Local small businesses will more often utilize the services of other small businesses in the community. They will hire local accountants, janitorial companies, printers, banks, marketing professionals, lawyers, advertise more locally, etc. These local individuals/companies spend their dollars at local businesses, who in turn hire locally, and so on. Every  dollar spent in a local business multiplies itself throughout the community and strengthens the economic base. This re-circulation of money is a little-known, yet extremely valuable feature of our local economy called the local multiplier effect. As this money passes through more hands in the local economy, more and more people locally benefit from it.

One million dollars, entering the local economy and circulating ten times, acts like ten million…increasing revenue and income opportunities for other local businesses. However, money in the local economy stops circulating at the point an outside purchase is made. Buying online ultimately exports money outside of Amarillo.

If you imagine the local economy as a bucket full of water, every time you spend money that goes outside the local area, it leaks out the bucket. Generally, our energy is focused on trying to pour more money into an area so as to keep filling up the bucket; however, a better starting point for strengthening the local economy should be to try to prevent the money leaking out in the first place by recirculating our money through local spending.

A higher proportion of money re-spent in the local economy means a higher multiplier effect because more income is generated for local people. More income retained locally means more jobs, higher pay and more tax revenue for government, all of which may lead to better living standards.

Clearly communicating the importance of the local economic multiplier effect or “local premium” is a key part of effective “buy local” and public education campaigns. The multiplier results from the fact that independent locally-owned businesses recirculate a far greater percentage of revenue locally compared to absentee-owned businesses or locally-owned franchises.

The multiplier is comprised of three elements — the direct, indirect, and induced impacts.

1. Direct impact is spending done by a business in the local economy to operate the business, including inventory, utilities, equipment and pay to employees.

2. Indirect impact happens as dollars the local business spent at other area businesses re-circulate.

3. Induced impact refers to the additional consumer spending that happens as employees, business owners and others spend their income in the local economy.

The private research firm Civic Economics has executed the bulk of studies attempting to quantify the difference in local economic return between local independents and chain businesses. Their first such study for the city of Austin, Texas showed an independent bookseller (Book People) and music seller (Waterloo Records) returned more than three times as much money to the local economy as a proposed Borders Books and Music outlet would. Those results since have been mirrored by subsequent studies, each showing a much greater local multiplier for spending at independent businesses than chains. These studies measured the direct and indirect impacts to determine the base level local economic activity of a purchase made at a chain and a local independent business.

On average, 48 percent of each purchase at local independent businesses was recirculated locally, compared to less than 14 percent of purchases at chain stores.  And when it comes to restaurants, local independent ones recirculate 65 percent back into the community!

As you can see, how our economy operates can support and improve the well-being of our people and community. Study after study has shown that the more locally owned businesses per capita that a community has, the better off that place is on many of the other indicators of community health. The larger the share of transactions in our economy—buying, producing, investing—that involve a locally owned business, the more thriving, equitable, and resilient our economy and community can be. “Buy Local” is more than a feel-good bumper sticker slogan or trendy advertising campaign. When people support locally owned independent business, they support their own communities in unimagined ways.