Will a Lower Lease Rate Profit Your Business?
By Susan Ward, About.com Guide
A lower monthly lease rate is always appealing, but if you're thinking about business relocation, you also have to think about how moving your business may affect your business's bottom line.
If you're operating a business that involves going to the client's site and providing the product or service, such as plumbing or tree pruning, where your business is located won't matter much to the client. But if you run a business where the client comes to you, such as retail or some professional services, location is paramount.
Fair or not, many of your potential clients will judge your business by first appearances, and your business premises will have to be substantial and inviting to a degree. If you operate this kind of business, you have to be especially careful about choosing a new business site.
Retail businesses are perhaps the most location sensitive. I've spoken to several local retailers about their business relocation experiences. As these business people have requested anonymity, the names with asterisks are pseudonyms.
Lease rates at shopping malls are often the highest around, and many business owners see getting out from under lease rates they see as excessive as a good way to lower overhead and increase profits. Moving out of the mall is certainly a quick way to lower operating costs, but is it worth it?
Business Relocation May Not Appeal to Clients
Kathy G.*, who operates a women's retail clothing store, says no. For years, her business was located in a medium-sized mall in the center of town, and her sales benefited from mall traffic. Kathy found the lease rates exorbitant, however, and decided to move out to a storefront along one of the main streets. She assumed that business would stay brisk, because her new business location was only blocks away from her old one. The lease rate for her new location was a little over $300 less than the rate she had been paying.
But business did not stay brisk. Kathy's clients didn't bother to follow her to her new location, and profits fell. She tried to fight the customer decline with promotions and expanding the lines of clothing she carried, but to no avail.
After a year in her new location, Kathy moved her business yet again, into a smaller space at the mall where her business was originally located, where she's paying almost the same lease rate as she was originally paying.
"Moving was a mistake," she says. "I've always prided myself on offering a personalized service, and I figured my clients would follow me wherever I went. It was a real shock when they didn't."
While it was an expensive lesson, Kathy is just glad that she's still in business.
But Added Visibility Can Be a Plus
Jolene* and Mark*, on the other hand, are pleased with the outcome of their business relocation. Originally, their retail computer hardware and service business was located in a downtown office building. "We were on the second floor at the back of the building, with maybe 600 square feet of space. We used to joke that if we were both there, the shop was crowded," Mark says.
Approximately two years ago, they moved their business to a small free-standing building on one of the town's side streets. While the savings on their monthly lease rate aren't huge, their business has grown considerably over the past two years, growth that they both attribute to the move. "We're spending about $1200 a year less (on our lease rate), but with street frontage, we get a lot more walk-in traffic. I don't think we got any in our old location!"
Plus their new quarters have almost doubled their usable retail space. Mark and Jolene's move solved two of their business's problems, space and visibility. The savings on their operating expenses have been a side benefit.
Figure Out the Real Cost of Business Relocation First
If you're thinking about relocating your business, then, you have to look at more than the balance sheet. Mark and Jolene's example reminds us of the importance of picking a business location that has advantages other than cost to recommend it. Their business relocation was successful because they moved to a location that was compatible with their goal of improving their business's visibility and attracting more customers.
Kathy's example shows us how important it is to examine the effects of business relocation on your clients and potential clients closely. Kathy "felt" that her clients would follow her, but as she admits, she didn't research this. She might have surveyed her customers about a possible move to a new location, or canvassed their opinions, but she didn't. Although she moved her business to a new location solely to lower her monthly operating costs, the net result of the month was a financial loss.
So before you relocate, consider your clientele. How dependent is your business on walk-in traffic? If your business moves, how likely are your clients to follow you to your new location? Lastly, will the savings from a cheaper lease rate make up for the cost of moving your business and the potential client or customer loss?
Business relocation isn't a move to make lightly. But it may be the cents-ible move for you!
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