What the location decision involves

1. A business makes this decision when it starts up and again every time it opens another site, and it is expensive to reverse once a lease is signed and equipment is installed.
2. Every location factor works through one of two things: what the site costs to run, or how much the business can sell from it, and no site scores well on all five at once.

Proximity to the market

1. This means locating close to the customers the business wants to serve, and for a shop or a café it comes down to footfall, meaning the number of people who walk past the door.
2. For a business that delivers rather than waits to be visited, being near the market cuts fuel and driver hours on every order, and it protects perishable goods that lose quality on a long journey.

Availability of raw materials

1. This means locating near the suppliers of the inputs the business uses, and it pulls hardest when those inputs are heavy, bulky or perishable.
2. Transport is charged by weight and distance, so when the finished product weighs less than the materials that went into it, the cheaper journey is the one made by the finished goods.
3. A business whose inputs are light, or which buys them in small quantities from a wholesaler, is barely pulled by this factor at all, so a jewellery maker can work from anywhere with a postal service.

Availability and cost of labour

1. Availability is whether enough people with the right skills already live within travelling distance, so an engineering firm looks for an area with an engineering history and a nearby college running the right courses.
   1. If the skills are not there, the business has to recruit from further away or train people from scratch, and both add cost before a single unit is sold.
2. Cost is what those people have to be paid, and wage rates vary across the UK because the cost of living varies, so the same job is cheaper to fill outside the south east.
   1. This is why UK banks and insurers put their call centres in places such as Sunderland, Glasgow and Swansea rather than central London: the work can be done anywhere with a phone line, so the business picks the location where the wage bill and the rent are lowest.

Competition

1. Locating away from rivals gives a business an area to itself, so a hairdresser opening on an estate with no other salon has the whole neighbourhood to draw on.
2. Locating next to rivals can work instead, because customers who want to compare before they buy will travel to the place where everything is side by side, which is why car dealerships share the same retail park.
3. The risk of clustering is that near-identical businesses simply split the same customers, so a fourth takeaway on a parade of three takes trade from the others rather than creating new demand.

Costs of the site

1. The costs to compare are the rent or the price of the land, the business rates charged by the council, and the cost of fitting the building out for what the business does.
   1. A unit on a busy high street might cost £45,000 a year in rent while a similar unit on an industrial estate costs £12,000, so the extra rent on the high-street site is £45,000−£12,000=£33,000\pounds45{,}000 - \pounds12{,}000 = \pounds33{,}000£45,000−£12,000=£33,000 a year.
   2. The high street is only worth taking if the extra footfall brings in more than £33,000 of extra profit a year, so the owner has to estimate the added sales before signing the lease.
2. The cheapest site is not automatically the best one, because a unit with no passing trade and poor road access can cost the business more in lost sales than it saves in rent.