That’s fifty quid a month virtual office client. Looks like easy money, doesn’t it?
A nice little top-up to your coworking space’s income.
Multiply that by, say, 50 clients, and you’re suddenly dreaming of a cool £30,000 dropping into your bank account each year.
And for what?
Just handling a bit of mail, right?
It’s a tempting thought, especially when you’re battling London’s brutal market.
But hang on a minute.
Before you start mentally spending that cash, let’s ask a really uncomfortable question:
Is that £50 client actually costing you £100, or maybe even more, in hidden admin, compliance grief, software fees, and precious staff hours?
It’s time to ditch the spreadsheet fantasies and do the real sums on your virtual offices.
Some Context
Let’s be straight.
Running an independent coworking space in London is bloody hard work.
Rents are insane.
Business rates sting.
Energy costs are all over the place.
And the competition is fierce.
Margins are often wafer-thin.
In this kind of pressure cooker, the promise of Virtual Office (VO) cash can feel like a lifeline.
A smart way to bring in more money and make your assets work harder.
As Hector Kolonas, the brains behind Included and Synceroo, put it on the Coworking Values podcast:
“You’re limited by the square footage through which you can sell… what are the additional services or additional products and offerings that we can add to sell to either our existing members or to the public that don’t require us to grow the space in square footage?”
VOs seem like the perfect answer.
You’ve got the address.
You’ve got the team.
So why not use them to make a bit extra?
It’s a logical thought, usually driven by sheer financial need.
But here’s the catch.
This understandable scramble for revenue can blind operators to the sneaky ways VOs, especially when they’re under-priced and badly managed, can quietly bleed your resources dry and become a massive financial drain instead of a money-spinner.
Underestimating the true, all-in cost of running a VO service in London is a surefire way to lose money while kidding yourself you’re making it.
Calling Out the Fantasy
The seductive myth about VOs is that they’re pretty much “pure profit” once you’ve got them set up.
The idea is that the systems are in place, and the cash just rolls in with hardly any ongoing effort.
This is fundamentally, dangerously wrong, especially in London’s highly regulated jungle.
The biggest hidden cost, the one that really murders your profitability, is staff time.
Sorting mail isn’t just popping letters into a slot.
It means logging items, telling clients, handling specific instructions (scan it, forward it, hold it, shred it), dealing with parcels, managing returns, and chasing up clients who haven’t bothered to collect their post.
Then there’s the never-ending Customer Due Diligence (CDD/KYC) palaver.
Verifying IDs, checking who really owns the company, doing risk assessments, keeping records perfectly updated, and doing ongoing monitoring.
Add to that the time spent chasing late payments from VO clients who often couldn’t care less, handling customer service questions, and dealing with the inevitable compliance paperwork and potential inspections.
This isn’t some background task you can ignore.
It’s a massive operational overhead that needs serious focus and a lot of hours.
Vendors flogging VO software might bang on about automation, but automation only smooths out bits of the process.
It doesn’t get rid of the need for human oversight, judgement, and intervention, especially when it comes to compliance and actually talking to customers.
The fantasy of effortless, automated income conveniently ignores the huge, ongoing human effort needed to run a VO service legally and effectively.
As Hector Kolonas rightly points out, just adding a service isn’t enough:
“Where people start getting tripped up is in the pricing… What the traditional thing is to do is to look at what everyone else is charging and charge something similar, which is great until you start looking at six months, a year down the line, you sold a whole bunch of these things… but it actually hasn’t increased your profitability and your team is increasingly burnt out.”
The Reality: Unmasking the Costs That’ll Make Your Wince
To figure out if your VO service is a profit-maker or a secret cash drain, you need to do a brutally honest cost audit.
Forget that simple £50-a-month revenue figure and start adding up everything.
Hector Kolonas talks about the difference between “good revenue” (any money coming in) and “great revenue” – cash generated through efficient processes that genuinely boost your profits without crushing your team.
He warns:
“If you’re spending €2 Five euros for every euro you bring in in your team’s time, processing the sales, doing correspondence, doing marketing, updating platforms, onboarding customers, chasing invoices… sometimes you find that you’re spending more in effort and in money than you’re actually bringing in, which is a scary place to be.”
