210. Three Decisions a Coworking Operator can Make with Customer Lifetime Value Data

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210. Three Decisions a Coworking Operator can Make with Customer Lifetime Value Data

00:00:01 Welcome to the everything co-working podcast, where you learn what you need to know about how the world wants to work. And now your host coworking space owner and trend expert. Jamie Russo, Welcome to episode number 210. This is your host. Jamie Russo. Thank you for joining me. So today we are going to talk about a topic that I think is super critical.

00:00:39 As we think about our coworking businesses and ramp up into a more normal 2021. We're going to talk about customer lifetime value, which I'm going to abbreviate in this episode, as CLTV, we're going to talk about why it's important. It's important because it, if you know it and you use it to make decisions will drive decisions. You make around product mix pricing,

00:01:04 the services that you offer your profit margin. So you want to know this number and it doesn't have to drive every single decision because we make some decisions is in our businesses that are not profit based, but you want to know what it is so that you can use it to drive some important decisions. And on today's episode, we're going to talk about three decisions.

00:01:24 A coworking space operator can make with customer lifetime value data. Before we jump in, if you're working on opening a coworking space, I want to invite you to join my free masterclass three behind the scenes secrets to opening a coworking space. If you're starting your first base, I want to share with you three decisions that I've seen over the years that successful operators make when they're designing their business.

00:01:49 So the fundamental decisions they make before they launch this masterclass is totally free. It's about an hour, which includes Q and a time. So if you want to join, you can register at www dot everything, coworking.com forward slash masterclass. Okay. So three decisions a coworking operator can make with customer lifetime value data. How much can I spend on sales and marketing?

00:02:15 What can I double down on to attract my best and most profitable customers? What are the opportunities along my customer journey to increase customer lifetime value? Okay, so let's back up and talk about what customer lifetime value is. It's a metric that tells you how much a particular member spends with you over the course of being your member. How do you calculate it?

00:02:41 Okay, so you can get this metric by calculating the average purchase value times the average number of purchases. So in the coworking industry, you are likely going to multiply the monthly recurring member times. The number of months that member is a member. If you sell a LA carte items, make sure to factor in total monthly revenue from your members, not just that recurring monthly membership revenue.

00:03:11 Okay. And where can you find the data to run this calculation from your membership spreadsheets? If you're running on spreadsheets, hopefully you're not. If you're using a space management platform that does your billing like an office R and D a proximity, a cell up satellite desk works Yardi a, an a census you'll get that data from that system. So it should be tracking for you monthly recurring revenue on average per member and the tenure of your members.

00:03:41 You can calculate this number as an average across all your members. But if I were you, I would calculate it by membership type because that's where the insights are going to be for our business, right? Because we make a lot of decisions about our product mix and knowing customer lifetime value across our product mix will be super important. So you can calculate this number by membership types,

00:04:06 such as private office, dedicated desk, flex desk, maybe team suite, or HQ offering whatever the big buckets of product that you offer. Virtual office mail products might be awesome to look at. It'll be really useful to get a little more grain milk granular in order to make business decisions, which we're going to talk about here. So first before we talk about making decisions,

00:04:31 what are the general drivers to customer lifetime value in the coworking business? So just for any business customer lifetime value, making that number bigger is always going to be better. So what are the things that drive that number so that we can look for levers to make that number bigger? Two primary cohort, two primary drivers in the coworking business, our monthly revenue and length of membership,

00:04:59 pretty simple, right? So the two components are monthly membership, revenue, length of membership. Your product you've started your most profitable customers are most likely private office members. So that's probably pretty obvious, but I think it might be, might have some aha moments for you when we walk through an actual example. So if you assume that the average office member tenure is about 12 months,

00:05:26 which are GWA data from their last industry survey would indicate that's about right. If for our example, we're going to say the office membership price is a thousand dollars per month. Then our CLTV for that membership is $12,000. So if we close a member, if we, somebody comes in for a tour and they take an office, the office is a thousand dollars a month.

00:05:52 They stay for a year. We're probably oversimplifying, but their CLTV is $12,000. It's a pretty simple metric to understand, but to act on that and to try to increase that number is what we want to kind of get into for the exciting details. So let's think about the average flex desk member. Their tenure is closer to eight months, so shorter,

00:06:15 and they have a monthly revenue call it $300. It might be a little lower in your market, might be a little higher in your market. And this is an open flex desk. This is not in a team suite. It's not an HQ product. So let's call it $300. The CLTV for that example, eight months, times $300 is $2,400.

