I founded a company with a city-based approach similar to the one of Uber and Lyft. The main criteria that we took into consideration to open new cities were:
- Relevant population of the city
- Expected frequency of usage of the app (in some cities a particular app could have more potential according to competition/substitutes)
- Expected revenues per user (in some countries there may be significant differences in income in different areas)
- Smartphone penetration / app usage (now that’s normalizing but few years ago there was quite a relevant gap in terms of smartphones usage in different areas of a country)
- Synergies with current cities (eg for operations purposes if two cities are closer that could be better as you may use a centralized team for both)
In our case, costs where pretty similar whatever the city opened, therefore we concentrated more on the revenue side. With other models, acquisition cost and set up costs could also be relevant criteria.
Ad Vlad said this is more relevant in the initial stage, after that you consider more a country–level expansion rather than a city–level one (potentially with similar criteria).
Hope this helps,