Thursday, May 6, 2010

Expansion - Choosing a Location

Choosing a location for an expansion is probably easier than for a start-up. I wasn't involved in the business when the original location was founded, so I missed out on that fun. For #2 we had the advantage of having lots of data from location #1.

Since we are computerized (go Millennium!) we were able to take a good look at our clients and where they live (granted, for some clients their work address is more relevant, but we used what we had). My awesome husband took the data extract from Millennium and plotted all our clients on a map (I'll find out what software he used to do that and include that information in a comment later). We could see where they live in relation to our first location and proposed new locations.

We coupled this with demographic information we received from our commercial real estate broker. For instance, from the demographic data we could tell that in zip code XXXXX there are 15,000 men, aged 18-55 with household income over $50,000. Based on our client data, we could see that in that zip code we have 750 clients, or 5% market share.

We looked at all the surrounding zip codes in this way and noticed (not surprisingly) that we had higher market share in areas very close to the salon (5+%), and it dropped as you got farther away (1% or less).

We looked at areas of the county that have similar demographics to our current location (how big is the market for our services in a 1, 3, or 5 mile radius of the store) and chose an area that has similar potential, making sure the locations weren't too close together.

Eventually we settled on a location that has great street visibility, a lot of traffic driving by, similar demographics to our original location, very little market overlap with our existing location, much more convenient for folks who work downtown, and had affordable rent and ample parking.

I know that entrepreneurs like to make decisions on "gut" but I would strongly urge you do to some research before selecting a location for your business. Two years ago we seriously considered putting a salon downtown but after analyzing the demographics we felt it wasn't feasible. Our research showed that we would need a full 10% market share (assuming our market share was daytime population of men within a 6 minute walk of the proposed downtown location). My gut told me there are tons of guys downtown and it has to work, but the numbers said otherwise. I'll never know what could have been if we had built out downtown, but I went into this deal with much greater confidence of our success because I know the market is there. Now I just have to get them all to come to my new place!

1 comment:

  1. very interesting thank you i enjoyed reading your blog as i am a new salon owner.