’s the best balance of affordable, but also generates enough revenue for the coworking space to turn a profit (or at least become self-sustaining)?

A common mistake that I see people make is in thinking that offering lots of “upgrade” options turns into more money, closing the gap or generating more profit.

Today, I’m going to show you why that’s a MISTAKE, and how you can create a SIMPLE structure for your coworking space memberships that also helps you get more members and increase your revenue.

Have you ever heard of “The Paradox of Choice“?

Options and upgrades sounds like a great idea because it offers more customizability and people love to buy things that are customized to them, right?

Bzzzt.

Research shows that too many choices creates a paralyzing collection of options…not to mention plays into peoples’ fear of being nickled and dimed.

In reality, people often hesitate to join a coworking because they’re confused by how they’re going to budget for all of the things they MIGHT need – e.g. how many conference room hours will I use in a month? – even if they don’t actually need them yet.

Coworking by the Hour

Another common mistake that I see, not just in conference rooms, is limiting member access as granularly as by the hour.

If your memberships offer a certain number of hours per month, that means record keeping for you (even if it’s automated or semi-automated), and record keeping for your members

When your members are thinking about coming in, do you want them worrying about “staying longer and going over”? What happens if they plan to come in for 5 hours but get into the groove and end up staying for 8?

And this only gets worse when your hourly limits don’t coincide with hours in an ‘average’ work day. Even numbers of hours make your packages look nice, but when people have to do the math to figure out how many workdays that translates into, they start to feel like you’re a phone company keeping track of their minutes instead of a cozy place to go and get productive when they need it.

So with that in mind, in my experience, a coworking space is able to generate more revenue with LESS options…but better ones. 

When we launched in 2006, there wasn’t much in the way of examples for how much to charge, or how much the market would bear, or how to structure it in a way that’s easy to undestand.

So we turned to our secret weapon: our community.

How we figured out the levels

We’d spent nearly a year bringing a community together, so we had ACTUAL people to start asking questions. But asking questions like “how much would you pay for this” doesn’t work. People don’t know how much they’d pay for something until they have to pay for something.

So instead, we tried to get a feel for roughly how often people thought they’d want a place to work IF it cost any reasonable amount.

We didn’t do any sort of formal survey – this came out in conversations. It wasn’t something we’d hold people to anyway, it was just to get a pulse.

In our first surprise, only a couple of people wanted a a dedicated, full time spot. Some of the others saw themselves coming in a couple of times a week.

But a LOT of people were excited at the prospect of having a place they could go if they wanted to. A lot of people saw the benefit of there being a gathering place for our community, and even if they didn’t have a need for it themselves (because they had their own office or something like that) they knew that having a place to gather would be valuable.

We knew what our baseline costs were. We knew roughly how often some people in our community might want to come in. With that information, we did some arithmetic to figure out what price points would get us to covering those costs, but still feel reasonable to our community.

We came up with three all-inclusive membership levels:

• Basic membership. $25/month (now $30/month). Includes one drop-in day per month. Additional days $15/day a la carte.
• Lite membership. $175/month (now $200/month). Includes 3 days a week, or 12 days a month.
• Full time membership, $275/month (now $300/month). Your own desk where you can leave your stuff. No extra charges.

Full time membership was obvious. Lite membership took care of the “couple of days a week” people, and even gave them a little bit of breathing room to come in more often.

Basic membership was our greatest “innovation” in that it gave a relatively large number of people the ability to pay a relatively small amount of money to help the community have a clubhouse that they COULD go to when they wanted to. And almost as a bonus, that basic membership included one day a month if they did end up wanting to come in. From the email that originally announced the Basic Membership:

“The idea is that this membership base is widespread at a low cost to help the entire community share the cost of the physical facility, enabling everyone to participate for an affordable rate at the tier appropriate to their needs. If there is any intention of using the space more than once a month, having a basic membership makes sense because the first day is free and additional days are discounted.”

And it worked. The night before we signed our lease, we held a membership signing event at one of our local watering holes. People came, and signed up in person (yes, before we even had our own space!).

We launched with the following breakdown of memberships:

• 2 Full time members
• 4 Lite members
• and a whopping 23 basic members!

Some quick math will tell you that’s $1825/month, enough to cover our biggest cost (our rent) before we even signed a lease.

Less than 4 months later, we were profitable.

Always Be Streamlining

About 2 years into business, our bookkeeper came to me one day to point out that we had a growing number of of basic members coming in roughly 6 times a month. She suggested we create a 6 day/month membership and save everyone a bunch of book keeping on the extra $15/day drop in rates.

So we did that and added to the roster:

• Six-pack membership: $100/month (now $120/month). Includes six drop-in days a month. Additional $15/day. (note that there’s no actual savings…just less paperwork).

And notice that it also fills in the big gap between $25/month and $175/month.

Six-pack membership quickly became our second most popular membership. Go figure. 🙂

Bigger isn’t better

The lower levels are often overlooked because the assumption is “more money from bigger memberships, right?”

Except…full time memberships aren’t reflective of how a lot of people ACTUALLY work. Many (if not most) people who would get a lot of value from a coworking experience just need to get out of the house or office once a week or once a month. A break from their routine, an injection of inspiration and productivity.

Far more people need inspiration and productivity in their work lives than need a dedicated space.

