Choosing the best business location through a systematic location analysis

Office building, production plant or bake shop – choosing the right location for your start-up or established business is of incredible economic importance. But there are many other factors that must also be considered. You can be on the safe side with the help of a location analysis: Find the ideal location for any business by evaluating specially selected location factors. We are here to introduce you to the location analysis process and show you which location factors you must pay close attention to. Take advantage of our location analysis service which also includes an evaluation and location recommendation.

Location analysis and its meaning to businesses

There are some new businesses whose success is not hugely impacted by location. But then again there are others that have to close their doors due to a poor location choice. There is a reason why the address of the location and an explanation of the location choice are considered mandatory information when creating a business plan. But as a founder, how can you tell if the location choice is of special importance to your business and when does it make sense to conduct a location analysis? The type of business you are looking to start determines if the location is a relevant factor to your businesses’ success. If it is, it would make sense to conduct a thorough location analysis. Is your venture a sales center, such as a restaurant, a hairdresser or a retail store? In that case the number of walk-in customers may be of significant importance to you. That means the location can make or break your business, so an analysis is strongly recommended. Should you, however, plan to open an office for example, other factors come into play. For example, the availability of high-speed internet or additional services and amenities that you will need to have access to, such as a receptionist, meeting rooms or phone service may outweigh the location question because it is not as much of a priority in this case. Whether you are looking to open a new sales center, an office or a production plant, keep in mind that there are conditions, or so-called location factors, that are crucial to the success of your business. These factors vary greatly based on the nature of your business. Location analysis is widely considered the ideal tool to find the most promising location.

Identification of target audience and competition is key

We recommend that all new business founders analyze the corresponding market prior to conducting a location analysis. There are two essential factors that they must pay close attention to when analyzing a market: Identifying the target audience and the competition. Analyzing your target audience means asking about your main customer’s traits and characteristics. Who is the target audience? How old is my average client? What income does he or she have? Where do my customers live? If you can answer these questions, then you have a good idea of what your target audience is all about. Gathering this basic information really helps with asking this next round of questions: at which locations can my target audience be reached particularly well? Where does my target group like to go shopping? Is a shopping mall or shopping center a good fit for my business? Or does it make more sense to choose a location near a train station? Based on the results of the location analysis we provide you with a good overview on which locations provide the best exposure to your specific target customers. Evaluating the competition for each potential location is crucial because every location offers limited sales potential. The stronger the competition, the more the sales are divided between the different competitors. Therefore it is strongly recommended to conduct a competition analysis and eliminate all locations from your list with a high number of competitors nearby.

Location analysis for retail businesses

The retail industry is without a doubt the most dependent on a good location. The following location factors are crucially important for retail businesses such as bakeries, butchers, grocery stores, clothing stores, shoe stores and electronics stores:

Impact Area

  • The bigger a community or a city, the bigger its impact area. A bakery is not reliant on a large impact area, however, to an electronics store the impact area is of great importance. The impact area is a crucial location factor in any location analysis because it gives you an idea about the approximate number of customers in the area.

Spending Power

  • Spending power is a term that describes the average income of customers in the area. It is significantly higher in some areas than in others. This is also reflected in the prices.

Walk-In Customers

  • Many retail businesses count on walk-in customers who are making impulse purchases. They are typically not part of their regular customer base. A good method to compare walk-in customers of two separate locations is to count and compare them on the same afternoon.

Parking/Accessibility

  • Essential retail location factors are good public transportation accessibility and parking availability. You can research online, contact the transit authorities or check out the situation on-site.

Competition

  • If the number of competitors in the immediate neighborhood is high, then the only way to stand out is a special unique selling point (USP). Too much competition often ends in relentless price wars and declining sales. An obligatory competitive analysis should therefore be conducted

Location Appeal

  • A location may become more attractive to customers when there are other retail stores nearby that compliment your business. When choosing a location make sure that there are other retailers in the close proximity. Some competition may even add to the appeal of the location and have a positive impact on sales.

Rent

  • The rent amount for a retail location is driven by how attractive a location might be. If you are expecting many customers and high sales at your location, the rent amount may be higher than it would be for other locations with less sales potential. The decision to choose a high-end A-location or a B-location depends on the business owner’s financial situation.

Besides spending power, impact location and competition there are some additional location factors that a location analysis for a manufacturing businesses must look at:

Suppliers & Warehouse

  • Manufacturing businesses usually produce some type of goods. In order to make these, raw materials or components from external suppliers are required. It is necessary to check whether all required suppliers are located near the selected location. In addition, the goods often have to be stored, which is another important factor for location analysis (large warehouse).

Purchasing Cost

  • An equally important factor in location analysis is the average level of purchase prices of raw materials and the amount of transport costs up to the location.

Transportation route

  • Production companies often get large quantities of raw materials delivered. For this purpose it is important that the traffic routes from the supplier to the warehouse can be accessed even by large trucks so that the location is easily and quickly reachable at all times.

Proximity to the customer

  • The direct proximity to the customer can be a deciding factor for production plants. This is something that should be considered during a location analysis.

Regulations for manufactoring businesses:

  • Some manufacturing businesses produce a lot of hazardous waste, a lot of noise or harmful fumes. Therefore not every location allows every type of manufacturing!

Evaluating the results

Depending on the number of location factors and location choices the evaluation of a location can be a process that costs a lot of effort. However, despite of the fact that it is very time-consuming: a location analysis must be handled very thoroughly, because incorrect evaluation results may lead to choosing the wrong location. – which has the potential ability to doom a business before it has even really opened its doors. Therefore it is of crucial importance for the future success of your business to be mindful when selecting the relevant location factors and evaluate accurate and valuable data only.

Consultinghouse Andreas Wilke

Andreas Wilke

M.A., Client Relations
+49 6181 250 334
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