Let’s break down the real costs you need to get a grip on to avoid that scary place:
STAFF TIME COST – THE PROFIT KILLER
This is the most underestimated expense by a mile. Don’t just guess; track the time or make some realistic estimates. How many hours per client per month does your team actually spend on:
- Mail Sorting & Logging? (Be honest, it’s more than you think)
- Mail Forwarding/Scanning/Shredding? (Fiddly, isn’t it?)
- Client Notifications & General Chit-Chat?
- Initial KYC/CDD Checks (ID verification, checking who really owns the company)?
- Ongoing Monitoring & Keeping Records Updated?
- Chasing Late Payments? (The bane of everyone’s life)
- General VO Client Support & Answering Daft Questions?
- Compliance Admin & Reporting (HMRC/LLA)?
- Staff Training on All This Compliance Crap?
Add up these hours and multiply them by your fully loaded hourly staff cost (that’s salary, NI, pension, benefits, the lot).
Be pessimistic – it’s probably higher than you think. Even just 1-2 hours per client per month will chew through that £50 revenue faster than a hungry dog.
As Hector highlights, rubbish systems mean “you’re not just adding another to-do list item to that person’s day… You’re actually stopping them from doing whatever else they were going to do… because they’re now distracted trying to figure out this new interface.”
TECH STACK COSTS (THE NEVER-ENDING SUBSCRIPTIONS)
Running a modern VO service means paying for specific tools, and they all want their monthly slice:
- VO Management Software: Platforms designed to handle mail logging, client notifications, and billing (like SphereMail, Anytime Mailbox, or bits built into coworking software like Nexudus). These often charge per client or have tiered pricing.
- KYC/ID Verification Tools: Services like Stripe Identity, Veriff, or Onfido are often vital for doing remote ID checks properly and staying compliant. They usually charge you per check.
- CRM System: Essential for managing client data, comms, and billing, if it’s not already part of your main coworking platform.
- Secure Cloud Storage: For keeping sensitive client verification documents and compliance records safe.
- VoIP Phone System: If you’re offering call answering, factor in the cost per line and per user. The fact that these tools often don’t talk to each other properly just wastes more time. Hector notes, “None of the systems look the same… every time you want to jump between these two systems, our brain has to take a break and reassess… what is one to-do list item… is actually five, six jumps between different interfaces and completely wrecking that person’s workflow.”
COMPLIANCE OVERHEAD COSTS (THE BITS YOU CAN’T DODGE)
These are the non-negotiable costs of playing by the rules:
- HMRC TCSP Registration Fee: Currently £100 per premises, plus Fit & Proper test fees for every BOOM.
- LLA 2007 Registration Fee: Varies by London borough, but usually another fee per premises.
- Mandatory Staff Training: Costs for external courses or the internal time you dedicate to AML/compliance training.
- Potential Legal/Consultancy Advice: Stick some cash in the budget for when you need an expert to explain some complex compliance nonsense.
- Increased Insurance Premiums: Your professional indemnity and liability insurance might go up because of the extra risks that come with TCSP activities. Get a specific quote.
- Data Protection (ICO) Registration: Standard business cost, but make sure you’re complying with GDPR for handling VO client data.
DIRECT MAIL HANDLING COSTS (THE LITTLE THINGS THAT ADD UP)
Seemingly small costs that can mount up quickly:
- Postage: Especially if you’re forwarding stuff internationally.
- Envelopes & Packaging Materials.
- Scanning Equipment/Software/Service: If you’re offering scan-to-email.
- Secure Shredding Services.
OPPORTUNITY COST (WHAT ELSE COULD YOUR TEAM BE DOING?)
What else could your team be achieving with the time they’re currently wasting on low-margin VO clients? Could they be making the experience better for your high-value physical members, developing new services, or actually building your community? This is a real cost, even if it’s harder to stick a number on.
REALISTIC BREAK-EVEN CALCULATION (THE MOMENT OF TRUTH)
Right, let’s put it all together. Add up all your monthly fixed costs (software, amortised registration fees, insurance increase). Then estimate your average variable cost per client per month (staff time, postage, KYC checks). Now, divide your total fixed costs by (your average monthly revenue per client minus your average variable cost per client). This tells you how many VO clients you need just to break even.
