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The Importance of Location to a New Business

Updated on August 2, 2014

Location is one of the most important aspects to setting up a new business and can in fact often make or break a new venture.

A well chosen location can attract customers, help a business survive in difficult economic conditions and dictate costs in almost all areas of the business including labor, production and marketing.

Choosing the right location for a new business however requires extensive research and planning due to the fact that the needs of different businesses are extremely diverse.

Cost and Availability

First and foremost, cost is the deciding factor in where most businesses are located. New businesses for the most part are operating on a strict and limited budget for the first few years they are in operation, and might be doing so without making a profit.

Secondarily, any business owner eager to start a new business or who needs to relocate is ultimately limited by what space is available, and in a successful area this is going to be limited.


Proximity to suppliers

The closer a business is to their suppliers, the more flexible they can be in terms of production, and the less raw materials they need to store at any given time.

This of course needs to be weighted against proximity of customers as one isn't always close to the other.

At the very least though, a business needs to be able to be able to cheaply and efficiently receive supplies and or raw materials. Generally urbanized areas can make shipping and receiving difficult due to relative lack of space and increased transportation time and costs.

Proximity to Customers

Dependent on the kind of product a business offers, passing trade and public visibility may play a big role in securing enough trade to stay afloat.

Because of this a business location should weigh up the cost of a location against the need for public awareness.

Prime locations such as city centers will attract more customers in most cases, but will undoubtedly be a lot more expensive in terms of fixed costs. Equally for some businesses locations in highly build up areas aren't feasible due to space required.

Locations on the outskirts of built up areas tend to be cheaper but aren't nearly as visible. As well as space being more reasonable, logistics can tend to benefit from locations that don't suffer from the congestion of big towns and cities.


Assessing competition is essential before deciding on a business location. If competition is too strong in a given area, growing a customer base will be extremely difficult without either a unique selling point or a very big marketing budget.

Equally if there is no competition in a given area, further research into potential sales might be considered. It could be that the reason there is no competition is that there isn't enough local demand to support it.

Labor Costs

Generally when people read the term labor costs they immediately think of companies relocating abroad in order to take advantage of cheaper labor. Even within one country though the cost of labor can vary greatly depended on factors such the local economy or union presence.

The immediate temptation of any business is to tend to look for the cheapest labor available although this isn't always a realistic option. Depending on the product a business is offering, it may need to be located in an affluent area in order to attract customers. Equally in some areas cheaper labor might mean difficulty in finding enough employees with specialized skills.


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    • profile image

      GustinWebGroup 2 years ago

      Location is everything. Let us help you have a location for an internet business. Check out and learn about online business and how you can claim a spot in a good location to operate.

    • Reynold Jay profile image

      Reynold Jay 6 years ago from Saginaw, Michigan

      I've set up many retail sites over the years and location is at the top of th list. Books have been wrtten on the subject. I enjoyed this very much. You have this laid out beautifully and it is easy to understand. Keep up the great HUBS. I must give this an “Up ONE and Useful.” I'm now your fan! RJ

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