By Mark Mendel
For many coworking operators, increasing rates and fees comes with anxiety and discomfort. Some even avoid it out of fear of losing members. While I understand how some operators struggle with raising rates and discussing it with members, it is a critical aspect of maintaining a financially healthy and strong business. The key is a mutual understanding of the value proposition that the coworking space operator provides and the value that the member perceives. If there is transparency, good communication and agreement regarding the services we offer, members will accept rate increases as fair.
Your members, like all consumers, probably expect prices to rise at some point due to the inflation we all experience in the economy at large – that’s just a fact of life these days. They’ll accept an increase if you’ve built genuine relationships with them, understand what they can manage, and show that you’re not just out to take their money but to serve their needs.
It’s critical to be transparent about price from the moment you start interacting with a potential member in your marketing. It’s even more important to demonstrate value in delivering your services and keeping the “value” conversation going as your relationship evolves.
Rate Drivers
Clearly, membership rates and fees are driven by several factors and market conditions – primarily occupancy costs, payroll, operational expenses, profit margin and any adjustment for local market forces. For many operators, the most significant expenses are rent followed by payroll and operating expenses. As operators, we all understand that our expenses can increase. Therefore, rate increases allow us to maintain the high standards of service, hospitality, and responsiveness that our members expect and maintain profit margin. While we have to pay close attention to our costs and expenses, our members come to expect some of the services we provide as a result of that overhead. If your competition is supplying free printing, coffee or parking, you may have to follow suit if you don’t offer those types of perks. Simply hoping that your profit margin will remain when your expenses go up without increasing rates, is just that – hope!
Beyond the arithmetic of your budget, it takes some finesse is deciding how much of your increase you can ask your members to absorb. If my expenses suddenly go up 20%, I don’t think I could raise member rates by 20%. They might understand 5% because that resembles what’s happening in the market and what they’re experiencing personally in their business as well.
Transparency
We raise our rates annually, but we have conversations around cost throughout the year, so members are not surprised.
We like to stay in touch with our members and get a sense of how their businesses are faring. What are they thinking? Is their business expanding or contracting? Are they having to raise rates for their customers – how much? Do tariffs impact them? Do they see clients being able to pay more, or are they getting pinched like the rest of us with payroll? We keep those conversations flowing all the time.
Even with these conversations, you’re going to have at least a few members dissatisfied with a rate increase now and then. Occasionally, I think of my own expectations as a customer. There are times when I’m not happy with the price of something. At those times, I want to be heard. I want to be respected. I want to make sure I understand — maybe I missed why there’s an increase. What’s going on? There are times when I can have that conversation as a customer, and times when I can’t. As a customer, I seek a degree of transparency, high value as well as price, and I give that same respect to our members.
Therefore, we start those price discussions 60-90 days prior to renewals for offices and 30-60 days prior to increase for coworking, hot desks and virtual mail services. If they push back and question the increase, we’ll discuss the reason for it and what the underlying costs are. I’m happy to have those conversations with members. If their business simply cannot afford an increase, I understand and try to give them alternatives: a smaller office or different services, for example. In rare cases, when we know the member very well, we might structure a payment plan that helps with a cash flow issue on a temporary basis.
Generally, we can’t have that give-and-take with a member who has a virtual address rather than a physical one; it’s harder to build a relationship, and the limited services give you less negotiating room. If I send an email or a letter to a member, they’re either going to accept it or look for something else. So, with those members, we tell them from the moment they sign up that there might be increases — but we’ll show them the respect of giving them enough notice to help them prepare.
Beyond Prices
Your discussions with members can go much deeper than price. Make them part of creating an engaged community whose members know you’re here to support them. You’re there to handle the details that take them away from their core business: reception, conference rooms, kitchens, and other concerns that are important but secondary to the businesses.
It’s not just about a 1, 2, or 3% increase; it’s about keeping your business financially strong and healthy so that you can continue to provide the services they have come to expect.
Mark Mendel is the owner of Office Evolution in Coral Springs, FL, where he focuses on providing flexible workspace solutions for small businesses and professionals.
