Choosing the right location is crucial for any business’s success. A seemingly insignificant detail can hold significant weight, impacting everything from your bottom line to your ability to attract and retain talent.
Here is a closer look at the drawbacks of a poor business location and the hidden costs it can incur:
Problem 1: High Fixed Costs (FC) of the site
Disadvantages to a business include high break-even level of production, low profits (or even losses) and high Average Cost (AV) of producing one unit when operating at low-capacity utilization.
Problem 2: High Variable Costs (VC) of labor
Disadvantages to a business include low contribution per unit produced or sold, low profits (or even loses) and high Average Cost (AV) of producing one unit which reduces competitiveness.
Problem 3: There is low unemployment rate in the area
Disadvantages to a business include problems with recruiting available staff, staff turnover is likely to be a problem caused by difficulties with recruitment and pay levels may have to be raised to attract workers to switch jobs and retain staff.
Problem 4: There is high unemployment rate in the area
Disadvantages to a business include relatively low demand for income-elastic products as average consumer disposable incomes may be low.
Problem 5: Poor transportation infrastructure
Disadvantages to a business include higher transportation costs for both raw materials to and finished products from the business, relatively inaccessible for customers and difficult to operate a Just-In-Time (JIT) inventory-management system due to unreliable deliveries.
Choosing the right location requires careful consideration of various factors to avoid these costly pitfalls. By thoroughly researching and selecting a location that aligns with your business needs, you can set yourself up for success.
