1. 1
First Customer Program
Economic Impact Analysis & Payback Periods for the
State
(9/2012-5/2015)
Introduction
The First Customer Program (FCP) assists technology start-ups with identifying and addressing critical
gaps in business development, marketing, and sales. The FCP is funded by the Michigan Strategic Fund
with program oversight by the Michigan Economic Development Corporation (MEDC) and administered
by the University of Michigan Institute for Research on Labor, Employment, and the Economy
(IRLEE). As of April 2015, there have been 55 co-funded projects among 28 clients. This report compares
the cost of funding the FCP with the payback period to the state of Michigan. The program award totals
$999,376; currently, $753,264 has been disbursed between December 2012 and April 2015. In total, FCP
clients created 170.3 new full time equivalent (FTE) jobs with 84 directly attributed to the FCP. 344 FTE
jobs were retained among FCP client companies that were provided services. Of these, 18 FCP clients
credited retaining 49 jobs directly because of FCP support through full assessment, delivery of Market
Specific Overview and/or Action Plan, and execution of projects.
This report features a conservative payback period estimate reviewed by the FCP, IRLEE, and other
University of Michigan economists. The other University of Michigan economists have a contract with
MEDC to update and improve current payback period estimates using the Regional Economic Models
Inc. (REMI) model; however, the FCP and IRLEE team do not have access to the REMI model. As a result,
the FCP and IRLEE team used the Regional Input-Output Modeling System (RIMS) to calculate the
payback period. Numbers presented for job creation, job retention, and sales may have been collected
after the MEDC reporting period and therefore do not match MEDC progress reports.
The payback period to the state of Michigan has been calculated by estimating 1) income tax and sales
tax from job growth and 2) the corporate tax from revenue growth. FCP was directly attributed to the
creation of 84 jobs created directly attributed by clients to FCP support to date. The conservative
payback period to the state is estimated to be 2 years and 2 months and the optimistic payback period
to the state 1 year and 4 months as seen in Figure 1.

2. 2
Figure 1. FCP Impact & Metrics

3. 3
Methodology & Analysis for Job Creation, Income Tax, & Jobs Impact
To estimate income tax and sales tax, the first step was to survey the job creation attributed to FCP. To
track this, FCP has clients fill out a self-reported survey biannually across reporting periods that begin or
end on October and April. This survey quantifies the total jobs created. Then, each client was verbally
surveyed to ask if the new job creation was attributed to FCP activity; if new jobs were created and
attributed to FCP activity, this total job creation figure was then discounted by the general industry job
growth. A second adjustment is made to the total jobs created to account for the broader economic
impact of job creation. Finally, the payback periods to the state were calculated from income tax arising
from job creation.
Survey Results
Data gathered for three reporting periods (Table 1) show a consistent increase in revenue and jobs
created by FCP clients as the program progresses. A total of 84 jobs were created directly as a result of
FCP activity.
Table 1: FCP Survey Results 2013-2015
Period Dates Jobs Created Increase in Revenue
1 Oct 2013- Apr 2014 8.0 $237,000
2 Apr 2014- Oct 2014 10.5 $367,204
3 Oct 2014- Apr 2015 65.5 $2,833,656
Total 84.0*
$3,437,860
*Please note the total number differs from MEDC Progress Report Oct 2014 – Apr 2015 based on updated
information from clients.
Adjustment for Industry Growth
It would be incorrect to assume that FCP clients would not experience any natural growth or decline had
FCP intervention not occurred. To account for this, the calculation discounts jobs created due to FCP
activity by the jobs growth by client’s industry. The Bureau of Labor Statistics (BLS), State and Area
Employment’s customized tables provide the monthly employment numbers in Michigan for a particular
industry. Had FCP intervention not taken place, the FCP estimates the client’s growth or decline to be
equivalent to that of the industry for a given period.
Most FCP clients are new technology start-ups and do not have a corresponding niche industry
classification. In such cases, a broader classification was used. For example, Arborlight LLC, an electrical
equipment and appliance manufacturing company was classified as a durable goods manufacturer and
Detroit R&D Inc., a biotechnology manufacturing company, was classified as a non-durable goods
manufacturer.
For each of the three reporting periods, the percentage change in employment is calculated (Eq. 1) from
the BLS data corresponding to the client’s industry. From the percentage change and the number of
initial full-time employees (FTEs) at the start of each reporting period, the expected change in
employment was calculated for each client. The expected change was subtracted from the number of
FTEs created due to FCP activity to calculate the effective jobs created due to FCP activity adjusted for
industry growth (Eq. 2).
Eq.1 Industry Job Growth (%) = Change in Employment / Initial Employment [for each period]
Eq. 2 Effective Jobs Created = FCP Jobs - {Initial FTEs x (Industry Job Growth) (%)}

