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Correlation Between Location and Business Results

Jul 6 2016

Darren Best

Business's location doesn’t only directly influence the revenues but it can sometimes also be a decisive factor in success or failure. This is because it is much more than just an address. It has a huge impact on virtually every business segment including:

Cost of Operation

There is obviously a big difference if you rent/buy business premises in the very heart of London or on the edge of town. The cost drops dramatically the further you move from the UK capital, while businesses relocating to areas with higher rates of unemployment may also be eligible for various government incentives: grants, loans with lower-than-average interest rates and tax breaks. But even though the cost of renting or buying business premises is extremely important for the overall cost of operation (the City is clearly not in everyone’s reach), it usually isn’t the key factor in the selection of location.

Clients/Customers

Despite the fact that the cost of renting and buying business premises is always the highest in city centres and industrial parks with high concentration of successful businesses, many companies, both small and large, are willing to pay the price. This is because a hot location doesn’t only increase their prospects to attract more clients/customers. It also helps them attract clients/customers with deeper pockets. So while paying more to buy or rent their premises, businesses headquartered in the most desirable locations are typically also earning more. Much more than those operating in city fringes.

Labour Force

In addition to helping the business win more and “bigger” clients/customers, a great location also helps them attract more and higher skilled labour force which is especially important for high-tech companies and businesses that depend on educated staff. On the other hand, companies that seek to reduce labour costs often decide for locations with good supply of low-cost labour, with some even moving their premises overseas. Either way, the choice of location plays a very important role in recruiting the right type and sufficient number of staff, no matter if the company is looking to employ highly skilled professionals or reduce the cost of production by reducing labour expenses.

Performance

Locations with poor transport links, insufficiently developed telecommunications network and other problems with basic infrastructure will obviously be less expensive than those with all the necessary structures and facilities. But in the end, they can turn up very expensive. Expensive enough to seriously jeopardise the business’s performance.  This is because poor infrastructure can dramatically increase the cost of getting supplies into the premises and products to the market. Also, if the company is difficult to reach, getting new clients/customers can be very problematic. Likewise, inefficient transport network can make it very difficult to attract sufficient number of staff with the necessary skills.

Competition

High concentration of competing companies in a small area can either have a positive or negative impact on business growth. It may sound strange, but it is sometimes good to be near the competitors, especially when the demand exceeds the supply. However, too many competing businesses in a small area can make it extremely difficult to attract new clients/customers and retain the existing ones. The same goes for recruiting the best staff (at the best price). Again, it’s the location that can make the key difference.

Growth/Expansion Option

Relocating a business isn’t an inexpensive ordeal. But if the existing location has no space left for expansion, the company doesn’t really have a choice but to relocate if it wants to continue to grow. In addition to directly affecting the revenues, this can also put them at a disadvantage in comparison to their competitors with readily available space for future expansions. They don’t have to cover the cost of relocating the entire business or interrupt the production while expanding. And what is equally important, they don’t need to worry about whether the new location will be equally attractive and easy to access to their clients/customers.

Company Reputation

The importance of location for company reputation and perception by clients/customers cannot be emphasised enough. For example, companies located along the M4 corridor are automatically more attractive to both high-tech professionals and clients. Also, they are more attractive to investors because the entire corridor is widely seen as the UK’s “Silicon Valley”. Businesses located next to high-end brands are another great example. Even if their service or products can’t compare to quality of their high-end neighbours, the mere proximity dramatically increases their “value” in the eyes of customers. Feature image credit: Nata-Lia/Shutterstock

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