Get your incentives straight

For people who don’t NEED to commute, there’s not a lot of incentive to work from the same place every day. Finally, not every kind of work makes sense in a coworking space. Having strong and easy to choose flex options makes coworking attractive to more people, including the ones who only come in once or twice a month.

All levels of membership are valuable, but basic membership and six pack membership make coworking feel less like “an office I use” and more like “a place where I can go when I need a change of scenery” which we’ve found resonates with a LOT more people.

Stop building things around your most finite resources

The other benefit of having basic and six pack memberships is that over 1/3rd of our revenue comes from people who almost never use a desk.

I’ve done the math and if we charged for some of the things we include in all memberships (member conf room usage, printing, etc) it’d come out to a small fraction of that same amount of revenue.

And best of all, we get to tell all of our members, “don’t worry, that’s included in your membership.”

That way, we’ve built a business around what makes people feel awesome, instead of building a business around how people react to scarcity.

The Grandest Experiment

In 2014 we conducted an experiment. The source of the experiment was that we noticed two trends:

1 – more people were saying “I’ll join Indy Hall when I quit my job/need a place to work” 2 – more people who joined Indy Hall later cancelling, saying “I’m not using it enough”

Both of these were relatively new patterns for us.

Up until that year, people had been happily joined with Basic membership, often seeing it as we had originally planned, which again was:

“The idea is that this membership base is widespread at a low cost to help the entire community share the cost of the physical facility, enabling everyone to participate for an affordable rate at the tier appropriate to their needs. If there is any intention of using the space more than once a month, having a basic membership makes sense because the first day is free and additional days are discounted.”

But as coworking mainstreamed, more people started to see coworking as “something I’ll buy when I need an office, but better”. This also explained our new cancellation reason. “I’m not using it enough” signaled that they viewed it as a thing to consume vs a thing to belong to.

That’s a problem we can fix.

So we added a new membership, the Community Membership. $20/month or $200/year prepaid. NO coworking days included. 

Community membership includes our vibrant online community (we use a power-combo of GroupBuzz and Slack, as I’ve mentioned in other posts), plus they can come to events as a member…which helps ease that feeling of being a freeloader, knowing that your little bit helps the events you enjoy be successful and stay free to attend.

And then we made Community Membership our FLAGSHIP membership. All of our coworking memberships come with community membership included. There isn’t a way to join Indy Hall without having a community membership.

We did this to send a message, on purpose, that community is the reason to join Indy Hall. Using the space is just one of the added bonuses.

Were we crazy? Maybe, but the language and positioning has worked amazingly well.

We started to see a reversal in BOTH trends I mentioned above:

For the people who say things like “I’ll join Indy Hall when…” we now have a way of responding with something like “there’s a way to start getting to know community members now…a lot of them were in the same position as you, before they left their jobs or found one that let them choose where they work. They can probably help you!”

And here’s my favorite part of this change:

Now we have people who email us to reluctantly cancel their membership because they’re moving away, or took a new job, but they know that they’ll miss the community. So we can offer them the Community membership for $20/month (or $200/year prepaid).

And they’re THRILLED. We just turned someone who was about to leave into a member for life, no matter where they go they can stay connected. Bam.

The beautiful thing about this new Community membership is that it allows us to create value for one kind of member, and it improves our long term member retention and overall member lifetime value, which I see so often overlooked in favor of “getting more members”) and excused by “graduation is a good thing”.

Of course it’s good to get more members, but it’s even better to keep delivering value to a larger % of the members you already have 🙂 

Think about the value you deliver

For the first several years of Indy Hall’s existence, I chuckled to myself every time I saw another coworking space wholeseale copy our membership structure and pricing. Mostly because there literally was no option for us to copy when we were opening up.

But it also makes me think about how those people probably aren’t thinking about the VALUE they deliver for the amount of money they charge. It’s telling when people come up with their prices because that’s what another space charges, even if that space is in another city.

• They don’t think about how many people we have at each member (nobody guesses that 60+ percent of our membership is either basic or community membership).
• They don’t think about our costs or how we’ve structured them
• They don’t think about the other ways we generate value, or things we DON’T spend money on that they assume they have to.

You can raise your membership rates, just don’t be a jerk about it.

Your members are professionals. I’d be willing to bet that many of them earn more per day than you charge per month. Think about that!

Here’s something that we’ve done ourselves and we’ve heard others do successfully: ask your CURRENT paying members if they feel like they get more or less value than they pay out of their membership. If you’re doing even a halfway decent job, most paying members will say that they’re getting a steal of a deal. Which means…you’re not charging enough. 

When we raised our rates, we did it with 6 months notice and offered a grandfather option for prepaying, which people found MORE than generous. I included a note saying that if someone felt that the price increase would impact their ability to be a member, to come talk to me and we’d figure out a solution.

When we announced the price increase, the #1 thing we heard was “It’s about time!” And only 1 person (out of nearly 200) came to me to say anything about the price increase being a potential burden – but that she was still happy to pay it because we’d been so considerate of the potential situation.

Membership isn’t just renting without the long term commitment.

Members and tenants aren’t just interchangeable jargon.

Tenants pay to consume a resource. Members pay to belong, and along with that sense of belonging both contribute and gain access to resources.

Your membership structure can help you by showing people the value in your community BEFORE, During, and AFTER they need the space…and streamline everything from sales to billing along the way.

If you’re working on your membership structure for your new coworking space, or looking for ways to improve your existing membership structure, I hope you find this guide useful.

And most of all, let me know how it helps!