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Location, Location, Location?


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Oct 2, 2017
United States, CA
Does anyone have a good way to justify paying extra for location or do most people follow a gut instinct?

Below I share some of my findings; but, there is nothing that I feel comfortable about with regards to site selection. Please share any other info that you have that can help in this domain.

As we know premium high visibility physical location means higher rent/lease; but, is it worth it?

I believe Roy H. Williams had said "expensive rent is often the cheapest advertising your money can buy".

So, how do we quantify this?

The article "How To Determine Foot Traffic & Use Data To Pick A Business Location" is a great read for quantifying your location selection. In short it has the following model:

  1. Estimate the foot traffic for each potential site
    You can do it manually or use an online service that provides based on mobile network data (the author suggests sapstore)
  2. Determine percentage of sales from walk-in traffic for your business
    How do you determine the dataset without existing business?
  3. Multiply the estimate foot traffic by walk-in rate to estimate potential client
  4. Difference in client count can be used to determine if extra rent/lease is worth it.

As I mentioned above, I don't know how to find walk-in conversion rate for a new business. I tried calling other business owners; but, they don't track such data.

Frustrated, I started looking at other models, which include: Location factor Rating, Transportation method, Break even analysis, Center of Gravity technique, Load distance technique

Of these the Location factor rating appears is the best for data driven decision making.

You begin by assigning weight to items that you fee are relevant to your business and each site; then you do a simple calculation to find ideal location. For example:

Criteria         Weight Site1 Site2 Weight_x_Site1 Weight_x_Site2
---------------- ------ ----- ----- -------------- --------------
Parking            0.2    30    50    0.2*30 = 6    0.2 * 50 = 10
Visibility         0.5    70    90    0.5*70 = 35   0.5 * 90 = 45
Neighbor quality   0.3    50    30    0.3*50 = 15   0.3 * 30 = 9
================ ===== ====== ===== ============== ==============
Total              1.0                         55              61

In above example, Site2 is the preferred site.

As you can imagine, there are going to be a great deal of attributes for site selection. In that case, you can use Analytic Hierarchy Process (AHP) to do a pair-wise comparison between the elements to come-up with a weighted values that you feel are relevant.

The benefit of this method is that you can quantify your decision process and selection.

The disadvantage is that it is still contingent on preference and not projected sales potential.

Also, while researching I stumbled across idealspot. They claim that they can provide better insights for finding a location using social trends, machine learning, etc. I haven't tried them; nor do I know if they are helpful for new entrepreneurs without any historic data.
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