Made in Baltimore: Business Planning for Makerspaces

Will Holman

Will Holman is the general manager of Open Works. A maker himself, he is the author of Guerilla Furniture Design, out now from Storey Publishing.

70 Articles

By Will Holman

Will Holman is the general manager of Open Works. A maker himself, he is the author of Guerilla Furniture Design, out now from Storey Publishing.

70 Articles

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The business of makerspaces is hard. They are capital-intensive, staff-heavy ventures that have to juggle a lot of different income streams. And, they’ve only been around (in a commercial sense) for about a decade, and no ideal business model has yet emerged from the churn.

So, you’ve got to put in the work to build a business plan: research, pro-formas, market analysis, and setting pricing. But, there are also many assumptions that can’t be tested until the doors open. The final plan shouldn’t be a static blueprint, but more of a living document that will guide your business decisions.

Generally speaking, business plans have 6 main sections: an executive summary, company description, market analysis, organization and management, description of products and services, and a marketing plan. The Small Business Administration has some great online tools and downloadable templates to help you navigate the process. In order to generate a pro-forma and set pricing, the market analysis and description of services are the most important sections.

Industry and Market Analysis

Markets operate at a number of different scales. The price of oil, for instance, may be affected by events all over the globe; the price for getting your oil changed, however, may be very dependent on where you live. Makerspaces fall somewhere in the middle of this spectrum: some makerspace services, like 3D printing and laser-cutting, are available globally through companies like Shapeways or Ponoko. Other lines of business, like teaching classes, are hyper-localized.

There are two ways to zero in on comparative pricing: Industry analysis (looking at your competitiors) and market analysis (looking at your audience). At Open Works, we looked at both to figure out our best pricing strategy.

Occupation audience pie chart

Occupation audience pie chart

  • National: using the Hackerspace Wiki and other resources, we compiled data on 318 makerspaces nationally including square footage, membership base, membership cost, zip code, and facilities offered. We used zip codes of makerspace addresses to pull income data from the U.S. Census Bureau and get a sense of how membership prices related to people’s income in different regions.
  • Regional: we dialed in on about 15 makerspaces of similar size that provided a more precise comparison point. We looked for facilities in cities with similar profiles as Baltimore in terms of size and demographics: Pittsburgh, Cleveland, Columbus, and St. Louis.
  • Local: we spent a lot of time getting to know our Maker neighbors here in Baltimore. This led us to prevent duplication of services – for instance, it is why Open Works doesn’t have a ceramics kiln, a silkscreen shop, or a jewelry studio. We also pulled data on how much classes cost at all of these spaces (and makerspaces nationally) to arrive a rough retail-cost-per-hour so our services would be in line with the market.
  • Demographics: returning to the Census bureau website, as well as Policy Map, Cappex, and the Bureau of Labor Statistics, we compiled data on employment in “Maker” economy sectors and enrollment in “Maker” degree programs at local colleges. Those sectors included engineering, computer science, woodworking, metalworking, fine art, building trades, architecture, and design. This gave us an idea of our core audience size and characteristics. And, as a nonprofit, the data from Policy Map reinforced our case to potential funders that we were bringing new services to underinvested neighborhoods.

College audience pie chart

Description of Services

Makerspaces generally have two main lines of business, membership and classes. In smaller, club-type makerspaces, the membership fee may take the form of dues; in larger, for-profit makerspaces, it is a formal monthly billing cycle like a gym membership. Classes fall into several categories, including project-based, skills-based, and safety orientations. Depending on the size of your space, and the equipment available, you may also be able to rent studio space or offer contract fabrication services.

Membership: the biggest and most important line of business for any makerspace is membership fees, which generates about half the income for most for-profit or social enterprise makerspaces. However, calculating the prices and total capacity is tricky. The analysis we did of makerspaces nationally suggested that, on average, a space can support 1 member per every 63 square feet. That means Open Works, at 34,000 S.F., can theoretically support around 550 members. This is a rough tool; Tech Shop for instance, manages twice that membership in half the space across all of their spaces.

As for pricing, most makerspaces offer access to tools bundled by either time (nights, weekdays, weekends, etc.) or service (woodshop, sewing studio, etc.). These bundles can be administered with technology like keycards or by staff supervision. We ran almost a dozen membership scenarios in Excel that delimited memberships different ways at different prices before we hit on one that offered the best mix of affordability and revenue potential.