4. 4
The calculations only consider clients who attributed growth to FCP activity. If client change in
employment was not attributed to FCP, the calculation disregards those jobs created and any industry
growth or decline.
Adjustment for Economic Multiplier
Growth in business results in increased purchasing and spending and has a broader economic impact in
a region. For instance, as a company grows, it purchases more from suppliers and increases in income
result in increased spending in the region. The Bureau of Economic Analysis (BEA) Regional Input-Output
Modeling System (RIMS)1
is used to estimate this impact. The FCP use change in employment numbers
as the basis for measurement. For each job created by an FCP client, the multiplier2
estimates change in
overall jobs in Michigan. The estimate includes client new job creation.
The RIMS provides estimates for three types of economic impact that resulted from client’s growth.
1. Direct Impact (Tier-1 Suppliers): Economic impact as a direct consequence of the first round of
inputs purchased by FCP clients.
2. Indirect Impact (Tier-2 and beyond Suppliers): Economic impact related to the subsequent
rounds of inputs purchased by supporting industries. The sum of direct and indirect impacts is
also known as inter-industry effects.
3. Induced Impact (Household Spending): The increase in spending on goods and services as a
consequence of changes to the payroll of the directly and indirectly affected businesses.
Using RIMS, the FCP developed a conservative and optimistic estimate for the payback period to the
state of Michigan based on total job growth attributed to FCP assistance. The conservative estimate
relates to the direct and indirect impacts of employment (Impacts 1 & 2). The optimistic estimate
considers direct, indirect, and induced impacts (Impacts 1, 2 & 3). For each client, the RIMS3
multiplier is
applied to the effective number of employees created. Table 2 shows the results of the calculations.4
The following results are used as inputs in calculations for conservative and optimistic payback periods
to the state.
Table 2: Results and Impact of Jobs Created
Period Dates Jobs Created Due to
FCP1
Conservative Jobs
Impact2
Optimistic Jobs
Impact3
1 Oct 2013- Apr 2014 8.0 17.02 28.44
2 Apr 2014- Oct 2014 10.5 18.10 29.44
3 Oct 2014- Apr 2015 65.5 129.23 213.53
TOTAL 84.0 164.35 271.41
1
Obtained from client surveys.
2
Include direct and indirect impacts of employment (RIMS Type -1).
3
Include direct, indirect and induced impacts of employment (RIMS Type-2).
1
The Bureau of Economic Analysis (BEA) Regional Input-Output Modeling System (RIMS)1
is used to estimate this impact. is widely used in
private and public sectors for estimating the economic impact of an event based on output, earnings or employment in one industry.
<https://bea.gov/regional/pdf/rims/RIMSII_User_Guide.pdf>
2
The RIMS direct effect employment multiplier estimates the change in number of jobs in all industries for every additional job in the industry
corresponding to the entry.
3
United Stated. Bureau of Economic Analysis. RIMS II Multipliers. Michigan (Type 1)N.p.: n.p., n.d. Print
4
The Excel workbook can be provided upon request, contact FCP for further information.

