The Co-working Space That Priced Itself Out
Harbour Lane is a co-working enterprise with 60 desks across two floors in a mid-sized city. It charges $420 per desk per month, which is $60 above the two nearest competitors. Occupancy has fallen from 92% to 71% over five months. The manager, Tom, believes the problem is price and wants to drop to $360, matching competitors. The finance officer points out that fixed costs (lease, utilities, reception staff) are $19,000 per month and variable cost per occupied desk is about $45. At 71% occupancy the enterprise is close to breaking even; at 60% it would make a loss. Tom has also noticed that three long-term tenants left after the building's internet was upgraded but the promised private phone booths were never installed. A tenant survey rated 'quiet space for calls' as the single most important feature, scoring it above price.
1. Calculate the break-even occupancy at both the current price and Tom's proposed price, and use the results to evaluate his pricing plan.
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Work with contribution per occupied desk, then divide fixed costs by that contribution.
At $420: contribution per desk = $420 − $45 = $375. Break-even desks = $19,000 ÷ $375 ≈ 50.7, so 51 desks. That is 51 ÷ 60 = 85% occupancy. This is the crucial finding: the enterprise is already below break-even at 71% occupancy, because 71% of 60 is about 43 desks, contributing roughly $16,125 against $19,000 in fixed costs - a monthly loss of about $2,875.
At $360: contribution per desk = $360 − $45 = $315. Break-even desks = $19,000 ÷ $315 ≈ 60.3, so 61 desks. That is more than 100% occupancy - literally unattainable with 60 desks.
Evaluation: Tom's plan cannot break even at any occupancy the building can physically reach. Even filling every desk at $360 yields about $18,900 contribution, still short of $19,000. The price cut therefore converts a recoverable loss into a permanent one, and it does so to solve a problem the survey says is not primarily about price. A strong answer states the arithmetic, then draws the strategic conclusion: the 21-point occupancy fall is better explained by the missing phone booths, which the survey ranks above price. Tom should install the booths, hold price, and re-measure occupancy before touching the rate card.
2. Tom's finance officer suggests a 'quiet-space premium': keep the $420 base but convert one floor's corner into eight enclosed call booths rented at $90 per month as an add-on. Assess whether this addresses the underlying problem.
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This option is worth taking seriously because it attacks the cause the survey identified rather than the symptom Tom noticed.
Financial logic: eight booths at $90 add $720 per month of near-pure contribution, since the booths sit in space already leased. That narrows the $2,875 monthly loss to about $2,155 without touching the base price or the break-even occupancy of 85%. It is a smaller lever than a price cut but a safer one, because it adds revenue instead of removing margin.
Strategic logic: the three departed long-term tenants left over a broken promise, not a price. Restoring the promised feature signals reliability, which matters more to tenants choosing a workspace than a $60 differential. Long-term tenants also reduce churn and marketing cost.
Risks the answer should name: eight booths may be too few if 'quiet space' is the top-ranked need across 43 occupied desks; uptake at $90 is unproven; and charging extra for something previously promised may read as a second broken promise. Tom should offer the booths free to existing tenants for the first two months as recompense, then convert to paid add-on, and track whether occupancy recovers toward the 51-desk break-even before considering any base-price change.