Economic Impact Studies: The What & Why

Why an Economic Impact Study?

At the start of the twenty-first century, farmers' markets are everywhere. Consumers interested in health and ecology are teaming up with farmers, fishers, and Main Street advocates. By the time the 1990s had come to a close, the ancient mechanism of public markets had taken center stage in numerous urban revitalization efforts. All of sudden what was old-fashioned, low-tech, and informal suddenly appeared new, innovative, fun and effective. How effective? There’s the rub. Unless we can quantify the efficacy of markets, especially to those in unconvinced quarters, then we’re not so certain. We recommend studying your market so that you assess and improve your internal operations and communicate impact to others (be it shoppers, vendors, supporters, decision-makers).

Why measure effectiveness?

Market initiatives are driven by a wide span of goals: to revive family-centered agriculture, bring life to Main Street, reinvent the foodshed, etc. As a result, measures of success differ. Some measure the number of smiling faces gathered around a story-teller in the corner of the market, while others examine the quality of new relationships forged between producer and consumer. Does this sound familiar? That's the difficulty many of us in the farmers' market world face. We observe both the qualitative and quantitative structural social change taking place every morning when vendors arrive to erect their pop-up tents. We often facilitate new commercial relations, resurrect old ones, and examine the often hidden spin off effects of markets upon the surrounding neighborhood, upon vendors and their communities, and even upon decision-makers whose paths have led them to the market.

Whether your interest is in bricks and mortar or tailgate markets, food, antique or crafts, the outcome is much the same: Public markets are highly effective business incubators. Cost effective, they are also perhaps the most versatile social infrastructure mechanism available. Market organizers know this. (We're true believers because we see it in action everyday.)

But how do we communicate markets’ value to others who have yet to recognize their utility? If anecdotes alone fail to win over the downtown Rotary Club, Chamber of Commerce, or even merchants (who may feel threatened by the mere mention of a public market project), then how do we measure effectiveness in terms that others will understand?

Money makes the world go round. Beneath the marvelous social dynamics at play inside markets, the fuel that feeds the mechanism is cash. While many markets may appear informal if not groovy in nature, watch closely. A lot of money changes hands. In fact, so much cash is circulated that it may even surprise market organizers. If they’re surprised, imagine how detractors will respond.

Measuring economic impact is also valuable for self-reflection: Are we doing a good job? Are the vendors happy with their lot? Are shoppers satisfied? While measuring the economic impact, you may wish to spend some time asking shoppers and vendors questions that directly pertain to specific issues you are facing (and may not affect the economic number crunching). Remember: You don’t want to burden your subjects with too many questions. If they get tired answering questions, then the reliability of their answers will suffer. See our “How to” section for an in-depth discussion of our methodology.

What are we measuring?

There is a danger that when the research come to light detractors could find mischief in numbers that market organizers are otherwise duly proud. For instance, if a nearby merchant perceives that the (nonprofit or subsidized) public market is a drain on his/her business, then large gross receipts findings might only confirm the notion that the market is stealing his/her patrons. Though somewhat rare, Main Street businesses have been known to complain in the following manner:

	“The morning market attracts so many shoppers to the area that parking places become too scarce for my shoppers. And to add insult to injury, those market shoppers don’t spend a dime in my store. They come; they leave. And the same could be said of vendors. Those farmers drive into town on a red carpet laid out by City Hall (with my taxes). They earn buckets of money and don’t bother to spend any of it with my shop or the restaurant down the street.”

If you’ve run a market, you’ve heard something like that from a nearby merchant who fails to grasp how the market actually serves his/her interests. What information is valuable? How do you retrieve it? And how do you communicate it?

The paradox of markets is that though remarkably simple (producer + consumer = economic activity), impact is both deep and widespread. Moreover, there’s enough action (and diversity of actions) to satisfy an incredibly disparate group of interested parties. As to what economic activity we suggest measuring, here’s what most markets are interested in capturing:

Internal impact. What are the gross receipts? How much money changes hands within the market itself on market days? The simplest snapshot in shoppers’ minds as to what a market is about, the gross receipts (the amount of money vendors take home from sales at the market) describes how markets are good for its vendors. Since market vendors are often cagey about such matters (and almost culturally predisposed not to gloat about financial success), this is often difficult information to gather.

You can interview the vendors and/or the shoppers. If you interview both, the numbers should add up to the same total. Right? Maybe not. First, lets consider interviewing the vendors: Methods vary depending upon the type of market and the type of rent structure. Organizers of bricks and mortar public markets (with permanent store fronts) are likely to possess relatively intimate financial details about their vendors. In order for the vendor to secure a line of credit with the bank, the market may have helped the vendor prepare the documents that describe the sales potential of the business. In such cases, measuring gross receipts may be a simple exercise.

For organizers of tailgate farmers’ and craft markets, they may or may not possess the mechanisms to easily ascertain the gross receipts directly from vendors. These kinds of markets generally fall into two categories (determined by rent structure): The more common is the flat fee rent structure where vendors are charged a space rental (often determined by square footage). Vendors pay $10, $20 or more per market day for rent. The rest of their earnings is theirs. As to how much, it is difficult to measure. Most market managers have a hunch of how much, for instance, the tomato seller is taking home in cash (measured simply by counting the empty tomato boxes and doing the math); however, other products are more difficult to gauge. The lesser common is the percentage of sales fee structure. In such a market, vendors pay a nominal entrance fee plus a percentage of their sales that day (a figure that varies from market to market, 10%, 20%, etc.). While some argue that such a system is difficult to manage, requires a high level of trust between market managers and vendors, imbedded in the system is an easy means to capture the gross receipts on every market.

