Calculating the ROI & SROI of community building in coliving

This is Part 2 of “What’s the ROI of community building in coliving?” - read Part 1 here if you haven’t yet. Big thanks to Michael Liam from Starcity and Matt Lesniak from Conscious Coliving for their help and contribution on this piece.

Two weeks ago, we analyzed the different community building approaches. In this article, we will analyse the costs involved for each of those models, as well as the return on investment.

In this post, you will learn

  • What each community building system requires in terms of human labour, event management cost, and other spendings
  • How each model affects resident satisfaction and length of stay
  • The formula for ROI of community building in coliving spaces
  • And the opportunity cost of not building any community at all

You will see that stronger community doesn’t have to mean more spending - and that even if spending increases, the social return on investment increases exponentially.

Let’s dig into it.

A Recap from Last Week

As we’ve seen in the first article, there are currently four approaches on community building:

  1. The “Do-It-Yourself” - these operators don’t provide any community building support and only manage the physical elements of the place.
  2. The “Top-Downers” - these create community “animation/entertainment” such as events, parties, or ceremonies, but don’t involve the residents in their creation
  3. The “Facilitators” - these operators involve the community in its own creation, meaning empowering residents to activate their needs and giving them the opportunity/responsibility to shape the communal experience
  4. And the “Systems” - in this case, operators train residents to be self-sufficient and to have a community that is self-run, whereby residents are fully responsibilized

The more residents are involved in the community building processes, the more they feel a connection and responsibility towards each other. Those two are fundamentals to have a feeling of community.

Let's explore why.

Impacts of Those Approaches on the Community Feeling

“Real community is always self-driven. It’s the only way to create sustainable coliving.” - Nikita Kuimov, SMENA Station

The role of a coliving operator is to create a feeling of community - meaning an emotional connection between people.

This can only happen if you create systems that create interaction between residents.

Systems can be anything - from events that give residents the opportunity to interact, to community assemblies in which residents can decide on a common budget, up to pairing systems that connects new arrivers to an older resident from your space.

Point is: the more you involve residents, the more you will have true community - because you give residents ownership over their own journey and because you give the community a common goal.

Concretely speaking, this is reflected in resident satisfaction at coliving spaces. Thanks to insider knowledge and my own experience, we can look at the four approaches and see that the more residents are involved, the more they have a feeling of community:

In order to also prove that this is no BS, we can draw a clear correlation (and in my mind, causation) between the feeling of community and the average length of stay for each of those models:

Knowing this, let’s now look at the ROI formula and analyze what the cost/savings are for implementing each of those approaches.

Costs & Savings from Building True Community

Having a stronger community impacts the financials in five core different ways:

  1. The onboarding process is longer and more resource-intensive
  2. Human resources can increase if a more mature, emotionally intelligent community facilitator is needed
  3. Event costs vary and are reduced the more the community is involved in event-creation
  4. Maintenance costs are reduced as stronger communities take more care of the place
  5. And acquisition costs are also reduced due to stronger word of mouth

Let’s first dig into each notion in detail for each approach before looking at financial predictions and calculate the costs per resident in each of those five areas.

Operations/Maintenance

The more you have a feeling of ownership, the more you take care of the place, as it feels like your own. We therefore set the maintenance cost (meaning cleaning, repairs, damages) from $50/month/resident for Do-It-Yourself to only $15/month/resident for Systems (as in their case, it’s often the residents who clean themselves and/or create the space design).

Acquisition Costs

The stronger the community, the better your reputation, the stronger your word-of-mouth, and the less you need to spend on marketing.

For example, OpenDoor in San Francisco (a Systems approach) claims that 95% of residents come from word-of-mouth.

We therefore decided to reduce acquisition costs the better the feeling of community is.

  1. Do-It-Yourself: acquisition cost is high and we’re putting it at $300. That includes the notion of overcoming bad ranking on Google and needing to acquire more leads in order to find the same amount of clients.
  2. Top-Downers: due to the “event animation” side and the promised experience, acquisition costs are lower and we’re putting them at $230.
  3. Facilitators: in this case, the community feeling is strong and reputation is increasing. At the same time, it’s not strong enough to fill up the space predominantly with word-of-mouth, and hence we put the acquisition cost at $150 per resident.
  4. Systems: as mentioned above, most residents come through word-of-mouth and/or organic traffic with little need for persuasion. Acquisition costs per residents are therefore set at $50.

Onboarding Costs

Onboarding is the process of educating your residents community culture and responsibilities. The more you involve your residents in your community, the more you need to educate them, and hence the higher your onboarding costs.

  1. Do-It-Yourself: there is no onboarding, so the cost is $0.
  2. Top-Downers: there is no onboarding either, so the cost is $0.
  3. Facilitators: there is a small onboarding fee (such as spending a few hours with the residents upon arrival or hosting a welcoming dinner), so we’re setting the cost symbolically at $100.
  4. Systems: in this case, there is a large onboarding cost - often, the Systems approaches organize workshops of several days to educate their residents on the processes inside of a coliving space, which responsibility they take, how they handle conflict, and so on - we’re therefore setting the cost at $1000 per resident.