Example (Just to give you an idea)
Fixed Costs = £300/month.
Staff Time = 1.5 hrs/client @ £25/hr = £37.50.
Other Variable Costs = £5/client.
Total Variable = £42.50.
Revenue = £50/client.
Margin per client = £7.50.
Break-even = £300 / £7.50 = 40 clients.
You need 40 clients just to cover your costs, before you make a single penny of actual profit. Is your pricing anywhere near realistic?
Hector warns about this exact danger.
“That’s a very big pain that we’re seeing with a lot of operators… they don’t really think through if 40% of their revenue comes from that, but you’re losing money on every transaction.”
The Cultural Cost – When Pennies Poison the Vibe
The financial strain of an unprofitable or barely profitable VO service will inevitably hit your space’s culture.
When your team feels like they’re constantly chasing pennies from demanding, low-engagement VO clients, resentment starts to build.
It distracts them from the core mission of looking after your physical members and creating a brilliant community.
Staff burnout becomes a serious risk, especially if they’re copping the flak from difficult clients or stressing about compliance without proper support or resources.
As Hector puts it, the lack of efficient systems leads directly to burnout:
“That all happens because no one has really implemented the systems, the automations, or the procedures to make those revenue streams efficient.”
What’s more, if your VO service is seen as cheap and purely transactional, it can subtly devalue your whole brand.
Does the constant stream of non-members just picking up mail dilute the sense of community you’ve worked so hard to build?
Does the financial pressure force you to cut corners elsewhere in the business?
Chasing what looks like easy VO money can inadvertently poison the well, hitting staff morale, the member experience, and the very identity of your coworking space.
The Opportunity – Pricing for Profit & Real Value, Not Just Hope
The answer isn’t necessarily to ditch VOs completely.
But to go into them with your eyes wide open and a realistic financial game plan.
Stop playing the race-to-the-bottom game on price.
Your VO service, especially in London with its double whammy of compliance, carries significant operational costs and risks.
Your pricing must reflect this.
- PRICE REALISTICALLY (FOR GOD’S SAKE): Based on your true cost breakdown, figure out a price point that gives you a healthy profit margin. Considering the staff time and compliance overheads, a minimum price of £100-£150+ per month in London seems a lot more sensible than £50 if you want a compliant service. Don’t be scared to charge what it’s actually worth.
- FOCUS ON QUALITY, NOT QUANTITY: Go after clients who value a professional, reliable, and compliant service, and are willing to pay a fair price for it. A smaller number of profitable, low-hassle VO clients is infinitely better than a huge volume of loss-making, high-maintenance ones.
- TIER YOUR SERVICES (GIVE THEM OPTIONS): Offer different packages (Basic Address, Mail & Comms, VO Pro with meeting room credits) at different price points, making sure even your most basic tier covers its fully loaded costs.
- USE TECHNOLOGY SMARTLY (TO CONTROL COSTS, NOT JUST AUTOMATE): Use software (like integrated platforms from providers such as Nexudus) not just to automate bits, but to control your costs and ensure compliance efficiently. Streamline your onboarding, mail logging, notifications, and billing to cut down on manual effort where you can, freeing up your staff for tasks that actually add value. The goal, as Hector emphasizes, is efficiency: “Obviously, if you systemize and you automate and you process all of that stuff, you land up at a point where you’re making 30 cents on the dollar… And then you can optimise that to get to 80 cents, 85 cents on the dollar.”
- BE CRYSTAL CLEAR (NO NASTY SURPRISES): Clearly tell people what’s included and what costs extra (e.g., huge volumes of mail, specific forwarding requests, using meeting rooms beyond their allowance). Manage their expectations from the get-go.
By understanding the true costs, pricing properly, and focusing on delivering a valuable, compliant service through efficient systems, you can potentially turn your VO offering from a hidden financial drain into genuinely “great revenue”.
A profitable and sustainable part of your coworking business.
But it means ditching the fantasy, facing the financial reality head-on, and investing in the processes to make it actually work.
This article is brought to you by the London Coworking Assembly, a grassroots network of coworking operators, community builders, and advocates shaping the future of work in London and beyond.
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