00:06:35 Now, if you can oversell your flex desks, and I always tell my start-up school students, you don't know if you can oversell until you oversell. And really the overselling will depend on whether you have a lot of flex desk or not a lot of Flint flex desks. If you have six flex desks, probably you can oversell them because there might be more demand for flex than six in your market.

00:06:58 So maybe you can sell those desks two times or three times. If you have 20 flex desks in a smaller market, you might sell them one time. You really don't know, but if you've been in business for awhile and you know that you oversell those desks, then your customer lifetime value for that product, you might want to use the multiplier to get a better apples to apples comparison to what an office would be.

00:07:22 And the office, you can only saw a one-time unless you do a shared office model, which we're seeing operators experiment with, which can make sort of the customer lifetime value of folks that can fit into that one office higher, which is a lever to pull. So how can I increase the customer lifetime value in my coworking business? So first the probably the most obvious approach would be to create more product that has the highest CLTV.

00:07:53 So if you're starting a coworking space or you're looking to optimize your current business, one easy way to increase the LTV is to look at adding more private offices. So this is a little bit tricky, right? There are always trade-offs to these decisions, because if you look at just sort of on paper and look at the math and the numbers, then you might say,

00:08:15 make the whole space private offices. But we know there are some trade-offs to this. One of them is that most of us don't only want private offices in our coworking offering, right? We don't want to offer that type of space. And sometimes the member that we're serving doesn't want that vibe either. Right? So picture, if you walked in and some sort of more traditional executive suites,

00:08:38 look a little bit more like this. You walk in there's a front desk and then offices, offices, offices, right? No lounge space, maybe a very small shared kitchen, no flex desk area, no event space. It's really, you know, offices the product and that's a fit for some people. But if you are going for sort of that vibe and you want,

00:08:59 maybe you want some amenities spaces, you want that open fun. Look, when folks walk in with some collaboration areas and some lounge areas, and you want open seating that gives you just sort of that community things are happening here, vibe, then you're not going to want all offices, even if on paper, they're the most profitable. The other challenge and I teach this in my startup school is that there's always tension between what,

00:09:24 what offices do for our proforma and what they do to our startup capital requirements. Right? So if you're starting your coworking space, then you need to have the startup capital to fund the space. And if you run a proforma, the more offices you add cost you money up front, it looks great on a ten-year proforma. But the question is, do we have access to the startup capital that we need in order to put in all the offices that we want to include without overdoing it?

00:09:50 Of course, because officers are expensive, right? We're talking sprinklers and HVAC and electrical and all the things either net drops. So offices cost a lot more money than flex space does to build out, but it's more profitable over time. So there's tension here. But if you understand your CLTV, then it's going to help you understand, help you make those decisions and make those trade-offs.

00:10:15 So, second thing we can do to increase our CLTV is look at other ways to add to the monthly revenue per customer. So aside from that recurring membership fee that we get from them being, you know, having an office or having a dedicated desk or having a flex desk, what are other drivers of customer revenue? And this is where we really see folks inch up their margin.

00:10:41 And that margin comes from increasing the CLTV right? So I see some of the most successful coworking spaces, really focusing on their mail product, their virtual office, product VA services, marketing, their meeting rooms, other services like phone answering. My favorite would be would someone please add vacation planning services for members or other concierge type services to help make their busy members' lives,

00:11:07 easier coaching? We did an episode recently on a brand called success spaces. And I got a bunch of emails in, I send out my weekly newsletter and said, Hey, is anybody else running this coaching model, got a bunch of responses back from folks saying they offer coaching to their members. So as you add on layers of revenue of services that your members can opt into,

00:11:31 that's going to increase your monthly revenue per member, which is going to increase your CLTV as well. So start thinking about how can I optimize this captive audience that loves what I'm providing? How can I layer on some things that overlap with what they want to be paying for the third way you can increase your CLTV is by increasing the, of a customer.

