Analysis of Factors

Businesses will use a number of methods to analyse the best location:

Break even analysis

They will calculate costs and revenues to see how many units they need to break even.

If fixed costs e.g. rent are lower in one location than another this will reduce break even output

If variable costs e.g. wages are lower in one location than another this will reduce break even output

The greater the margin of safety at a particular location the lower the risk

Investment Appraisal Techniques

Businesses can use investment appraisal techniques such as payback, ARR and NPV to see which location is best

Businesses usually select the option with the quickest payback, the highest ARR and the highest NPV

Types of Location Decision

Organisations have a number of different location decisions:

- Where to locate their business

- When they start up

- Relocation

- Expansion