Update: 2019 Meeting Room White Paper is now available.
The explosion of demand for meeting rooms in business centers and coworking places creates tremendous opportunities, but also new operational dilemma for workspace providers.
This article will share performance metrics from two successful Virtual Office (VO) providers, and contrast their alternative approaches to pricing and corollary revenue impacts. Part 2 will explore the economics of Meeting Rooms and Day Offices in greater depth.
Meet the “Blue” and the “Green” Centers*
We will use data from two actual West Coast centers affiliated with CloudVO ™ to form our case study. The Blue Center is located in a suburban class B+ location. The Green Center is located in a Class A downtown building. Both buildings are nice and well situated, but neither is a landmark.
The centers have substantially the same number of total clients under recurring plans: 264 for the Green Center and 281 with the Blue Center, when adding full time and virtual clients. They both have done especially well with VO clients, each with more than 200. The Blue Center has been around for more than two decades. The Green Center opened in 2009.
Their number of “walk-in” users, not shown on the graph, is also substantially similar. By “walk-in” we mean clients who are charged by the hour when booking meeting rooms. For example, CloudTouchdown users would fall in that category as the centers bill CloudVO for the hours consumed at their location by these users.
Contrasting Approaches to Monetizing Meeting Room Utilization
The Green Center has priced its mail service & business address plan lower than the Blue Center. On the other hand, the Blue Center has aggressively priced meeting room access upgrades to the basic Mail Service Plan. In fact, the richer VO Plans that includes Mail Service and 16 hours of free meeting room access is now less expensive at the Blue Center than at the Green Center, a complete reversal from the situation with the entry-level Mail plans.
In taking this aggressive pricing approach, the bet by the Blue Center was that for a small premium many clients would upgrade to a plan that includes meeting room hours, while most would use only a small portion of their meeting hour allowance each month. A couple of years of focused upselling efforts combined with attractive and inexpensive packages yielded tangible results: 59% of all Blue Center VO clients have a VO plan that includes either 16 hours or 40 hours of monthly meeting room access.
The Green Center also provides VO plans with similar meeting room hour bundles, but at a higher price point. In the end, only 32% of the Green Center VO customers elected to go for the upgrade, as the value proposition was not as strong.
Impact on Meeting Room Utilization & Revenue
In the end, the strategy paid off for the Blue Center. Meeting Room Utilization has increased to a monthly average of close to 800 hours, with 20% higher usage than in the Green Center, but revenue from the combined VO and meeting room activities reached $40.3k/month or 30% more than the $31.1k of the Green Center.
Impact on Center Resources
The Blue Center was able to support $9k of additional monthly revenue compared to the Green Center, without adding substantial resources to support the slightly higher utilization of meeting rooms. Both centers are equipped with seven Day Office and Conference Rooms today but both initially started with just one boardroom, one medium size meeting room, and one day office. They converted full-time offices into meeting rooms progressively as demand warranted.
The Blue Center maintains only 1 Day Office (versus 3 for the Green Center) but it compensates with 2 small meeting rooms, which fulfill the same functionality. The only difference between a Day Office and a small Conference Room is the furniture (e.g. desk versus round table), but they typically use the same room size.
When is it time to convert a full time office into a meeting room?
When is a meeting room infrastructure at full capacity? There are approximately 170 business hours in a month. Based on experience, a room booked ~140 hours in a month can be viewed as operating at full capacity, which is ~80% of the theoretical business hours total. Fewer people want to book a room at 8:30AM than they do at 10AM. Experience further suggests that at 80% utilization, serious customer satisfaction issues can be expected, arising from the feeling that the room is “always” booked and the frustration associated with the inability to schedule a meeting at the desired time. This is a manageable issue if other options are available, such as a similar size room with a lesser view, or free upgrade to an available larger room. However, if no alternatives are available, a good rule of thumb is to add capacity when a room reaches 100 to 110 hour of monthly utilization. At that level, the customer satisfaction issues are typically still manageable, but the revenue generation capability that an additional meeting room represents makes it a “no brainer”.
Many workplace providers allow after-hours access, like the Blue and Green Centers do for premium plan clients. For both centers, however, the actual bookings after hours are a tiny percentage of total utilization. This is because neither center has found it desirable to enforce strict rules with respect to booking rooms after hours. Many clients use rooms after hours without formally booking them. The centers monetize this valuable amenity by charging more on the premium plans.
In the Meeting Room Utilization graph above, we show the actual per room average monthly utilization of our two Partner centers in Q2 of 2013, highlighting the 110-140 hour “danger zone”. This tells us that the Blue Center should add another large conference room to its inventory, as their only boardroom runs at full capacity, while the mid-size rooms are reasonably well utilized.
The Blue Center single Day Office is also approaching full capacity, but the small Meeting Rooms have enough capacity for the overflow. Some Meeting Rooms are a reasonable option when the Day Office is booked. Thus, we are not recommending they add capacity other than a large Conference Room. Worth noting, the Blue Center is using a “Virtual Room” in its booking system when a client wants a Day Office that is already booked. In that case, the client is provided access to a vacant office, possibly much bigger than a typical day office, thereby giving additional day office inventory, while continuing to market the vacant office to full time office prospects.
The Green Center is touching on the danger zone for a few rooms, but seems to have enough alternatives not to warrant any immediate additional meeting room inventory. On the other hand, the Green Center would benefit from implementing a similar approach to the Blue Center and lower the price of VO Plans that include meeting room hours. The additional revenue generated from greater volume should more than offset the decrease in individual plan prices.
As always, CloudVO ™ partners can inquire with our team for additional data and analysis that pertain to their particular situation.
In Part 2 of this series, we will explore in more detail the economics of Meeting Rooms and Virtual Offices, incorporating overall support costs in the equation.
* Note: Q2, 2013, Data shared in this article is actual data from two CloudVO partner-centers that authorized us to share their data for the purpose of this white paper. They requested that we kept their identity hidden. We want to use this opportunity to thank the owners, managers, and their tremendous team, for enabling us to share valuable learning to draw from their successful experience with the rest of the CloudVO network.