00:11:54 So how do I get my members to stay longer? How can I retain my members for as long as possible? So think about this. If an office member stays for 16 months, rather than 12 months, then your CLTV goes from 12,000 to 16,000 and you, that didn't cost you any money, right? All it costs you was that initial acquisition cost to get the member in the door and then your CLTV goes up just because they stayed longer.

00:12:20 Sure. So you are likely to also, you're likely to increase the price of your office. And if you're not automatically doing this, definitely give this some thought, put a 5% automatic annual increase in at least your office pricing. It's harder to inch up our co-working or dedicated desk pricing. Those don't tend to move a lot. Unfortunately they tend to compress more often than they go up.

00:12:45 But that office price, you can absolutely work in, you know, a cost of inflation cost of doing business increased once a year. And so that's going to increase your CLTV as well. If the member stays longer, they're going to go through an increase. Their price is going to increase and they're going to stay longer. So you're multiplying both sides of that equation.

00:13:05 So let's dive into how you can use CLTV as a metric in your coworking business. So the first way is you can use it to determine how much to spend on your customer acquisition costs or your sales and marketing. So I want you to think about this. If you have an office open that's priced at a thousand dollars a month, and your average office member stays for 12 months.

00:13:28 Again, our CLTV for that office member is $12,000. If you spend $500 in Google ads to market your office to the next office member, there's a simple calculation here, $12,000, which is our lifetime value minus $500, which is what it costs to acquire. That customer is 11,500. This calculation is super simple over simplified. If you're paying for an ads manager or paying a community manager or a sales manager to kind of manage leads and give tours.

00:13:59 And there are other costs that go into this, but those are pretty fixed costs, although they can still be allocated to the profit and the margin of a new customer. But if you're just going to simplify it, let's look at it that way. Cause it's, it's a good way to look at what happens when you don't spend on ads. I think a lot of operators resist running ads to acquire customers.

00:14:24 I think they think, okay, my offices are going to get filled. It's not a matter of if it's a matter of when. So I'm going to kind of sit on my offices and just let them organically fill. If I build it, they will come in terms of offices. But consider this. If you have an office open again, it's priced at a thousand dollars.

00:14:44 If you fill it through organic marketing and it takes about three months to fill it, your revenue in a 12 month period is $9,000. If you fill it through paid ads within one month. So Google is putting you at the top of the search engine results. You're getting more traffic, more leads to your website, getting more people in for tours. You fill it faster.

00:15:04 Your revenue in a 12 month period is $11,000. If you spent $500 on ads, you actually lost $1,500 by not running ads. So here's the math on the example. And I want to mention that this episode has an accompanying blog post. I know there's a lot of numbers that I'm talking through here. As example, sometimes it's easier to see those and process them with your eyeballs.

00:15:28 And so you can go to everything. coworking.com forward slash episodes Ford slash two 10. And you can find the link to the blog post to read through all of this. So again, let's go through the math on the example of running ads versus not running ads. If you rely on organic leads, zero upfront cost $9,000 in revenue, because it takes you three months to fill the office in a 12 month period,

00:15:54 you have $9,000 in profit. If you pay for leads, let's call it $500 a month. You may have to spend more than that. But just for this example, you get $11,000 in revenue in a 12 month period, because with Google ads, it only took you one month to fill that office. If you take your revenue minus the cost of running the ads,

00:16:14 $10,500 in profit versus $9,000 in profit, if you went the organic approach, so you invested money up front and got more out on the other side with running ads and think about this. If you have a lot of offices to sell, then that $1,500 difference in profit, multiply that by 10 offices, 20 offices, that's going to add up really quickly so you can wait for them to fill organically,

00:16:41 or you can invest up front and get a higher profit per our office by using ads. Now ads don't work the same way in every market. So you need to consult an ads. Professional Ruben Lau was on a recent episode in the one nineties. I don't remember exactly which episode it was, but if you search the podcast player or search your apple podcasts or wherever you listen,

00:17:03 you can find him. He is an amazing resource. And can tell you what Google ads will do for you in your market. But if you're opening or you're already opening, you're expanding, or you're not filling offices within 30 days, you want to consider running some ads to make that turn go faster. Okay. What else can you use your CLTV data to do?

