Do vacant storefronts outnumber the full ones on your Main Street? Do residents bemoan the loss of businesses? Are some community entrepreneurs searching for local opportunities? Business thresholds are a “quick and dirty” way to figure out if a business type might work in your community.
Defined as the number of people per business in an area such as Minnesota or the U.S., a threshold gives you a very basic sense of demand. For example, according to the Economic Census, 1,540 clothing stores were in operation in Minnesota in 2017. If you divide the state’s population in 2017 (5,577,487), there were 3,622 people per establishment. If you’re a town of 4,000 without any clothing stores, you may be lucky!
Oftentimes, however, it’s not so clear-cut. A person needs to take a closer look at the size of their community’s trade area and the types of existing businesses. A community typically doesn’t stop at its boundaries and a trade area is a good way to think about the distance from which a customer will come.
For our clothing store example, a 10 or 15-minute drive is a reasonable estimate for the area from which the store captures its customers. This trade area may include 2,000 people, which, if combined with the 4,000 in town, seems quite promising for our potential clothing store.
The next step for understanding your existing businesses and the potential niches of new ones is an important and strategic task for any entrepreneur. Even if your town has no stand-alone clothing store, there may be other sources of clothes, such as the hardware store or print shop that carries select products on the side. Or the direct sellers who sell athletic wear through house parties. All of these local establishments and clothing stores outside the community’s trade area are sources of competition. Identifying your niche or the niche of any new store is paramount.
Coming back to business thresholds, these simple measurements of market demand are at least a place to start. There are many angles to take when trying to figure out what may work in your town, but one of the most important steps in any community improvement is taking the first step. A 2014 Extension report shows how thresholds can be a useful part of this process. An updated version of this report will be released later this year.