How to Analyse the Location for Your Business?

Anish Sharma Anish Sharma Abhinav kumar Abhinav kumar
Dec 26, 2022 5 min read
How to Analyse the Location for Your Business?

The location of your business determines how much money you will save while running the business. Depending on the type of business you have, you need to figure out a number of things that directly impact your pocket. Analyzing the location that suits your business needs is one of the important factors that every business owner should consider.

Here is a detailed and to-the-point article to help you to decide the best location for your business. So, without further ado let's get started.

Factors Affecting Business Location

There are many factors that can influence your business location decision, and the success of your business depends on each decision you make. So despite talking about so many influential things, the three major factors that influence the business location are

  • Proximity to labour
  • Proximity to consumers
  • Proximity to raw materials

Proximity to labour refers to how close your business is to having the skilled workers you want in your business. For example, some companies want so many labourers to work in their firm and to fulfil this requirement they set up their plant near a location where they can get skilled labours at a cheaper rate.

The most prominent example of this is Bengaluru, where most of the IT companies are headquarters. IT companies choose Bengaluru because they easily get a relevant skilled workforce to work with them. Companies do not need to take care of the accommodation for the employees if they are local. The same is true for the IT hub in California.

Similarly, proximity to consumers is for businesses that want to position themselves closer to their target customers. Proximity to materials for businesses that require extensive raw materials to use in their firm. The closer your business is to your requirement the more money you will save and earn while running the business.

Nature of Your Business: Retail, Manufacturing and Service-Based

Just like a doctor who recommends various tests and after analysing the test report, prescribes the medicine. Similarly, you also need to know your business in-depth, and based on the requirement of your business, choose the location. The first thing which should be recognized is the nature of your business.

So to analyse the best location for your business we have categorised the business into three types based on its nature and evaluate each business with three parameters of proximity to labour, consumer, and material.

Location for Retail Business

If your business is a kind of Retail business then it needs to be closer to its consumers. The priority of this kind of business is to supply all the essential goods to consumers in a feasible way. You can find a relevant crowd for your business by analysing the people around your desired business location and identifying their needs. If their daily requirement supports what you sell, then that location is good for you.

For the retail category, the area should be crowded and busy. If that area is suitable for your business then it might be suitable for other retailers also, hence you can see your competition nearby. Proximity to labour and proximity to material doesn't play an important role for this kind of business but proximity to its consumer is the most important aspect.

For example, restaurants and cafes need to be situated near a busy area where there is a sufficient crowd.

Location for Manufacturing Business

Proximity to raw materials is the most critical factor for manufacturing businesses as it saves a lot of money and time in transportation and storage. Manufacturing businesses may also be located near the place where they get skilled labour at a cheaper rate. This is the reason, most manufacturers build their plants outside the town and cities.

In India, most of the manufacturing businesses like iron and steel plants are situated in the state of Jharkhand, West Bengal, Odisha, and Chhattisgarh in the cities like Jamshedpur, Bokaro, Bhilai, Rourkela, etc. The reason is simple, easy accessibility to raw materials and labour. Proximity to customers is not the most influential factor for such kind of business.

Location for Service-Based Business

Service-based business is not material-intensive hence it doesn't need to be set up outside the city and towns. You will find restaurants, cafes, schools, colleges, carpenter shops, etc within your city. Location may vary depending on the service your business provides, for example, if you are a videographer you don't need to think much about your location but if you are a restaurant owner then location is very important.
The location of the service-based business should be closer to its customers, the other two factors (labour and material) don't have that much influence.

Impact of the Internet: eCommerce Business

The Internet has changed the way of doing business. Today, so many businesses have their existence just because of the internet. One of the most well-known examples is the Ecommerce business.

The target customers for this business are not limited to any particular region rather the seller can sell their product to anyone across the country. The market is open and possibilities are limitless. Location doesn't matter a lot for such kind of business as it can be operated from anywhere.

Demographics and Purchasing Power of Customers

Every business owner should be aware of the demographics of their audience, and businesses should be near their potential customers. A successful business knows, who is the target customer and what they like to consume.

The revenue you generate will depend on the customers visiting your store and their purchasing power. If people in an area have more purchasing power then they consume more goods and more services.

Therefore, having an idea of the demographics and purchasing power of your potential customers around your business location would be beneficial for your business.

The Demand for Products and Services

What will happen when you open a non-veg restaurant in an area where everyone is vegetarian? Of course, this will affect your sales and therefore your revenue.

There must be demand for the product or service you sell at your desired business location. This aspect should be considered as it affects the overall sales volume. Demand determines the price you can charge for the product, if demand is high you can charge more and if demand is low then you have to charge low.

Conclusion

It becomes very important to choose the best location for your business as it has the potential to affect your business revenue in the long run. So take your time to analyse the location of your business and consider all the points mentioned above.‌‌

When you are just starting out, be smart and secure the place to operate your business. Also, keep in mind that your location may vary depending on the type of business and industry you are in.

FAQs

How to choose the right business location?

Consider the following factors before choosing the best business location

  • Competition
  • Demographics
  • Foot traffic
  • Infrastructure
  • Overhead costs

Is Location plays an important role in the success of your business?

Yes, location plays an important role in business development and profit-making as it directly influences the condition and environment of your business.

What kind of location would be best for your business?

The key to finding and choosing a good location is to evaluate factors such as footfall, labour and raw material availability as it will increase the number of customers and lower the cost of functioning.

What are the factors that affect the business?

The following are the factors that can affect the business

  • Proximity to labour
  • Proximity to consumers
  • Proximity to raw materials

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