I just got off the phone with a guy interested in opening a second office. His questions forced me to think about when it would make sense to open office number two (we have three). It’s a harder question to answer than the perennial “When do I add an employee?”

For us, the decision to open a second and then a third office was driven by two factors.

First, we were seemingly maxing out on the market in our first location. We did a study of our target demographic and found that we were involved in about a third of all of the cases we pursue. A number of experts told us that achieving that level of market penetration was probably about as far as we could go. We experienced a flattening of revenues in that market and concluded that the experts must be right.

Second, we were getting lots of potential client calls from our second market. Our website was generating the calls because the site covers the entire state. We were forced to turn away the business because we couldn’t service the clients at a distance. It seemed crazy to turn away the business when it was right there for the taking, so we opened an office and got busy on day one.

We held off on opening the second office, even in the face of the potential client calls, until we maxed out the first market. We knew that a second office would present challenges that would be difficult. When we finally opened the second office, we found that we were right about the challenges.

A second office is distracting. Remote employees are challenging. The technology issues presented are difficult and expensive. A second office is not a small step, and you should only undertake it when you have the bandwidth available to devote the necessary time and attention to it.

So when is the right time to open a second office? It’s tricky and very dependent on the density of your population and the demographic of your market. I’d wait much longer in a big city like Chicago. I’d do it earlier in a small town where you max out on market share early. Generally, I wouldn’t even think about it until revenues in the first office exceed $2 million per year. You’ll have more than enough challenge building the practice to that level. If your market has a population exceeding 1 million, I think you should wait until you pass $3 million in annual revenue. This is not an exercise to undertake early.

I’d also hold off until you’re seeing demand from the other market or until you have a foolproof system for generating business in the new market. You don’t want to open a new office and then create the system. You should have a solid marketing system in place before you start in a new city.

Going deep is a much better choice than spreading yourself thin. Get all the business you can get in your current market before you enter a new area. Don’t pop open an office just to grab the low-hanging fruit. Work on your market, build a solid base of business, and then expand. Move slowly on this front. Expanding prematurely can easily result in failure in the new market and weakening your operation where you started.