Running a successful flex operation is no joke.
There are so many moving parts, it's a marvel that operators are able to get even just the the basics right, let alone turning a profit.
Margins of 10% - 20% are fairly common in the space - which is ok if everything always goes according to plan - but with numbers that tight, minor surprises can have a big impact on profitably.
Things rarely always go to plan - so it's no surprise that 1 in 4 flex locations are operating at a loss.
Revenue leakage, happening completely unnoticed, will significantly squeeze already tight margins - it's the difference between a profitable operation and a struggling one.
More than 40% of subscriptions businesses (and let's be clear - Flex is absolutely a subscription business) are losing 9% of their revenue each year due to leakage.
So what is revenue leakage, and how does it surface for flex operators?
What's Revenue Leakage?
Revenue leakage is the unnoticed/unintentional loss of revenue.
Inefficiencies or errors in billing, contract management issues, inadequate service tracking, promoting inventory that's not actually available - in coworking and flex, with the sheer number of transactions and moving parts involved, unnoticed losses to revenue are bound to happen.
A few examples of leakage in flex:
- Six months ago, you sold a 30-person studio, but in the last few weeks, it feels like only a few people have actually been to the space. The likelihood of this deal renewing? Slim.
- Meeting room MR.03 always has people in there -- why is it mysteriously low on revenue?
- Acme Corp handed in their notice today, but your ops team hadn't even started renewal conversations with them.
- You've had a great run of new business, the space is buzzing, but you're starting to notice a decent uplift in churn for your open-desk products.
Every operator has had experiences like this before.
Revenue leakage, like the examples I've mentioned above, directly affect your profitability - and worst of all, you usually won't notice until the financial impact is already delivered.
And it's not an easy problem to fix...
Challenges in Identifying Revenue Leakage
Disparate systems are a major headache
Operators juggle multiple, non-integrated systems for contracts, billing, space management, networking, access control - you name it.
It's done out of necessity - we all want to be using the best finance tool, the best CRM, the best operating platform - but this fragmentation makes it difficult to have a unified view of what's really going on in a business.
It's not just the systems, but also the people using them
Errors and inconsistencies in data entry will lead to misaligned records.
Your systems are only as good as the data your team feed in, and people are notoriously bad at maintaining good quality data.
Rubbish in, rubbish out.
Disjointed KPIs compound the problem
Different teams with varying definitions for the same metrics (I'm looking at you, churn), lead to confusion when interpreting data.
Different departments often track their own KPIs independently, leading to a lack of cohesive metrics that can pinpoint revenue leakage areas.
What's missing, is a single revenue story.
Manual spot-checks are often too late
Insufficient reporting tools impact an operator's ability to generate accurate, real-time reports on key metrics.
Without real-time data, quickly identifying and addressing revenue leakage is almost impossible.
Delayed data means delayed responses - which means more often than not, you've already lost the revenue.
Thinking about combatting it
There's a few things you can think about when trying to tackle sources of revenue leakage - Knowing exactly what you're trying to fix is where you need to start.
Just to go back to the examples above, what's the real issues here?
- A purchased product is currently under-utilised - why not measure how often team members are using the space and compare it to how many should be using the space?
- An asset is being used more than it's being paid for - use access control logs or occupancy sensors to give us a view of just how much revenue we're leaving on the table.
- A renewal was missed because of poor data practices in your CRM. Run an audit of all your contracts and make sure the renewal task assigned to your teams is well within the date a client can hand in notice (and while you're at it, make sure you know exactly how long the notice period for every individual contract is).
- Your space is too busy & you're relying on member feedback to tell you. You need to understand how many people are in the building at all times - And maybe you should have a closer look at the oversell factors on your open desk products?
Once you have an idea of what you're actually looking out for, then you can start thinking about how to identify the problems before they actually occur.
How about you?
How has leakage affected your flex operation?
Have you been able to successfully identify and mitigate against it in the past?
I'd love to know what you think - And if you'd like to chat it through, feel free to drop me a message - I always love hearing how different operators are addressing these challenges.