Business location decisions
Business location decisions are shaped by factors such as the cost of premises or rent, proximity to customers or suppliers, the availability of local labour, transport links and, for retail or service businesses, footfall, the number of people passing by.
Method
- Learn the main factors influencing a location decision: cost of premises, proximity to customers or market, proximity to suppliers or raw materials, labour availability and cost, transport links, and competition.
- Learn that manufacturing businesses weigh factors like transport links and proximity to raw materials or suppliers more heavily, since these affect production and distribution costs.
- Learn that retail and service businesses weigh footfall and proximity to their target customers more heavily, since passing trade and convenience drive their sales.
- For state or identify questions, quote the factor named in the case with no explanation.
- For explain questions, name the factor and link it to a specific consequence for that business's costs or revenue.
- For recommend or justify questions comparing two locations, weigh at least one advantage and one disadvantage of each site against the business's specific priorities, such as budget, target customer, or need for space, before giving a supported recommendation.
Worked example
A small furniture maker is choosing between two workshop units to rent. Unit A is in a rural industrial estate, has cheaper rent, and is next to the main road used by its main timber supplier's delivery lorries. Unit B is in the town centre, has higher rent, and is a 10-minute walk from where most of its retail customers live. Justify which unit the furniture maker should choose, given that most of its sales come from delivering large made-to-order pieces rather than passing trade.
- Identify what matters most for this business: since sales come mainly from delivered made-to-order pieces rather than passing trade, footfall from walk-in customers is not the priority.
- Weigh Unit A's advantages: cheaper rent reduces fixed costs, and being on the supplier's delivery route could lower transport costs and delays for receiving timber.
- Weigh Unit B's advantages and disadvantages: being near retail customers matters less here, since customers do not need to visit in person to order or collect large delivered pieces, while the higher rent increases fixed costs with limited extra benefit for this business model.
- Reach a justified decision: Unit A is the better choice, because the lower rent reduces costs and the proximity to the timber supplier supports the business's main sales method, while Unit B's main advantage, footfall, is not important to a business that does not rely on passing trade.
Practice questions
Try each question, then tap to reveal the answer.
Q1State one factor that influences where a business chooses to locate.Show answer
Answer: For example, the cost of premises or rent, or proximity to customers, suppliers, labour or transport links.
Q2Identify which location factor matters most to a business that relies heavily on passing trade.Show answer
Answer: Footfall, or proximity to its target customers.
Q3Give one reason a manufacturer might locate close to its raw material supplier.Show answer
Answer: To reduce transport costs and delivery time for materials used in production.
Q4State one cost that is usually higher for premises in a town or city centre than on the edge of town.Show answer
Answer: Rent, the cost of the premises.
Q5Explain why access to good transport links matters to a business that delivers goods nationally.Show answer
Answer: Because being near major roads or motorways reduces delivery time and transport costs when sending goods to customers across the country.
Q6Give one non-financial factor, other than transport, that might influence a service business's location choice.Show answer
Answer: For example, the availability of suitably skilled local labour, or proximity to competitors.
Exam-style questions
Written in the style of a GCSE Business exam paper, with a full mark scheme.
Explain two reasons why the cost of premises might matter more to a new start-up than to a large, established business.
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A new bakery owner is choosing between two units. Unit X is on an out-of-town retail park, has low rent, but has very little passing foot traffic. Unit Y is on a busy high street with three times the footfall of Unit X, but the rent is double. The bakery's business plan relies mainly on walk-in customers buying fresh bread and pastries each morning. Justify which unit the bakery owner should choose.
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See real GCSE Business past-paper questions, with official mark schemes →
Free printable worksheet
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