Note: all of these costs are one-time costs per resident, as they occur at the beginning of the user journey.

Human Resource Costs

The more you go into building out true community, the more you need to take care of human interaction. This leads to moving away from a “community manager” (someone that animates the community through event building) to a “community facilitator” (a person who is in charge of educating and training residents on rule and culture, solving conflict, and being in charge of the harmony within the group).

  1. Do-It-Yourself: there is no human resource at all, so the cost is $0.
  2. Top-Downers: this approach requires a “community manager” and we’re allocating a monthly salary of $3k/month.
  3. Facilitators: in this case, you need to hire a profile that is more sensitive to human relationships, who can solve group conflicts, and coach people to unblock themselves. We’re therefore allocating a higher salary of $5k/month.
  4. Systems: in this case, there is little human resources needed - simply because residents have been extensively trained on human processes in the onboarding process. Coliving spaces in this approach only need a “conflict manager” that shows up when if required, but no human resource is needed full-time on side. For a 20-people community, we therefore allocate a cost at $1000/month, which corresponds to a two-day intervention from a well-trained conflict manager.

Note: we decide to allocate one community manager, community facilitator or conflict manager for 20 residents. Hence, the monthly cost of a community manager per resident is $150 (as it’s a $3,000 salary divided by 20 residents).

Event Costs

In this section, it’s self-explanatory that the “Do-It-Yourself” model has no events cost at all (as they don’t organize events). What’s interesting is to witness a reduction in event costs the more the community is involved. That can be explained due to increased resident creativity and more manpower when residents are involved than if only the coliving operator would organize it.

Now that we understand all the notions, let’s see how it impacts the resident costs in the long-term.

Calculating the Cost Per Resident Over Time

Taking in those notions, we can analyze the monthly cost per resident for each of those approaches. Rows in yellow indicate a notion of increased costs, while rows in orange indicate a notion of savings.

Looking at only one month, is seems that the more you engage community, the higher the costs are. But that’s mostly due because of high onboarding costs - we now need to make predictions over a longer time period such as 6 months and 18 months.

Before we do that, let’s quickly remind ourselves of the average length of stay. This will impact the number of residents that will go through our time periods and hence impact the amount of one-time costs.

If we then measure the cost for a 6-month period, we get the following:

Note: as mentioned, the fixed costs are based on the number of tenants (first row), which is based on the average length of stay (see above). For example, acquisition costs in a 6-month period for “Do-It-Yourself” coliving spaces is $600, as they need to acquire 2 residents at $300 each.

And if we take this to a 18-month period, here is the result:

Let’s now draw some key conclusions from this exercise.

The ROI of Community Building

If we want to calculate the financial return on investments, we need to use the following formula:

Over an 18-month period, and taking the “Do-It-Yourself” approach as a baseline (as this approach does not involve any community building), it gives the following ROI:

The financial return on investment is therefore negative - apart for the Systems approach, which indicates that it is cheaper to have self-run communities than coliving spaces with no community engagement at all.

So how can one justify the top-downers and facilitators approach if it increase company costs?

The answer lies in the social return on investment (SROI) - namely, stronger community feelings and therefore a bigger emotional and transformational impact on the resident.

When looking at the 18-month costs, we realize that investing into community produces higher feelings of community.

Moreover, the higher costs of the Facilitator approach can be justified if we look at the impact it creates: increasing resident costs by 24% from $4,830 to $5,990 creates a 230% higher satisfaction rate.

Let’s therefore bring this all together.

Conclusion

All of that leaves us with five key take-aways:

  1. Generally speaking, creating the feeling of community comes at a cost, apart for self-run communities - but the cost can be justified with the level of satisfaction and community feeling one is able to provide. If you’re into coliving and don’t care about the community feeling part, you might want to ask yourself why you’re in the business in the first place.
  2. It is actually cheaper do have a self-run community (the “System” approach) than any other approach, including not having community building at all. Even though the “Systems” approach is the most complex one (as operators need to know about community building and onboarding), it’s by far the most rewarding long-term and less expensive as the “Top-Downers” and “Facilitators” approach.
  3. The easiest option is of course the “Do-It-Yourself” one, as operators don’t create any community management, yet this approach has a very low satisfaction and retention rate, which will long-term damage the brand. Moreover, there is no guarantee that the feeling of community will exist in “Do-It-Yourself” spaces and operators have no means to influence the community experience.
  4. While most coliving operators are currently following the “Top-Down” approach, investing 24% more to move towards the “Facilitators” approach yields a 230% return on community feeling. If you therefore truly care about community, this is a logical step to do and can start with some easy steps (for example, asking residents what type of events they want to host, creating a communal budget, or using a voting app).
  5. Moreover, the longer you wait to “upgrade” your community building model, the higher the switching cost will be (as you need to change your company culture, team structure, resident and brand expectations).

Personally, I can only conclude with one statement:

Don’t wait for community to build itself. Help it to build itself - it will build you back.

Thanks for leaving your comments and discuss your perspective on this topic.

Gui

PS: Some operators have reached out to me, asking whether we could launch a guide on how to create resident engagement (basically, moving from the “Top-Down” approach to the “Facilitator” one). If you’re interested, click here or just leave your name below 👇

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