Over the last few months I’ve received the following question two times: what percentage of our revenue should we be spending on office space? Rarely do I like top-down approaches, rather I prefer doing a bottom-up approach whereby the most basic ingredients are analyzed to come up with a number. For office space costs, focus on the type of environment you want to have and the projected number of employees. Here are some examples:
- Co-working environment or scrappy sublease — $100 – $250/employee/month (most desirable if it works for your startup)
- Creative office or decent class B office building — $300 – $500/employee/month
- Swanky office building with nice finishes and great views — $500 – $1,000/employee/month
Generally, I like to recommend budgeting $500/employee/month for a nice office as I’m a big proponent of the office being a direct reflection of the company and its corporate culture. So, for a startup with 30 employees, $6,000/employee/year results in an office space budget of $180,000/year. There’s no perfect fit for all companies but for technology startups that are growing, I like investing in a great office.
What else? What are your thoughts on the percentage of a startup’s revenue that should be spent on office space?