Rent is the price of standing somewhere. What you are really renting is the people who walk past, and the things that happen on your street that you never paid for.
Learning objectives. After this week you can (1) judge a location as a bundle, using fixed cost per customer; (2) price the full cost of relocating; and (3) tell externalities and common shocks from a rival's moves.
Remember this: judge a location by who walks past, not by the rent.
1) A location is a bundle
A neighborhood comes with rent, foot traffic, a customer mix (how many price-sensitive students) and a weekly rhythm (which days are busy). Busy streets charge more rent because landlords price in the customers who walk past. So compare what the rent buys:
Fixed cost per customer = Fixed ÷ Customers served
With Fixed of $200, a 300-customer day costs $200 ÷ 300 ≈ $0.67 per customer and a 125-customer day costs $1.60. Same rent, very different deal. Rent per visitor starts the comparison; who the visitors are finishes it, because a cheap crowd of discount hunters may earn you less per customer.
2) The full bill for moving
Relocating costs a $1,500 lease-break fee, and your form warns that most regulars won't follow. Say you hold 150 regulars and 120 stay behind. If a regular is worth about $1.20 a day in contribution, the move costs 120 × $1.20 = $144 a day until the stock rebuilds: habit capital is location-specific. Over a few weeks that can cost more than the fee itself. Past renovation spending is sunk and belongs in neither column.
3) Externalities and common shocks
An externality is a cost or benefit that lands on you from activity you weren't part of. A farmers market next door or a study group crowding in brings customers you didn't pay for: a positive externality. A rival's promo pulls customers away: a negative spillover from a decision you didn't make. Rain that thins every shop's traffic at once is a common shock, nobody's strategy. Your report's "Today's vibe" line tells you what kind of day it was.
4) Competition and clustering
In your market, a new shop on your street splits the same passers-by, so every shop's share shrinks: the competition effect. Real cities add an agglomeration effect: a café district can draw customers no single shop could, growing the pool. Your market has the first effect, not the second.
Quick self-check
(a) Fixed is $200 and you serve 160 customers. Fixed cost per customer? (b) You hold 100 regulars and 80 stay behind after a move. At $1.20 a day each, what does the move cost per day? (Answers: $1.25; 80 × $1.20 = $96 a day.)
Common mistakes
- Comparing rents instead of bundles. Rent alone decides nothing.
- Forgetting the regulars. The $1,500 fee is often the smaller half of the bill.
- Blaming the neighbors for the weather. Separate common shocks from rival moves.
This week in the arena
Take your busiest and your quietest Daily Report this week. For each, divide Fixed by Customers served. How much more did each customer cost you on the quiet day? Then read the vibe line on both: was the difference your street's weekly rhythm, an event, or the weather?