Measuring Direct Economic Impact
The following section of the Toolkit provides step-by-step guidance to measuring direct economic impact highlighting the relevant issues within each stage; areas which the research highlighted as often being overlooked or misunderstood are discussed where appropriate.
Step 1: The host economy
In most cases the host economy will be the city hosting the light event, although the choice of host economy may be influenced by the remit of the organisation providing financial support for the event.
Step 2: Visitor profiling and measuring visitor spending
When assessing economic impacts of an event, only expenditures by visitors who are in the area because of the event are relevant, i.e. those that are additional visitors.
There are two areas that need to be considered when measuring visitor spending – measuring visitor numbers and applying spending patterns. Light events and festivals involve different type of audiences who can be grouped by the nature of their visit:
- Day visitors
- Overnight visitors staying in commercial accommodation
- Overnight visitors staying with their friends or family
The rationale for this classification is that spending patterns of these sub-groups are not the same. As a rule of thumb, the further the visitors come from and longer they stay, the greater the economic impact to the host city.
When the eligible visitor numbers have been calculated, the spending pattern of those visitors need to be determined and up-scaled to determine the total estimated spend associated with visitors.
Visitor spending assessment usually involves some survey work. The impact research findings suggest that although most visitor surveys conducted by host cities included questions on a visitor’s origin, only a proportion of surveys had also questioned visitor expenditure. The Glasgow study used an alternative approach, taking average visitor expenditure figures from another study that had been conducted locally, instead of including questions in the visitor survey. Different figures were used for day visitors, UK and international overnight visitors.
In terms of expenditure, accommodation tends to be the most significant item of expenditure in economic impact studies and the impact on the accommodation sector is relatively simple to calculate:
Number of commercial overnight stays
X average number of nights spend in the city
= number of commercial bed-nights
X average cost per bed-night
= visitor spend on accommodation
5 300 overnight stays
X 1.2 number of nights spend on average
= 6 360 commercial bed-nights
X 55 € (cost per bed-night on average)
= 349 800 € total visitor spend on accommodation
Some light festivals and events attract a large number of overnight visitors, and in these cases it is advisable to supplement survey findings by discussions with the commercial accommodation providers to help verify findings from the survey and provide more robust results.
Accommodation is not the only item of visitor spend and especially in the case of some light festivals and events where day visitors constitute the bulk of attendance, other visitor spend plays an important role. The most common expenditure items are:
- Food and drink
- Local travel (e.g. bus or taxi)
- Shopping or souvenirs
- Other (e.g. parking or petrol)
Visitor expenditure figures used in case study impact studies include:
- Gothenburg visitor survey results suggest the average expenditure by visitor is 116 € (1199 kr) of which 12% is spend on travel, 18% on restaurants, 5% on nightlife, 40% on Christmas presents, 17% on shopping, 3% on local transport, 2% on entrance fees, 2% on petrol and 1% on something else;
- Glasgow impact study used the following average daily expenditure: 29 € / day visitors, 97 € / UK overnight visitors
- Durham impact study includes a graph displaying average spend per respondent. Average spend by visitor 52 € of which 38% is spent on food & drink, 21% on entertainment, 21% on shopping and 20% on transport.
Two cities had approached local businesses to estimate the extent to which the light event or festival had an impact on business income or impacted any other way.
• Medellin conducted a survey of formal and informal retailers and traders operating in the event area and asked retailers and traders how satisfied they were with the event organisation and opportunities generated by the festival. Most retailers (6 in 10) agreed the associated event costs justify benefits, and about half of all traders and retailers stated the event had resulted in increased sales.
• Durham conducted a survey of businesses which asked for more detail about the impact of Lumiere upon their business. Overall the impact of Lumiere was seen as being positive by businesses taking part in the survey. Although the greater proportion (46%) thought there was no impact upon their business, 42% in total had noticed a positive or very positive impact, compared to just 6% who experienced any kind of negative impact. Those who experienced a positive impact mentioned the increase in footfall and business in general; greater numbers of visitors and tourists in the town during the event and increases in the number of bookings, often mentioning they were fully booked.
Step 3: Measuring spending of event organiser
Information on the cost of hosting the event is a crucial piece of information for any impact analysis as it will enable cost-benefit assessment to be made of the revenue generated relative to the cost.
Event organisers should ensure all costs and revenue are included in the impact analysis. Economic impact of events can be defined as the net change in an economy resulting from an event. The change is caused by activity involving development and running of an event. These in turn generate visitors’ spending, public spending, employment opportunities, and tax revenue.
- Operational costs are the recurring expenses which are related to the operation of an event and thus exclude any capital investments. All fixed and variable costs are considered after start up costs. Fixed costs include for example office space or salary costs of permanent members of staff. Variable costs include marketing, advertising and cost of sales (i.e. supplier costs for each booking). Operating costs should also include any sponsorship and in-kind work (e.g. equivalent advertising value of free radio advertising or actual cost of sponsorship in the cost of electricity by an electricity company).
- The economic impacts of expenditure are composed of direct, indirect, and induced effects including revenue from expenditure of additional visitors. Multipliers are used to estimate the supplier effect (increase in business sales has an effect on the local supplier chain) and income effect (increase in business sales can lead to an increase in employment or income, a proportion of which is spent in the local economy). A multiplier is a simple ratio that measures total changes in the economy related to some initial change. Studies typically determine multiplier values through one of three methods – input-output tables for a particular area; surveys of businesses and employees; and secondary benchmarks.
Most publicly funded events are likely to break even in financial terms where income equals cost. On the other hand, most commercial sponsor-driven events are designed to achieve a profit.
Step 4: Direct economic impact
The various calculations from previous steps can now be brought together to calculate the Direct Economic Impact.
Visitor spend (Step 2) minus Organiser spend (Step 3) = Direct Economic Impact (Step 4)