A business can have a strong product, adequate funding and competent management and still struggle because it is operating from the wrong location.
For a factory, the wrong site can increase logistics, electricity, water, labour and distribution costs for decades. For a retail business, an attractive but poorly positioned shop can suffer from inadequate customer traffic, difficult access, weak purchasing power or excessive rent.
This is why location should not be chosen primarily because “the land is cheap” or “the shop is on a busy road.”
Location is an investment decision.
For Nigerian entrepreneurs and investors, the question should be:
Which location gives this particular business the strongest combination of market access, operating efficiency, infrastructure, regulatory suitability and acceptable cost?
That requires proper location analysis.
What Is Location Analysis?
Location analysis is the systematic evaluation of alternative sites to determine which location best supports the commercial and operational requirements of a proposed business.
It is an important part of a feasibility study.
For a factory, location analysis may examine proximity to raw materials, customers, roads, ports, electricity, water, labour, land availability and environmental requirements.
For a retail business, the emphasis shifts towards customer demographics, purchasing power, footfall, visibility, accessibility, competition, parking, rent and sales potential.
The mistake is assuming that the same criteria should be used for both.
A location that is excellent for a supermarket may be terrible for a manufacturing plant.
Factory Location and Retail Location Are Two Different Decisions
Consider two businesses.
Business A: Cassava Processing Factory
Its major location drivers may be:
raw-material availability;
transportation costs;
electricity;
water;
land;
waste disposal;
labour;
road access;
and distance to distributors.
Business B: Premium Fashion Store
Its priorities may instead be:
target customers;
purchasing power;
foot traffic;
visibility;
parking;
security;
complementary businesses;
competition;
and rent.
The first principle of location analysis is therefore:
Determine what makes a location valuable to your specific business before comparing sites.
1. Start With Your Customers
For retail businesses, customers should normally be one of the strongest location determinants.
Suppose you want to establish a premium supermarket.
Three locations are available.
Location A: Rent ₦8 million annually, high-income neighbourhood.
Location B: Rent ₦4 million, middle-income residential area.
Location C: Rent ₦2.5 million, developing outskirts.
Choosing Location C simply because it has the lowest rent could be a costly mistake if your intended customers rarely visit the area.
Instead, determine:
Who is the target customer?
Where do they live or work?
What is their approximate purchasing power?
How frequently do they purchase the product?
How far will they travel for it?
What alternative businesses already serve them?
Retailers should distinguish between traffic and relevant traffic.
Ten thousand people passing your shop every day is not necessarily valuable if very few fit your customer profile.
2. For Manufacturing, Start With the Supply Chain
Factories need a different calculation.
Suppose a tomato-processing company requires 10,000 tonnes of tomatoes annually.
Site A is significantly cheaper but 250 kilometres from major tomato-producing clusters.
Site B costs more but is 40 kilometres away.
The correct comparison is not merely:
How much does the land cost?
It is:
What is the total long-term cost of operating from each location?
If Site A adds only ₦5,000 per tonne in additional inbound logistics:
10,000 tonnes × ₦5,000 = ₦50 million annually.
Over ten years, that represents ₦500 million before inflation and financing effects.
Saving ₦100 million on land while creating an additional ₦50 million annual logistics burden may be a poor investment.
This is why location analysis should consider the total cost of ownership, not just acquisition cost.
3. Analyse Infrastructure Before Signing Anything
Infrastructure can dramatically alter the economics of Nigerian businesses.
Do not ask only:
“Is there electricity?”
Ask:
How reliable is it?
The World Bank’s 2026 electricity-access analysis, drawing on Nigeria’s 2023–2024 General Household Survey, notes that grid unreliability remains a major issue in Nigeria, with households reporting around seven outages per week nationally and a typical outage duration of about 12 hours.
For an energy-intensive factory, that should affect site selection.
Investigate:
available electricity supply;
transformer capacity;
feeder reliability;
backup-generation requirements;
gas availability where relevant;
solar feasibility;
water;
drainage;
telecommunications;
internet;
waste disposal;
and road quality.
