“In business, wrong location leads to suffocation.” - Mokokoma Mokhonoana
For businesses, whether big or small, location is crucially important. Business location not only affects a company's costs and revenue as well as its ability to serve the customer. Getting the wrong location can have serious consequences for the business. In this article, you will learn what makes a good business location and how to set up a location strategy to ensure success.
Definition of business location
First, let's find out what a business location is and why it is important for a business.
Business location is defined as a place or structure occupied by a firm to run its operations. This includes any structure or establishment used in conducting a business.
Starbucks places its coffee houses in high-street, high-visibility locations in various settings, including downtown and suburban areas. You can also find Starbucks in office buildings, university campuses, and off-street highway locations.1
A good business location aims to provide an advantage to your business by creating a balance among:
Some examples of good business locations include the M4 corridor for tech companies, tourist attractions for hotel businesses, and the city centre for coffee shops.
Business location factors
Factors influencing the choice of a business location can be split into:
Supply factors
Demand factors
Figure 1. Factors that influence business location choices, StudySmarter
1. Supply factors
Supply factors examine the cost of running your business operations in a location. Some of these supply factors include:
Labour - The cost of employing labour to carry out the same task differs according to location. An excessive presence of labour in a particular location can increase the cost of employment, as opposed to a location with little available labour.
Land cost - Due to rentals or outright purchases, land cost varies among different locations. The facilities provided after rentals/purchase or development can also affect land costs.
Non-financial factors - Non-financial factors like political stability, language, social amenities, and governmental support can influence the choice and cost of hiring a business location.
Energy cost - The cost of energy varies among countries, types of business production and the number of employees hired. For example, the energy costs in the UK are different from those in Germany.
Transportation cost - This includes the cost of transporting raw materials, stocks, finished products, and other necessary business input from/to a business location. It is necessary that a business location be close to its raw materials or services supply to reduce transportation costs. An example of this is the food processing industry, where business locations are usually close to the farm.
2. Demand factors
Demand factors affect services provided to your customers and your business revenue. These include:
Skilled labour - Businesses prefer locations where the right expertise can be found. An example is an M4 corridor in the UK which houses the majority of the UK technology sector.
Location suitability - Some businesses perform better in a certain environment. For example, in the hospitality sector, hotels are usually found in popular tourist attractions.
Customer ease - A business has to be located where its customers will have ease of access to its products or services. For example, a coffee shop creates ease through its location in the city centre.
Future expansion - A location that doesn’t provide the flexibility for future expansion might not provide a good business location. An example is a manufacturing business that has a lot of potential for growth and expansion. Choosing a larger venue in the beginning will give the business more flexibility to expand its facility later.
Importance of business location
Choosing the right business location is vital to business operations and success. Here are some key benefits of a good business location:
Attract and retain workers with the required skills and talent.
Provide a balance between business costs and business revenues.
Offer the necessary infrastructure for your business growth. These infrastructures include a good transport system, gas pipes, and road networks.
Position your business to fully benefit from government policies, grants, or loans.
Ensure the smooth running of your business operations.
Provide an ideal location to get enough traffic for your business or to keep your business confidential.
Business location strategy
A business location strategy is a plan used to find the best location for your business to reach its goals and objectives. A good business location strategy usually involves location analysis.
Business location analysis is a process wherein a business compares different locations' characteristics in order to select the most suitable location. Here is what is included in such an analysis:
1. Demographic analysis
This considers the population of a location. It takes into account the population's average age, age composition, income, skill level, education level, and occupation, as well as regional governance.
2. Location area analysis
This type of analysis considers the potential areas that will provide the most customers to your business. It also analyses the ease with which these customers can reach your business location.
3. Competition analysis
This examines the presence of competitors in the chosen business locations, especially in terms of strengths and weaknesses.
4. Traffic analysis
This analysis compares the number of people passing your different business locations during working hours. These include both automobile and foot traffic. The goal is to find a location that will provide your business with the greatest exposure.
5. Economics of location analysis
The analysis aims to reduce the cost of operations and investment for your business. Operational costs are those involved in the daily running of your business.
In conclusion, a good location is essential for the growth and success of your business. The ideal business location should provide the least risk, low operational costs, a big market presence, and less competition. It should also provide your business with advantages to help achieve your business goals.
Business location - Key takeaways
- A business location is defined as a place or structure occupied by a firm to run its operations. This includes any structure or establishment used in conducting a business.
- A good business location aims to provide an advantage to your business by creating a balance of the following:
Business location factors that influence the choice of a business location can be broadly grouped into:
Supply factors
Demand factors
A business location strategy is a plan used to find the best location for your business to reach its goals and objectives.
Business location analysis is a process wherein businesses compare different location characteristics in order to select the location best suited to your business.
Sources:
1. Nithin Geereddy, Strategic Analysis Of Starbucks Corporation, Scholar Harvard Education, 2013.
2. Staff, 10 Reasons Why Location is Important in Business, rovva.com, 2022.
3. Staff, Factors to Consider When Choosing a Business Location, businesstown.com, 2022.
4. Matt D'Angelo, Tips on Choosing The Right Location for Your Business, businessnewsdaily.com, 2021.
5. Alex Saez, The Key Features of an E-Business, smallbusiness.chron.com, 2022.
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