Factors Influencing Location

However, rent is only part of the comparison. Wage costs, business rates and transport costs can also differ between locations. A cheaper site far from suppliers might save money on rent but require more spending on deliveries. A business needs to consider the costs together rather than assuming that the lowest rent means the lowest overall cost.

Lower operating costs can improve profit if revenue stays the same. They may also give a business more room to offer competitive prices. But an expensive location can still be worthwhile if it generates enough additional sales. A busy shopping-centre unit, for example, may attract more customers than a cheaper, less visible shop.

Proximity to market: reaching the right customers

Proximity to market means how close a business is to its customers. The important question is not simply whether an area is busy, but whether the business's target customers can conveniently find and use it.

Businesses providing face-to-face services, such as hairdressers and restaurants, usually benefit from being accessible to customers. Good public transport, convenient parking and a nearby customer population can make visiting easier.

For a business relying on passing trade, people walking past may notice the premises and decide to buy. Greater footfall therefore creates opportunities for sales, although not everyone passing will be interested in the product.

Closeness to customers also matters for delivery businesses. Shorter journeys can reduce transport costs and delivery times. However, not every business needs a central location. Customers may travel further for a distinctive attraction or a specialist service. An online retailer does not need customers to visit its warehouse, so delivery access and costs may matter more than a prominent shopfront.

Labour: finding suitable workers

A business needs access to enough workers with the right skills. A large factory may need many employees, while a technology company may need a smaller number of people with specialist expertise.

Locating near a suitable pool of labour can make recruitment easier and reduce the time and cost of filling vacancies. For example, technology businesses may locate near universities or in the M4 Corridor, where they can access skilled workers.

The availability of workers is linked to transport. Reliable public transport or good roads can allow employees to commute from a wider area, increasing the number of people who could work at the site.

Wages matter too. A location with lower wage costs may reduce operating costs, but cheap labour is not automatically suitable labour. If the workers available lack the skills the business needs, recruitment and training may offset some of the saving.

Materials: keeping production supplied

Businesses that make goods need reliable access to the materials used in production. Being close to suppliers can shorten delivery journeys and reduce transport costs.

This is especially important when materials are heavy or bulky. A manufacturer of bricks or concrete may locate near quarrying areas because moving large quantities of materials over long distances is expensive.

Freshness can also influence location. A fruit juice manufacturer may locate near fruit growers so that fruit arrives quickly and in good condition. This helps protect the quality of the finished product and reduces the risk of materials becoming unusable before production.

Distance is not the only consideration: good transport links can make a more distant supplier accessible. The business must judge whether materials can reach its site reliably, at an acceptable cost and in the condition required.

Weighing the factors for a particular business

There is rarely a location that offers the lowest costs, the most customers, the best workers and the closest suppliers all at once. The best choice depends on what the business does and which needs are most important.

Consider a hairdresser choosing between a busy town-centre unit and a cheaper, less accessible site. The town-centre unit may attract more passing customers and be easier to reach, but its higher rent must be covered by sufficient sales. The cheaper site could be suitable if the business already has loyal customers willing to travel; it may be riskier for a new business relying on people noticing it.

A brick manufacturer would assess the same factors differently. Passing customers are unlikely to be its priority. Access to materials, suitable workers and affordable premises may matter much more.

A sound decision therefore compares the likely benefits and costs of each site, identifies the business's most important requirement and explains why that requirement outweighs the alternatives.

• Costs: compare property costs, wages and transport costs. Lower costs may improve profit, but a more expensive site may generate more sales.
• Proximity to market: convenient access and passing trade can attract customers; shorter delivery distances can reduce costs.
• Labour: enough available workers with suitable skills and affordable wages. Transport links widen the recruitment area.
• Materials: nearby supplies can reduce delivery costs and delays, especially for heavy, bulky or perishable materials.

Different businesses, different priorities

• Hairdresser or restaurant: customer access is often important.
• Brick or concrete manufacturer: access to heavy materials can be important.
• Technology business: skilled labour can be important.
• Online retailer: delivery access and costs may matter more than passing trade.

Making a judgement

Compare the sites' benefits and costs. Identify the factor most important to the particular business, then justify why it outweighs the disadvantages. The cheapest site is not necessarily the best.