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Why would we invest in an analysis when we already know where to put our new location?

Anyone can pick a piece of real estate to locate a branch or store. Someone on your team is likely familiar with the area. You may know that there is a new retail center being developed near a busy intersection. A helpful broker will provide a demographic summary of the area immediately around the property and maybe even some traffic counts.

It begs the question:

What value is there in conducting a market expansion analysis or site selection study?

Investing in a new location is one of the largest financial commitments a business undertakes. For financial institutions, opening a new branch is easily $1 to 2 million, depending on the region and other customization. And, this is before considering ongoing operational costs.

Here are four ways that investing in a study on the front end can save you time and money:

1. Avoid local bias

While it may seem counter-intuitive to say that someone from “the outside” can help you understand your local market, a structured, objective analysis can provide a fresh perspective on market trends and often highlight trends that are overlooked by those who are in the market day to day.

2. Understand the trade area in terms of your consumers

A real estate broker is skilled at understanding the overall market and finding available property. Your broker likely does not specialize in your business or have access to information about how your customers use your existing network. Analyzing your existing customers, where they live, and how they currently transact within your network provides essential insights into how you can best serve them in the market.

3. Quantify opportunity and competitive pressures

How much opportunity is there to sell your product in this trade area? Understanding the product potential and competitive environment in the trade area is valuable in setting growth goals and estimating what market share you can reasonably expect to grab and how that will affect your profit. It may also influence the type of building and services offered at this location.

4. Reduce overall risk

Once you’ve committed to a particular location, it can be very expensive to switch directions – and can negatively impact your reputation, if you end up closing a location after opening. The cost of an analysis is generally a tiny fraction of the full investment of a new location. Taking the time to analyze the market, or a proposed location, provides third-party validation to support your decision (and sometimes to reconsider your decision) and data-driven evidence to share with your stakeholders – whether it be your board of directors, lenders, or investors.

Expanding your business is an exciting time. Let us help you lay the groundwork to build on your strong foundation - give us a call or shoot us an email!

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