00:17:24 You can use it to determine what you can double down on to attract your best customers, which just for the sake of this discussion, your best customers have the highest CLTV. Maybe they don't in real life, right? Again, we don't always optimize for profit. Like we don't have only offices, even though they're profitable, we may offer scholarships to members,

00:17:47 or we may have a five day option because we want to make our space accessible. Even though those five days or even day passes are really not profitable for our space and have a very low CLTV. So again, let me just circle back to how do we use it if we are just focusing on who is our most profitable customer and how can we get more of them,

00:18:10 then we would use our CLTV data to help us double down. So in CLTV in co-working, that number is driven by monthly spend and membership tenure. So our best members spend more and stay longer. So if those, if that is the case, then our most profitable customers are probably office members that pay a premium for private space, have a great experience and stay a long time when it comes to lower price membership,

00:18:37 such as flex desks, your virtual office members, the key to increasing CLTV is to increase how long they stay. So can they stay if we can get them to stay instead of eight months, they're staying for 10 months or 12 months, then that ROI on the customer acquisition cost is going to be so much higher because our CLTV for them is higher just because they've stayed longer.

00:19:00 And we didn't have to spend any money to make that happen. And we didn't have a vacancy in that flex or dedicated desk with no money coming in. When they turned over since the office member equation is pretty straightforward, let's look at the lower price membership. And again, most folks haven't pretty easy time selling their offices. It's just a matter of how long it takes.

00:19:22 And I think you can optimize that with ads. But what I hear in terms of customer acquisition is it takes, and from my own experience, I know this and from working with hundreds of operators over many years, the common theme, especially post COVID is that it takes longer to sell open space. We all want to offer open-space memberships, but it takes longer to sell them.

00:19:43 It takes longer to fill up that space. So since the office memberships are pretty straightforward, let's focus on how we can use the LTV to exp increase the benefit or increase the, the overall CLTV of our open space memberships, open space memberships have longer sales cycles. They have a lower monthly revenue and shorter tenures. So they're kind of a challenging part of our product portfolio.

00:20:14 So if we can get them to stay longer, then we have less frequent challenge of replacing them. So if you think about your sales funnel, when members come in, they're more often looking for offices if you offer offices, right? So if you look at, you know, probably maybe six or seven out of 10 folks that come in for two or one,

00:20:36 an office, the other three or four are open to private space, right? So there's a quantity challenge in our sales funnel in terms of converting to dedicated desks or flex desks. And then when those members come in for a tour, the ones that need private space really need it, right? That they're looking for that space for a specific reason, they need to meet clients.

00:20:57 They need to run a business. They can't be in the home and they're more likely to convert faster. Our open space members just convert more slowly because it's not a need, right? They have maybe have some emotional reason or trigger for wanting to get out of the house. They think it would be better for their business, but they still really have to prove that that spend makes a difference for them.

00:21:18 And so they sit on that decision for longer. So it just takes longer to sell open space memberships. And so once we find our open space memberships, we want to keep them right. So in terms of thinking about CLTV, let's ask yourself some questions to find opportunities, to attract more of your best customers. When it comes to open-space members, what is the profile of an open desk,

00:21:43 flex desk, whatever you call them in your business that stays the longest. Do they do a certain type of work? Do they seem to have a common reason for joining the space? How does a long-term member behave? Do they attend member events? Do they get clients from other members? Do they mentor other members? Are they friends with other members?

00:22:03 Those are all important questions to observe. Maybe you can't find a theme, but maybe there is one, and maybe you can sort of understand kind of what that mindset is at that person. Maybe they don't all do a certain type of work or maybe they do. And you could attract more of them. Maybe it's something really simple. I have a member of my flight group,

00:22:23 who's in the Texas area and she gets a lot of members from a private high school nearby the parents that work, drop the kids off and they want someplace to go to work. That's really close by. Of course they love her space for many other reasons, but that's a pretty good insight. If she didn't have that insight, then she wouldn't be able to market do referral programs.

00:22:43 That kind of thing, to just get more of those members. And generally they're going to remain members as long as they have a business or work to do. And as long as their kid goes to the school, that's right next door. And there's also kind of the benefit of stacking that community piece on, right? Because not only do they work in the same space,

00:23:00 they have kids that go to the same school. So it can be, you know, kind of a compounding effect and really sticky. So no those insights get to understand those insights so that you can figure out what are some levers you can pull to get more of those people that tend to stay longer along those lines. What lead sources deliver your best members?

