Measuring Your Impact on the Local Economy Using LM3
The LM3 tool created by the New Economic Foundation is a simplified method for calculating the local multiplier of an organization or project. A local multiplier is a numeric value that represents the true added benefit from money flowing into a local economy — anything greater than 1 means the money is adding to the local economy through secondary purchases. As an example, if a company chooses to source their materials locally, the money they spend flows into other local businesses, which in turn will likely spend a portion of that money locally as well. This effectively multiplies the value of the money to the local economy because it is spent multiple times locally rather than being sent away to another region where it is much less likely to be re-distributed to local businesses.
When tracking the path of dollars spent in a particular community, the LM3 tool measures the first three rounds of spending. The tool looks at the first round of spending (“initial income”), and then measures how much the original individual or organization spends locally, and finally measures how much of that local spending is then respent in the community. After adding all three rounds together, you divide the total by the initial income, and this final number represents the local multiplier score. This final number is an indicator, open to interpretation, that paints a picture of general trends, and can help track changes over time.
The report does a great job of translating what could be complex economic theory into easily understood language. The authors clearly identify the benefits of measuring the economic multiplier effect of a particular project or business, which stakeholder groups have an interest in this information, how they might use it. They also give step by step examples of how the tool might be used in a particular case. The LM3 tool will help put hard dollars and cents to the abstract argument about the benefits of locally-owned businesses over chains, and can help strengthen the principle of community economic benefit when assessing the relative value of particular economic development schemes. Although the LM3 tool was developed and tested in Britain, it should be applicable in the U.S. context.