For instance, a fully a la carte membership program – pick any combination of shops for $25/each per month – offered the biggest revenue potential but was an administrative nightmare. Offering time-delimited memberships – weekend, night, and weekday – maximized use of the space, but set up incentives for members to skirt the rules. We settled on bundling the shops by the way our facility was designed: upstairs (light) fabrication, downstairs (heavy) fabrication, or altogether. Prices will be released when our website goes live next month.

Once you build a simple model in Excel, with formulas to calculate total income, it’s pretty easy to play around with prices and number of members. Tinker around with a number of different scenarios until you find one that feels realistic and can cover your costs.

A partial example of an income pro-forma

An example of an income pro-forma

Education: classes are an important part of any makerspace. The most basic class that has to be offered everywhere is the shop orientation – a safety class that acquaints newcomers with heavy machinery. Most spaces try to keep the cost of these classes low, as they are a mandatory step to utilizing a membership.

From there, we categorized classes into three verticals: project-based, skill-based, or youth. Project-based are 1-4 hour experiences where a student executes a project start-to-finish and walks away with a tangible item at the end (i.e. How to Build a Birdhouse). Skills-based classes tend to be several recurrent sessions, and teach basic competency in something (i.e. Welding 101). Youth classes are their own universe; dozens of terrific resources for youth maker education are available online, including Baltimore’s own Digital Harbor Foundation.

Calculating a cost structure for classes can be a little complicated because there are a lot of variables. In general, you have to account for teacher pay per hour, marketing cost, space overhead, and consumables. On the income side, you need to set a minimum enrollment and price-per-participant that will cover your costs. A profit should kick in once you enroll more than the minimum number of students.

Space rental: not all makerspaces are big enough to accommodate this, but at Open Works we will have 142 small cubicles for rent. Each will be equipped with a workbench, a storage locker, and Wi-Fi. Other makerspaces do it differently, renting out enclosed offices, open workbenches, or event space. Depending on your location, this can be a great way to build an embedded community and strengthen your revenue.

Contract work: digital fabrication tools (laser cutters, CNC mills, vinyl cutters, and 3D printers) offer a great opportunity to provide contract services to non-members. In early mornings, overnight, or dead spots in the week, you can utilize machine time for profit by running a job shop for prototypes, signage, architectural models, CNC-milled furniture, or cabinetry parts.

An example expense pro-forma

An example expense pro-forma

Pro-forma

The last step in all of this business planning is to build out a pro-forma spreadsheet that itemizes and totals up all of your expenses and revenues in one place. On the expense side, you’ll have rent or a mortgage, staff salaries, insurance, IT services, software subscriptions, taxes, credit card fees, web hosting, utilities, shop maintenance, and trash removal. The costs are fairly concrete and easy to estimate.

Revenues, on the other hand, are subject to some estimating. The best way to account for the unknowns is to work backwards from the capacity of your space. At Open Works, for instance, we have two classrooms and we will be open 80 hours a week. This translates to a total of 19 3-hour time slots per classroom per week. If we had classes running 38 times a week, that would represent 100% utilization. Now, that’s probably an unrealistic density, so we calculated what our class revenue would look like at 75%, 50%, and 25% utilization. You can do the same thing over time, so you can see how your revenue will grow month-to-month over the first year or two. This may affect your programming, marketing, and pricing plans – for some spaces it is more important to break even early; for others, it may make sense to build slowly but more sustainably.

For our next post, we’ll discuss how all of this business planning, fundraising, and community development translated into the physical design of our space.

Construction Update

Since the last post, we have:

1. Finished replacing the roof.

2. Finished the floors in the electrical, mechanical, and storage rooms.

3. Poured the sidewalks up to the front door.

4. Began installing windows and doors throughout the space.

Finished sidewalks up to the main entrance. Business planning

Finished sidewalks up to the main entrance.

Finishing the floor in the member storage area.

Finishing the floor in the member storage area.

Insulating the roof and putting down a new membrane. Photo by Will Holman

Insulating the roof and putting down a new membrane. Photo by Will Holman