00:23:20 Is it ads? Is it events? Is it referrals? What can you do more of that's bringing you members that stay longer. If you're running specials and those members tend to leave. As soon as that specialist's over, then you might want to rethink running that special. You might want to double down on referrals or keep going on your ads and don't spend the time and energy on the other things.

00:23:43 Or maybe those BOGOs work really well. And those members stay for a long time. You might double down on those, those promotions. Okay. And number three, you can use your CLTV analysis to determine what opportunities there are along your customer journey to impact CLTV. Again, this might apply more to your open space members, but don't rule out your retention efforts for office space members as well,

00:24:10 because we can go up to a lot of places and get an office, right? So you're trying to retain all of your members. So look at your process and now is a great time. Always is a great time to be doing it, but I sort of tried to give you some, some things to think about like what levers can I pull in my business to see positive changes?

00:24:34 What is your member onboarding process looks, look like, do you set expectations? Do you introduce members to other members? If you see behaviors that tend to help people stay longer, how can you sprinkle those into the customer journey? Is it that they attend member events? It may not be that tends to be an 80 20 thing, is it that they get clients?

00:24:52 So what are, you know, if, if members, if connections with other members and getting clients or building relationships is you see as really critical to member staying longer, can you make that a priority for your community manager? Is that part of their, like something you measure on their daily activity? So that they're really focused on that. What are things that you can do?

00:25:14 Can you play that role? Is there someone else in the community that might help play that role? If it really matters, make sure you're measuring it and dedicating time to it every single week. Are you reaching out to your members every 90 days to do a check-in to make sure that they're comfortable in the space and that they're doing the things that you see that make a difference.

00:25:33 We run this training in our community manager university program called the success path. And that is not my term. It's a gentleman named Stu McLaren, who teaches about memberships, but he teaches that if you have an intentional path for your members to journey along together, they're more likely to recognize that they're making progress and stay. So can you help be more explicit with your members about the things that will impact their business or their happiness in this space and check with them around the 90 day,

00:26:02 mark, 30 days, 60 days, whatever it makes sense to you to make sure that they're recognizing their wins and associating those wins with your space, and then looking for more wins to focus on going forward so that they really associate your space with some of the good things that are happening in their business, and even in their productivity and happiness, et cetera,

00:26:23 back to your community manager or your members, building relationships with your community manager. Sometimes that can be sort of a challenge because your community manager will turn over at some point and we hate to lose members. If that staff changes. And yet the front desk, our community managers can really be the heart and soul and have a personal connection with our members.

00:26:44 That really makes a big difference to them. Some members can in, cause they just want to see, you know, they want to see, feel seen and heard, and your community manager plays that hospitality role or helps them, you know, with their business, by connecting them to others. Can you connect them to other members on a personal or professional level again,

00:27:03 are you making sure that's an intentional role that's being played in your space and that can be really an important role for your community manager to play. Are your members attending networking events that you host? Are you hosting the right events for them? We also teach in our community manager university program, how to design a member events program that really touches on the needs of your specific membership base.

00:27:28 Maybe it's professional development, maybe it's social, maybe it's personal development, but really honing in on what's important to them and helps with that retention and sort of again, impacting that client journey or can you make life easier by adding on other services? Like the travel planning I mentioned or simple things like dry cleaning pickup or meal service pickup, what can you add that will make it sticky?

00:27:52 So look at your membership journey and identify some of those opportunities. Okay. This was a lot to think about. We could probably write a book on the topic of CLTV in coworking and I don't want to kind of over whelming your brain. I want you to just pick a couple of things that make an impact that you can start working on in your business.

00:28:12 Again, if you want to access this in written form, you can go to everything. coworking.com forward slash episodes four slash two 10. And again, the theme we talked about today are decisions that a co-working space operator can make with customer lifetime value data. Okay? Hopefully this was helpful if you're using your CLTV data in a specific way that you might think would be helpful to others.

00:28:36 We'd love to hear about it and send an email to team@everythingcoworking.com post in the Facebook group. We have a really active Facebook group with almost 2000 members these days. So jump in there and I will see you. Same time, same place next week.

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