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Local Money Multiplier
And why local businesses matter
far more than you think
Source: The Money Trail>>>
£
£
£
The local multiplier effect
• Looks at the impact of money that is
spent and re-spent within a local
economy
• Demonstrate...
Practical example: Comparison
between hotels and B&Bs located in
Tayside
• This compares not just the
initial income from ...
Tay hotels bring in 70% more income
£100,000.00
£170,000.00
£-
£20,000.00
£40,000.00
£60,000.00
£80,000.00
£100,000.00
£12...
£(10,000.00)
£10,000.00
£30,000.00
£50,000.00
£70,000.00
£90,000.00
£110,000.00
£130,000.00
£150,000.00
£170,000.00
Initia...
£100,000.00
£80,000.00
£40,000.00
£20,000.00
£10,000.00
£5,000.00
£(10,000.00)
£10,000.00
£30,000.00
£50,000.00
£70,000.00...
The result is surprising
£255,000
£235,875
Tay B&B's Hotels
TotalsMore money
stays and
circulates in the
local economy
thr...
£
£
£
£
£
What applies to B&B’s applies to
other local businesses
They keep jobs
and wealth in the
local community
£
Chain...
Half of the turnover of
an independent local
retailer goes back into
the local economy
50%
Leakage
50% goes
back into
Loca...
…while just 5% of the turnover
of a supermarket does
• Supplies
• VAT
• Rent
• Profit
• Labour
• Shareholders
Re-spend in
...
Local retailer: 50% of
money stays locally
£1,000
£500
re-spent
locally
£250
re-spent
locally
£125
re-spent
locally
£1,000...
Supermarket: 5% of
money stays locally
£1,000
£50
re-spent
locally
£2.50
re-spent locally
£1,000
sales
After three rounds,...
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Local Money Multiplier (LM3)

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the local money multiplier taken from a report by the New Economics Foundation, The Money Trail

Published in: Business, Economy & Finance
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Local Money Multiplier (LM3)

  1. 1. Local Money Multiplier And why local businesses matter far more than you think Source: The Money Trail>>> £ £ £
  2. 2. The local multiplier effect • Looks at the impact of money that is spent and re-spent within a local economy • Demonstrates that the more money circulates a local economy, the stronger that economy is in terms of jobs, wealth and wellbeing • Both the New Economics Foundation and the Centre for Local Economic Studies have worked with local communities and public agencies to demonstrate the effectiveness of this approach £ £ £ £ £ Local economy
  3. 3. Practical example: Comparison between hotels and B&Bs located in Tayside • This compares not just the initial income from hotels and B&B’s but what happens after: – How the money is re-spent and how much of it stays in a locality vs how much leaves – It then adds up both the initial income and the money re-spent over four rounds to give a total figure Initial income Re-spend over 4 rounds Total money spent
  4. 4. Tay hotels bring in 70% more income £100,000.00 £170,000.00 £- £20,000.00 £40,000.00 £60,000.00 £80,000.00 £100,000.00 £120,000.00 £140,000.00 £160,000.00 £180,000.00 Tay B&B's Hotels Initial Income A ‘no brainer’ isn’t it? Chain hotels have got to be good for Tay!
  5. 5. £(10,000.00) £10,000.00 £30,000.00 £50,000.00 £70,000.00 £90,000.00 £110,000.00 £130,000.00 £150,000.00 £170,000.00 Initial Income Re-spend 1 Re-spend 2 Re-spend 3 Re-spend 4 Re-spend 5 Hotels Initial income of 170,000 70% higher than for B&B’s Only 20% spent locally Monery spent and re-spent locally is looked at over 5 cycles+ initial income Total money spend and re-spent comes to £235,875 But actually most of this money goes straight out to Head Offices and external suppliers. Only 20% of that initial income is re- spent in Tay
  6. 6. £100,000.00 £80,000.00 £40,000.00 £20,000.00 £10,000.00 £5,000.00 £(10,000.00) £10,000.00 £30,000.00 £50,000.00 £70,000.00 £90,000.00 £110,000.00 £130,000.00 £150,000.00 £170,000.00 Initial Income Re-spend 1 Re-spend 2 Re-spend 3 Re-spend 4 Re-spend 5 Tay B&B's Tay B&B’s re-spent 80% of Gross income on local staff, Linen, local produce and services Gross income/ Sales Half of 80,000 Cycle repeats Total money spend and re-spent comes to £255,000 While the local B&B’s bring in less initial income More of it is re-spent in the local economy – local staff, local suppliers and local owners spending their profits
  7. 7. The result is surprising £255,000 £235,875 Tay B&B's Hotels TotalsMore money stays and circulates in the local economy through Business generated by local B&B’s than hotels.
  8. 8. £ £ £ £ £ What applies to B&B’s applies to other local businesses They keep jobs and wealth in the local community £ Chain Stores don’t! Source: The Money Trail>>>>>
  9. 9. Half of the turnover of an independent local retailer goes back into the local economy 50% Leakage 50% goes back into Local economy supplies and services outside the local area £Turnover Local businesses often have strong local supply chains, spend their profits locally and employ local staff
  10. 10. …while just 5% of the turnover of a supermarket does • Supplies • VAT • Rent • Profit • Labour • Shareholders Re-spend in local community 5% Leakage 95% Source: Federation of Small Businesses Keep Trade Local>>>
  11. 11. Local retailer: 50% of money stays locally £1,000 £500 re-spent locally £250 re-spent locally £125 re-spent locally £1,000 sales After four rounds, the initial income + re-spend amounts to: £1,875 £500 leaves local economy £250 leaves local economy £125 leaves local economy
  12. 12. Supermarket: 5% of money stays locally £1,000 £50 re-spent locally £2.50 re-spent locally £1,000 sales After three rounds, the initial income + re-spend amounts to: £1,052.50 £950 leaves local economy £47.50 leaves local economy

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