Despite our society’s continuing move into cloud and virtual technologies, we remain bound by the physical world — and choosing the right location for your business is a crucial harbinger for how well it will perform over time.
Should you head for the state with the best tax regulations, or set up shop by a port? Is staying closer to home an advantage? There is no right answer in this search, but there is a best answer for each particular business. Getting to that most ideal location requires you to think laterally and expansively, allowing logic, risk assessment and math to overtake mere instinct.
I work at a third party fulfillment business focused on ecommerce customers, so the question of location is of critical importance in our industry. After setting out on a hunt four years ago, we found ourselves setting up shop in Knoxville, TN. It turned out to be one of the best business decisions we’ve ever made, and now we’re about to open a second location in Salt Lake City.
Here are the six questions we used as our mapping metrics, which brought us to exactly where we needed to be:
What is the shipping reach?
If you’re a B2B or B2C ecommerce business, like all our clients, there is one major thing you will need to consider: the needs of your end consumer. You need to get your product to them as quickly and cost-effectively as possible. For us as a fulfillment center, this meant having a two-day shipping reach to a majority of the US population, because two days is the standard that Amazon has set.
As the majority of the US population lives on the Eastern side of the country, Knoxville, emerged as a major contender. We studied population densities and travel arteries; Knoxville is a major freight corridor with the intersection of I-40 and I-275. This is why the automotive industry has planted many of its production facilities here and in nearby Kentucky and Northern Alabama.
Of course, every company is going to have its own considerations. If 90 percent of your business is to hospitals in New York City that require next-day delivery, you’re going to want to be within a one-day delivery time from that city.
How close are the ports?
You might want to think twice before taking over that warehouse in Oakland, Miami or New Jersey. Being close to ports isn’t necessarily a good thing; in fact, it can be cost-prohibitive. Outbound shipping costs tend to be a lot higher, per piece, than inbound shipping costs, so you need to look at ways to minimize your total transportation costs. In our case, we wanted to be generally accessible from the ports, but at the same time located as closely as possible to end customers because that was going to have a greater impact on our overall cost structure.
Perhaps you’re an ecommerce business owner who lives in Florida and your products are delivered to the port of Miami. It may seem like an obvious solution to have a fulfillment partner in Miami; that way you can have a bit more oversight into their operation. But land does not come cheap in Miami. In addition to the inflated warehousing costs your fulfillment partner will no doubt have to pass along to you, you’re also in one far corner of the country. If your customer base is nationwide, your business is going to be hit with several more expensive shipping costs per parcel, since your average shipping zone may end up being five or six.
On top of this, the increased average distance from your customers means that the average ship time may breach four days, from order to delivery. All of a sudden, Miami seems less and less appealing.
What is the workforce availability and quality?
The success of any business ultimately lies in its people. You want workers who are smart, agile and productive; so education and work ethic are important drivers. In terms of availability, find out what the unemployment and turnover rate is in a given city.
Clearly, you don’t want a very high unemployment rate, but you also don’t want an incredibly low unemployment rate, because that’s indicative of competition for good labor, which will drive up the wages you’ll need to offer. Use resources like the Bureau of Labor Statistics to dive into the data in areas you’re considering, and talk to staffing firms about their experiences.
What’s the cost of living and quality of life?
Who would have thought that Knoxville would be such an awesome city to live in? With its campus of the University of Tennessee, its nearby Smoky Mountains, great restaurants and theaters and strong pool of smart humans, it was even named by TripAdvisor as one of the “Destinations on the Rise.”
Recent data shows that cities in the South and Midwest have compellingly affordable costs, so delve into these stats. You want a location that good workers will want to live in, and where you’ll be happy spending your time, but you also want an affordable cost of living. Research the locations that appeal to you, and check out Bankrate’s Cost of Living Calculator to compare costs among cities.
What’s the weather like?
Does the area you’re considering have frequent hurricanes, tornadoes or blizzards? Locations that are subject to dramatic weather can have significantly higher insurance costs, and such events may cause major business disruptions for some industries. This was particularly true for our company, since we’re focused on logistics: We don’t want to be situated in a place that is going to be routinely shut down by snowstorms.
We even went as far as digging into the seismic risk in particular areas. If a few locations are proving to be equal contenders, why not pick the one that has the lowest amount of risk when it comes to disruption to the overall business?
What are the travel costs?
How important is it that clients, partners or investors can get to you, quickly and easily? This was a big question for us as we were considering the location of our second facility in Salt Lake City. As it was a secondary location from our Tennessee base, we would be traveling in and out of the city a lot, so we needed a place that would be easy for clients and our team to travel to and from.
By researching these six questions, we were able to draw up a winning location based on reason, data, business costs and happiness factors. The first three we termed “marketability factors”; the second three were focused on the costs of doing business. By taking a data-driven approach to location planning, we think we’ll be able to set ourselves up for long-term success in any region we grow in.