5. 5
a. Calculating Income Tax
To calculate the payback to the state from income tax, the average tax return per new FTE was
estimated using a tax per capita survey by the U.S. Census Bureau (2014 Annual Survey of State
Government Tax Collections) using Equation 3. In Michigan, the total individual income tax collected was
$7.874 billion and the total population of working adults (aged 18 and over) in Michigan was 7.56
million.5
Eq. 3 IncomeTaxPerCapita=TotalIndividualIncomeTaxCollected/TotalPopulationofWorkingAdults
The resulting estimated income tax per capita totaled $1,041.53.
b. Calculating Sales Tax
The total sales tax per capita collected may be estimated using Equation 4. In Michigan, the total sales
tax collected was $12.309 billion and the total population of working adults (aged 18 and over) in
Michigan was 7.56 million.6
Eq. 4 Sales Tax Per Capita = Total Sales Tax Collected/Total Population of Working Adults7
The resulting estimated sales tax per capita totaled $1628.17.8
There are two reasons why using the average tax collection per capita in Michigan for income tax and
sales tax is a defendable approximation for new FTE tax returns. First, the jobs resulting from direct,
indirect and induced impacts encompass all industries in Michigan. Second, for jobs created by FCP
clients, the FCP collected salary information directly from each client reporting job creation. The average
salary for a new FTE position directly attributed to FCP was $53,849. This average is higher than the
Michigan 2014 annual mean wage of $45,000; therefore the approximation for the total new FTE tax
returns is conservative.
5
“Profile of General Population and Housing Characteristics: 2010 , Michigan” U S Census Bureau
6
“Profile of General Population and Housing Characteristics: 2010 , Michigan” U S Census Bureau
7
Though the FCP team recognizes that the total sales tax may be collected from working adults and other entities such as a small business or sole
proprietor, most sellers do not track whether the purchaser is a working adult or other entity. This also recognizes that businesses with less than
$350,000 in allocated or apportioned gross receipts and/or less than or equal to $100 in annual liability are not required to file or pay the
Corporate Income Tax (CIT). This calculation is an approximation which provides a conservative estimate of the total sales tax per capita.
(Source: Michigan Taxes. Michigan Department of Treasury. http://www.michigan.gov/taxes/0,4676,7-238-59553---,00.html )
8
Sales Tax Per Capita = Total Sales Tax Collected/Total Population of Working Adults = $12.309 billion/7.56 million = $1,628.17

6. 6
Methodology and Analysis for Revenue Increase, Corporate Tax, and
Revenue Impact
To estimate sales tax, the FCP has clients fill out a self-reported survey biannually to quantify new or
increases in client revenue attributed to FCP activity. Finally, the payback periods to the state are
calculated including corporate and sales tax arising from new revenue or increases in revenue.
Survey Results
Data gathered for three reporting periods (Table 1) show a consistent increase in revenue. $3.4 million
is the total increase in revenue for FCP clients since engagement with the FCP and $1,627,860.22 is the
total revenue increase as a direct result of FCP activity.
Calculating Corporate Tax
FCP clients experienced a total increase in revenue of $3.4 million since engagement. 12 clients claimed
FCP was directly responsible for $ 1,627,860.22 in new or increased revenue9
. Earnings before interest,
taxes, depreciation, and amortization (EBITDA) can be used to analyze and compare profitability
between companies and industries because it eliminates the effects of financing and accounting
decisions.
The EBITDA ratio for the technology sector was 21% for Q1 2015.10
The resulting earnings for FCP clients
total $341,850.11
The corporate tax12
return at 6 %13
collected from these earnings totals $20,511.
9
The FCP recognizes that businesses with less than $350,000 in allocated or apportioned gross receipts and/or less than or equal to $100 in
annual liability are not required to file or pay the Corporate Income Tax (CIT). All FCP clients attributing increase in revenue have demonstrated
gross receipts in sales of greater than $350,000 or otherwise do not qualify for that exemption.
10
"CSI Market." Profitability by Quarter, Gross, Operating and Net Margin from 1 Q 2015. N.p., n.d. Web. 25 June 2015.
11
$341,850= 0.21 x $1.627 million
12
Michigan corporate tax = 6% (Source: IRS)
13
The Michigan Corporate Income Tax (CIT) of 6% for C corporations and taxpayers taxed as corporations federally was used versus trying to
include the small business alternative credit which offers an alternate tax rate of 1.8% of adjusted business income. This is to provide a more
conservative approximation of corporate tax returns. (Source: Michigan Taxes. Michigan Department of Treasury.
http://www.michigan.gov/taxes/0,4676,7-238-59553---,00.html )