For example, suppose:
Site A rent: ₦15 million/year
Site B rent: ₦25 million/year
Site A initially appears cheaper.
But if Site A requires an additional ₦18 million annually in diesel and backup-power costs while Site B provides substantially better electricity access, Site B may actually be economically superior.
Cheap property is not necessarily a cheap business location.
4. Calculate Logistics Cost in Both Directions
Factories have inbound logistics and outbound logistics.
Inbound:
How much does it cost to bring raw materials to the factory?
Outbound:
How much does it cost to move finished goods to customers, warehouses, ports or distributors?
A flour mill may benefit from proximity to ports or grain supply.
A dairy processor may prioritise proximity to milk-producing areas because of perishability.
A furniture factory may need access to timber, major roads and urban markets.
A cement-related business may prioritise raw materials and heavy-vehicle accessibility.
Map your entire supply chain:
Supplier → Factory → Warehouse → Distributor → Customer
Then calculate the transport implications of each candidate site.
5. Assess Road Access, Not Just Distance
A factory may be only 30 kilometres from Lagos but require three hours for a truck to reach it.
Distance and accessibility are not the same thing.
Visit candidate sites during different periods.
For factories, observe:
Can articulated trucks enter?
What happens during rainfall?
Is the road wide enough?
Are there bridges with weight restrictions?
Will trucks disturb surrounding residential communities?
Is there space for loading, turning and parking?
For retail stores, examine customer access.
Can drivers enter easily?
Can customers park?
Is the shop accessible to pedestrians?
Can ride-hailing drivers stop safely?
Does traffic flow make it difficult to enter the premises?
A highly visible shop on the wrong side of a divided highway can sometimes perform worse than a less prominent but more accessible location.
6. Measure Retail Footfall Properly
Do not accept an estate agent’s statement that:
“This place is always busy.”
Measure it.
Conduct footfall counts at representative times:
weekday morning;
weekday afternoon;
evening;
Saturday;
and, where relevant, Sunday.
Then classify traffic.
Suppose 3,000 people pass a proposed retail location daily.
If 10% fit your target profile:
300 relevant prospects.
If 5% enter:
15 visitors.
If 30% of visitors purchase:
4.5 transactions daily.
At an average transaction value of ₦20,000:
approximately ₦90,000 daily revenue under those assumptions.
That simple model is much more useful than saying:
“The area has plenty of people.”
The assumptions should then be tested through observation, competitor data, pilots or comparable-store performance.
7. Study Competitors but Do Not Automatically Avoid Them
Entrepreneurs sometimes believe they should locate as far from competitors as possible.
Not necessarily.
Competitor concentration can indicate proven demand.
Restaurants cluster together.
Banks locate near other banks.
Fashion stores often operate in the same commercial districts.
Automotive businesses cluster in specialised markets.
The important question is:
Does the location have enough demand to support another operator, and what will differentiate us?
Map competitors within your realistic catchment area.
Record their product range, pricing, customer volume, operating hours, parking, strengths and weaknesses.
For factories, competitor analysis may also reveal whether an industrial cluster provides shared advantages such as suppliers, technical labour, transporters and infrastructure.
8. Examine Labour Availability
A factory is not merely a building containing machines.
People must operate it.
Before choosing a remote site because land is inexpensive, determine:
Where will employees live?
How will they commute?
Are technicians available nearby?
Will the company need staff buses?
What will accommodation cost?
Will managers accept relocation?
Suppose moving 50 kilometres farther from an urban centre saves ₦80 million in land acquisition.
If the company subsequently spends ₦15 million annually transporting staff, much of the saving disappears within several years.
Labour accessibility belongs in the location financial model.
9. Verify Land Use, Planning and Environmental Requirements
Do not purchase industrial land simply because someone tells you:
“Factories are everywhere around here.”
Verify the permitted use.
Environmental considerations are particularly important for manufacturing.
Nigeria’s National Environmental Standards and Regulations Enforcement Agency states that environmental permits apply to businesses and industrial facilities whose activities may affect the environment, covering areas including air quality, waste and toxic substances.
