You have a great idea for a business. The plan is ready to go, and you have your financing lined up. Now, you just need to choose your location to get started—but the right decision is not always obvious and calls for careful analysis.
In this guide, we’ll explain the concept behind business location strategy and some key considerations to keep in mind when choosing the best spot for your business. Plus, we’ll provide some examples of real business owners’ location strategies and how they worked out.
What Is a Business Location Strategy?
A business location strategy is your plan to find the optimal location for an organization. This requires an analysis of company goals and objectives and finding a location that meets them. Your company’s location strategy should align with any overriding corporate structure or strategy.
Some businesses require foot traffic, such as retail and restaurants. Medical practices and other healthcare facilities might prioritize patient access or proximity to growing neighborhoods. Yet others serve B2B customers, so location objectives may focus more on expense reduction.
Why Is a Business Location Strategy Important?
Having a strategy in place for choosing your business’ location is important because it allows you to make better decisions about choosing a location that balances all the things you need.
Business location, regardless of your industry, affects your operating costs and your stakeholders.
Think About Your Customers
Think about the type of customer you hope to attract. If your business location is off the beaten path, is difficult to find, or does not offer parking, that can be an issue. If you’re not in a safe neighborhood or one that’s well-lit and you have hours after dark, that can also be a problem.
An urgent care clinic, for example, may be fine in a strip mall with enough parking. However, a surgery center may need a more discreet location.
If your business caters to locals, you may be fine in a city center or congested area. If people travel from out of town, you’ll probably want to be near a major roadway.
If you run a B2B business, most of your business dealings might be handled face-to-face, online, or on the phone. In that case, where your business is located might not matter to your customers.
Think About Your Employees
Your business’ location can make a big difference in attracting and retaining employees.
For example, easy access to free parking or public transportation to and from can play a role. If an employee has to pay for parking every day, it cuts into their paycheck. You may prefer to open your business in a location with restaurants or coffee shops nearby to make it easy for employees to grab a meal or take a break.
Think About Your Suppliers
If your business needs to store substantial inventory, think about your supply chain. Faster delivery cuts down on your costs and gets products back in stock more quickly. Locations without street parking or in a difficult-to-access area may increase costs for deliveries.
How to Choose a Business Location
“Site selection is a process of elimination,” said Christine Wong Rambo, CEcD, MBA, certified economic developer, and president and founder at the economic development marketing firm Upsize Marketing Strategies.
Data should be your guide when choosing real estate for your business.
Data-Driven Site Selection
“The site selection process is driven by data,” said Rambo. “Collecting this type of data may be challenging if a company is not using a site selection consultant. Companies can partner with state, regional, or local economic development organizations to gather this information based on the company’s criteria.”
For example, in the healthcare sector, it’s common to do cohort analysis to find patterns in patients and care. The Agency for Healthcare Research and Quality provides detailed information on medical expenditures for cohort analysis.
Site selection criteria include a range of attributes, including:
- Location
- Size
- Real estate costs
- Site work needed
- Cost of doing business, including taxes
- Market potential
- Safety
- Competition
- Potential for future expansion
- Neighborhood reputation
- Zoning
- Visibility
- Available infrastructure
Consider Key Metrics
The elements or metrics most important to your business will determine your ideal business location. However, nearly every organization will have some common themes.
According to Rambo, most optimal locations will:
- Meet consumer or production demands
- Improve operational efficiency and costs due to proximity to other resources
- Lower overall business costs
- Offer sustainability and potential for growth
- Meet workforce requirements
- Provide a more favorable business climate
Consumer businesses that carry large inventories will want to consider the cost of warehouse space and distance from shipping hubs.
Access to a Skilled Workforce
“For the professional services sector, the ability to recruit a skilled workforce and proximity or access to a major client would be important considerations,” said Rambo.
Healthcare facilities, clinics, and medical practices may want to be located near hospitals or universities that train medical professionals for easier access to potential employees. Field service businesses may want to be near a community college, vocational tech school, or career training center. Businesses with a less-skilled labor force that pays lower wages may need to be near public transportation.
Access to Customers
“Your business can optimize its operations and market reach if it's located in the right location,” said Michael Hammelburger, CEO at business consulting firm The Bottom Line Group. “This is especially true for retailers and food-related establishments that take advantage of heavy foot traffic in areas during rush hour. When situated in the right location, they can reach more people and thus have the potential to sell more.”
For consumer-facing businesses, accessibility and safety for customers are key considerations. The same applies to healthcare facilities. Patients have to be able to access your facility easily and feel safe when doing so.
Consider the Long-Term Implications
Your business location strategy should be far-ranging to accommodate your future plans. If you are open to the possibility of expanding your footprint in the future, you want to make sure there’s enough real estate nearby to make that a reality—even if it may be years down the road.
“When you start a business, you may have assumptions on what business you are in, where you are located, and where your customers are,” said Joseph Meyer, financial consultant and business strategist at The Dollar Soldier. “These assumptions are locked in for your business. If you try to change those assumptions after you start, the risk of business failure grows.”
The assumptions you make today about your business location strategy can help or hinder your efforts down the road.
Examples of Business Location Strategies That Worked and Why
For businesses that rely on foot traffic or get regular visits from customers or patients, location is crucial. For example, 62% of patients said they selected a physician based on the convenience of the location. Fifty-eight percent of patients that had a choice of hospitals to use said they prioritized locations as a key factor in their choice.
The only factor that was more important than location was whether a practice or facility accepted a patient’s health insurance. After that key consideration, location ranked second.
For businesses that don’t rely on foot traffic or customer visits, the location selection strategy is quite different. Mold Busters, a field service company that handles mold removal, wanted a central location that was close to their customers.
“Our teams out in the field may gather supplies and equipment in the morning then travel to customers,” said Charles Leduc, Mold Buster’s COO. “A location that provides minimal miles in between locations or jobs helps keep expenses down.”
Ralph Severson, president at Flooring Masters, agreed.
“Our crews must be able to get the equipment and supplies that they need each morning with minimal travel time,” Severson said.
At the same time, Severson said they wanted a location that balanced the convenience with lower costs.
“We chose our location because it is only 10 minutes from Louisville, Kentucky, the most densely populated city in the area, but we are north of the Ohio River in Indiana, where overhead costs are lower,” he said.
Final Thoughts
The right location for your business plays an important role in your success. Businesses need to assess their overall goals and think carefully about how they are serving their customers and employees to optimize their strategy.
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Image courtesy of iStock.com/Orbon Alija