Regardless, we recommend also interviewing the shoppers. They should not be motivated to obfuscate their numbers. They have little to lose or gain by not being honest. Moreover, our experience has been that keen supporters of the market as a community institution, shoppers are eager to answer questions.

External impact.

Here’s where interviewing the shoppers yields meaningful research results. By asking them where they come from and how much they spend at nearby businesses, market organizers can equip themselves with the knowledge to fend off negative perceptions by nearby retailers who may view the market as a burden rather than an amenity. By and large, markets attract foot traffic, a critical mass of shoppers into the streets of a neighborhood. Their presence on the streets alters the dynamic in otherwise desolate retail corridors. Our experience, is that shoppers spend a lot of money at nearby stores, cafés, restaurants. The market serves as a magnet to attract shoppers to the locale. Once there, they weave other errands (to hardware stores) and plans (lunch at restaurants or business meetings at cafés) into their day.

A great example of this is NYC’s Union Square. The Greenmarket went in when the public square was a magnet for drugs and crime. By 2005, they had so successfully branded the location as a destination for quality food that they are now joined by Whole Foods and Trader Joe’s. This is social enterprise at its best.

A new paradigm.

In her book The Nature of Economies, Jane Jacobs suggests that we look to rain forests for inspiration when shaping economic development policies. Highly efficient systems for trapping water beneath a canopy of trees, rain forests provide an ideal climate for the exchange of water from sky to leaves, puddle to insects and other creatures, from soil to plant, and so forth. What’s so magnificent is that each drop of water is enjoyed by so many parts of the eco-system. Each point of contact is a transaction that brings life to the entire system. Water is the currency of life in the rain forest. By contrast, life in the desert is harsh. Water is scarce; and water that manages to reach the sandy surface of the desert quickly evaporates before too many “transactions” take place.

If we consider our local economies to be eco-systems, then how do we fare? Do we live in deserts or rain forests? When money falls from the sky (courtesy of a Federal grant, the arrival of “big box” chain store or a new manufacturing facility), what happens to the money that enters the local economy? Who gets to touch it? How many transactions take place? Where is the wealth pooled? Does it remain in the economy or does it evaporate like water in the desert?

Traditionally, economic development impact studies have focused attention upon the ability of a business entity (be it a company, institution, festival) to attract new dollars to the locale (be it a city, region, state). Popular wisdom suggests that on average each dollar will change hands seven times. Unfortunately, this seven-times multiplier does not jive with the reality in many communities. Where as in the past a grocery store might employ a local public relations firm to design a newspaper advertisement, a local accounting firm to manage the books, a local bank to invest the profits, and so forth, today, the “mom and pop” grocery store has been replaced by a corporate chain. While employees and other purveyors of goods and services get a piece of the gross revenue in a chain store, little else remains in the local economy. To use Jane Jacobs’ imagery of a rain forest versus a desert, the mom and pop grocery brings moisture to the local economy; whereas, the chain store contributes to the desertification of local economies.

Instead of fixating upon the arrival of new dollars, we should examine the efficacy of local economies to retain wealth. Which mechanisms keep dollars sticking around? Our experience is that public markets (of all stripes) do just that. In developing a tool for markets to measure their economic impact upon a community, we hope to push the discussion towards new measures of success – money and its stickiness.

Public dollars are often invested as seed capital for new markets, market expansion, and so forth. With the intention benefiting the city or state, these dollars are also sought by competing initiatives — sports arenas, strip malls, convention centers. For example, market guru and founder of the Grove Arcade Public Market in Asheville, NC – Aaron Zaretsky makes the case that “markets are better civic investments than sports arenas, for instance, because they create more ripples in the economy.” Larger markets compete for similar public dollars as do sports arenas or industrial parks — all the more reason we make the case that markets make better investments:

	“The basic paradigm of economic investment is one in which communities march 20-30 miles outside of the urban core, paving over farmland and spending millions of dollars to extend the urban infrastructure. Why? The formula works like this: build a business park, get 30 years of tax abatements to create, say, 300 new jobs. Few question the logic as to whether that’s a good investment. If instead, you consider public markets, take advantage of existing infrastructure (instead of building new ones) and create hundreds of new jobs without a negative impact upon the environment; create opportunities for jobs, entrepreneurship, and social common ground (sorely needed in metropolitan areas). Regarding industrial parks, consider the logic of pursuing a manufacturing strategy: It has been responsible for the loss of tens of millions of jobs over the past 20 years. Where is there job growth? One area is among the very micro-enterprises that public markets are good at producing. What are public markets? Imagine a tent thrown over a collection of independent, small businesses. Provide appropriate technical help to the critical mass of businesses and the odds for their success are a far better wealth and jobs creator than the tired and failed strategies revolving around industrial parks.”

Anecdotal impact.

The business community and the City Hall number crunchers will respond to the scientifically derived numbers that you present upon completing an economic impact study. They will also respond to the stories behind the numbers. Whether you’re writing an annual report, press release, or conducting a slide presentation for decision makers, be careful to balance numbers with meaningful stories that give the numbers a human face. How? Whilst conducting a study, take the time to interview a handful of vendors, nearby merchants, shoppers, and restaurant chefs. Their comments will punctuate the findings you present.

Ask a nearby merchant if s/he is busy during market hours. Ask a chef to describe how purchasing produce from market farmers is adding value to his/her menu. Ask a shopper how their family enjoys spending Saturday mornings together at the Market. Or, tell a story about how dollars circulate inside the market. In ours, a dairy farmer sells his milk to a cheese monger. He makes ricotta cheese, a product he sells to the baker. The baker prepares a ricotta cheese and spinach pie (with spinach from another farmer). That’s a glimpse of what we mean by sticky money or in Jane Jacobs’ eloquence — a favorable business climate.

  How to do an economic study