February 15, 2018, by Erik Larson

Determining Trade Area - Factors That Impact Your Community

For economic development organizations, trade area is an essential starting point in developing a market analysis. In this context a trade area is defined as the geographic footprint from which the community draws the majority of its customers.

Businesses looking to expand or relocate require this kind of information to make decisions, making trade area analysis a powerful tool of persuasion for your community.

But how do you define trade area? Is it merely the output of an arbitrary drive-time radius or is there more going on here? The following is a quick breakdown of some of the most important factors.

5 Key Factors of Trade Area

  1. Traffic patterns
    Each region has influencers on its traffic patterns. This includes everything from the layout of roadways to the natural landscape of the area. When calculating trade area, it is important to account for these particulars, including the dynamic variable of traffic and congestion.
  2. Proximity to competing areas
    People will only travel so far to access businesses, meaning a theoretical cut-off point exists where a consumer will choose a competing area for convenience.
  3. Business mix
    The distance a consumer will travel increases as the number and diversity of businesses in your area increase.
  4. Population
    Bigger populations create larger trade areas. Similar to the law of gravity, bigger populations exert more force and therefore enjoy a longer reach.
  5. Desination attractions
    Prominent businesses or local attractions can expand a community's trade area significantly.

Example of Trade Area Data

Once you have a trade area defined there are many opportunities for data storytelling. Using the footprint of the trade area, you can robustly quantify the consumer base, such as this market segment chart:

View the full Market Analysis report here

Tell Us What You Think

We would love to hear about your community's goals and share some interesting examples of trade area reports with you.