7. 7
Methodology for Payback Period for the State Investment
The payback period for the state may be calculated as a total of income tax and sales tax arising from
effective jobs created due to FCP adjusted for industry growth and corporate tax derived from new or
increased revenue (Eq. 5).
Eq. 5 Payback Period to State = Corporate Tax + Income Tax (j) + Sales Tax (j) [j: jobs created]
Multiplying these average income tax and sales tax per capita with the conservative and optimistic jobs
estimates yields total payback period to state. Table 3 provides a summary of results.
Table 3: Payback Period for the State Investment
Conservative Optimistic
Direct and Indirect Direct, Indirect, and Induced
Job Creation including
Multipliers
164.35 271.41
Corporate Tax $20,511 $20,511
Income Tax Return $171,175.46 $282,681.66
Sales Tax Return $267,589.74 $441,901.62
Total Returns $459,276.20 $745,094.28
Payback Period*
2.18 (2 years 2 months) 1.34 (1 year 4 months)
*
Payback period is based on FCP program total award of $999,376 for grant period 12/01/2012 to 11/30/2015.

8. 8
Conclusion on First Customer Program Economic Impact Analysis
FCP has had the opportunity to demonstrate considerable economic impact within the state of
Michigan. In total, FCP clients created 170.3 new full time equivalent (FTE) jobs with 84 directly
attributed to the FCP. 344 FTE jobs were retained among FCP client companies that were provided
services. Of these, 18 FCP clients credited retaining 49 jobs directly because of FCP support through full
assessment, delivery of Market Specific Overview and/or Action Plan, and execution of projects. On
average, the program spent $1,198.59 of grant money retaining 1 full time position. The program spent,
on average, $3,285.37 of grant funding to create 1 full time job. The conservative payback period to the
state is estimated to be 2 years and 2 months and the optimistic payback period to the state 1 year and
4 months as seen in Figure 1.
The FCP team has developed a method for identifying critical business development, marketing, and
sales gaps in startups. FCP is a useful entrepreneurial resource for early stage startups and those that
have revenue under $5 million seeking a repeatable and scalable sales model. FCP’s identification of key
projects and providing co-funded support has helped startups significantly scale up business
development, marketing, and sales efforts.
To continue supporting the FCP and its expansion, the FCP team recommends expanding reach through
Mid- and Western Michigan. Bringing on additional professional personnel would help the team expand
regional expansion efforts on the ground, expand bandwidth to assess a larger portfolio of startup
clients, and speed up response time and the delivery of market intelligence, Market Specific Overviews,
Action Plans, and projects to clients.
Another way to support the FCP could include increasing the amount of grant funding that may be
awarded per client. Currently co-funding is up to $25,000 per client which means that a project or series
of projects may total $50,000. It may be useful to increase the amount of co-funding that may be
awarded per client; less experienced startup teams average 3 projects with $25,000 but more
experienced startup teams average 5-6 projects. Increasing the co-funding which may be awarded per
client may increase the spectrum and depth of assistance provided through FCP projects.
Finally, it may be useful to increase the funding for projects overall to provide the FCP team with the
ability to award more potential projects to a greater number of eligible clients.
Impact on Regional Partners
The First Customer Program (FCP) has also demonstrated considerable impact on its employees and
regional consultants. The FCP works with a larger network of consultants in and around Michigan. Many
of the consultants are small businesses directly benefiting from FCP projects. Of the total $999,376 grant
funding, $303,000 was spent on consultants. The FCP employs a director, a program manager and part-
time research associates. Over the course of the program this amounted to a total taxable payroll of
$232,604. Research associates are graduate level students many of whom gained valuable experience
for future positions. Ten associates, including 4 who were international students, have since begun
working full time, sponsored, and salaried positions with Michigan companies.