Nigeria’s National Policy on the Environment also requires major industrial development projects to be preceded by approved environmental impact assessment and calls for adherence to land-use zoning and the demarcation of industrial areas.
Depending on the project and jurisdiction, investigate:
zoning;
planning approval;
environmental requirements;
effluent disposal;
air emissions;
waste;
fire safety;
building approval;
sector licences;
and community considerations.
A location can be commercially attractive but legally unsuitable.
Verify before purchasing or signing a long lease.
10. Calculate Occupancy Cost Against Expected Sales
For retailers, rent should never be considered in isolation.
Calculate occupancy cost as a percentage of expected revenue.
Suppose Store A costs:
Rent: ₦12 million
Service charges: ₦2 million
Security/utilities contribution: ₦1 million
Other occupancy expenses: ₦1 million
Total:
₦16 million annually.
If realistic annual sales are ₦160 million:
Occupancy cost ratio = ₦16m ÷ ₦160m = 10%.
Now suppose Store B costs ₦10 million annually but projected sales are only ₦70 million.
Its occupancy ratio is:
₦10m ÷ ₦70m = 14.3%.
Store A is more expensive in absolute terms but potentially cheaper relative to revenue.
This is why cheap rent can be expensive.
11. Consider Future Expansion
Your ideal site should not only accommodate today’s operation.
Ask what happens if the business doubles.
For a factory:
Is adjacent land available?
Can electrical capacity increase?
Can the warehouse expand?
Can additional production lines be installed?
Can truck traffic increase?
For retail:
Can storage increase?
Can opening hours expand?
Can the store accommodate higher customer volume?
Will the surrounding area remain commercially attractive?
A location that saves money today but forces relocation in three years may ultimately cost more.
Use a Weighted Location Scoring Model
For significant investments, compare candidate locations objectively.
Suppose a manufacturer is considering three sites.
| Criterion |
Weight |
Site A |
Site B |
Site C |
| Raw-material access |
20% |
9 |
6 |
7 |
| Customer access |
15% |
6 |
9 |
7 |
| Electricity/utilities |
20% |
7 |
9 |
5 |
| Logistics |
15% |
8 |
8 |
6 |
| Land cost |
10% |
5 |
6 |
10 |
| Labour |
10% |
7 |
9 |
5 |
| Regulatory suitability |
5% |
9 |
8 |
6 |
| Expansion potential |
5% |
9 |
5 |
10 |
Score each site from 1–10, multiply by its weight and calculate the weighted total.
Do not allow the model to replace professional judgement. Use it to make assumptions visible.
If electricity is critical to your manufacturing process, giving it only a 5% weighting would distort the decision.
Read also: THINGS YOU NEED TO PUT IN PLACE TO SET UP A PURE WATER COMPANY IN NIGERIA
Conduct a Financial Location Comparison
The final decision should translate location differences into money.
Compare each site over five or ten years.
Include:
land purchase or rent;
construction;
utilities;
backup power;
water;
staff transportation;
inbound logistics;
outbound distribution;
security;
taxes and levies;
maintenance;
insurance;
and expansion costs.
A ₦200 million industrial site may ultimately outperform a ₦100 million site if it saves ₦40 million annually in logistics and energy.
Location analysis therefore belongs inside the feasibility study and financial model, not merely in the property-search process.
Need Professional Location and Feasibility Analysis?
At Dayo Adetiloye Business Hub, we help entrepreneurs, SMEs, manufacturers, retailers, investors and diaspora investors evaluate projects before substantial capital is committed.
Our services include feasibility studies, location analysis, market research, business plans, financial projections, sensitivity analysis, investment readiness, funding strategy, BOI loan documentation and business advisory.
For factory projects, we can help compare alternative locations based on market access, raw materials, logistics, infrastructure and financial implications.
For retail projects, we can assess target markets, competition, revenue assumptions, operating costs and location economics.
Call/WhatsApp: 08105636015, 08076359735, 08113205312
Email: dayohub@gmail.com
Website: www.dayoadetiloye.com
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