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Business Location

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Business Studies

“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:

  • Operational costs (the daily costs incurred to run your business),

  • Potential revenue

  • Target customers.

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

Business location, Factors that influence business location choices, StudySmarterFigure 1. Factors that influence business location choices, StudySmarter

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.

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.

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.

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.

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 operational cost - the daily costs incurred to run your business

    • Potential revenue

    • Target customers

  • 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.

Business Location

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 google business location reduces business risks while lowering operational costs and competition. It also provide the business with the opportunity to reach as many customers as possible and maximise revenues. 

A good business location aims to provide an advantage to your business by creating a balance among:

  • The business operational costs,

  • The potential revenue,

  • The target customers.

Business location factors to be considered when choosing a business location can be broadly grouped into:

  • Supply factors 

  • Demand factors 

Examples of good business locations include the M4 corridor for Technology business, a tourist attracting location for hospitality business, and a city centre for a coffee shop. 

Final Business Location Quiz

Question

Define business location

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Answer

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. 

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Question

Market advantage provided by a good business location to businesses includes

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Answer

Market advantages provided by good business location good business locations include - 

  • Reducing a business operational cost 

  • Boosting potential revenue that can be generated,

  • Bringing customers the business operations are targeting. 

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Question

Give three examples of good business locations 


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Answer

Examples of good business locations include the M4 corridor for Technology business, a tourist attracting location for hospitality business, and a city centre for a coffee shop. 

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Question

What are the factors that influence choice of business location?


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Answer

The factors include labour, future expansion, location sustainability, transportation cost, land cost, customer ease and energy cost. 



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What do the demand factors examine?


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Answer

Demand factors examine factors that affect services provided to your customers, and your business revenues.

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Question

Factors examined by the supply factor are?


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Answer

Labour cost, energy cost, land cost, transportation cost, non-financial factors 

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Question

 Explain location suitability as a factor influencing business location decisions.


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Answer

There are some businesses that perform better in an environment with some certain unique characteristics. Example of this is seen in the hospitality sector, hotels are usually located in areas where the guests will find attractive. 

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Question

Explain non-financial factors as a factor in choosing a business location 


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Answer

Non financial factors such as political stability, language, presence of necessary social amenities, governmental support can also affect the cost of running business activities in a particular business location, thus influencing business owners choice in selecting a business location. 

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Question

Name three benefits of a good business location 


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Answer

  • Attract and retain workers with required skills and talent. 

  • Provides a balance between business cost and business revenues. 

  • Offer necessary infrastructures needed for your business growth. These infrastructures include a good transport system, gas pipes, and road networks.  

Show question

Question

What is a business location strategy?


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Answer

A business location strategy is a plan used to find the best location for your business to reach its goals and objectives.

Show question

Question

What is a business location analysis?


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Answer

Business location analysis is a process where a business compares different locations characteristics in order to select the location best suited for your business.

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Question

What is a business operational cost?


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Answer

A business operational cost is the cost involved in the daily running of the business. 

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Question

Explain what you understand by traffic analysis 


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Answer

Traffic analysis is used to compare the amount of traffic between different business locations during the business working time. This includes traffic from people walking and driving, and it is usually done to get a location which will provide the biggest exposure for your business. 

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What does demographic analysis do?


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Answer

This analyses a location population. It takes into account the population average age, age composition, income, skill level, education level, occupation and governance. 

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Question

Which of these is/are correct 


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Answer

A good business location strategy involves a lot of business location analysis 

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Question

Skilled labour, _______, customer ease, and future expansion are examples of demand factors influencing business location choices. 

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Answer

location suitability

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Question

In the hospitality sector, hotels are usually found in popular tourist attractions. This is an example of which factor influences business location choices?

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Answer

Location Suitability

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Question

Choosing the right business location allows the business to _______ workers with the required skills and talent. 


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Answer

attract and retain

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What is not a benefit of choosing the right business location?

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Answer

Balance business costs and business revenues

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Question

The cost of setting up and running your business in the different locations is analysed in the _______


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Answer

economics of location analysis

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Question

_______  takes into account the population's average age, age composition, income, skill level, education level, occupation as well as regional governance. 

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Answer

Demographic Analysis 

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Question

Your ideal business location should provide the least risk, low operational cost, big market presence and less competition. 

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Answer

True

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