Local Multiplier 3 (LM3) was developed by the New Economics Foundation as a simple and understandable way of measuring local economic impact. It is designed to help people to think about local money flows and how their organisation can practically improve its local economic impact, as well as influence the public sector to consider the impact of its procurement decisions. It was designed to be quick and relatively easy, and to highlight where an organisation can improve its impact.
The measuring process starts with:
- A source of income (say total income into a social enterprise).
- How this income is spent.
- How it is re-spent within a defined geographic area (the ‘local economy’).
These three steps are the ‘3’ in LM3. The ‘multiplier’ is an economics concept that puts a label on a concept we understand intuitively: money that enters an economy has a multiplied impact on that economy based on the way people spend and re-spend money. More re-spending in the local economy means a higher multiplier effect because more income is generated.
There are five general stages in an LM3 analysis:
- Determine your ‘local’ area (troubleshooting advice on this is in The Money Trail).
- Identify your starting point, or your income source (Round 1).
- If Round 1 is the organisation’s income, then for Round 2 you need to break down how you spend your income within the local area.
- For Round 3, you need to survey the businesses and people you spend your money on to find out how they spend their incomes.
- Collate all responses, do some quick maths, and then you have your LM3 score.
Some organisations write up a report of the process and results. Others incorporate the results into future strategic planning documents. The process can be revisited on a periodic (say annual) basis and progress compared.
- It is quick and easy relative to other forms of economic evaluation and uses numbers to show the organisation’s impact. It also highlights for the organisation where it can improve its impact.
- LM3 shows external bodies (funders, public bodies) the value of funding or contracting with the organisation in terms of local economic regeneration. For example, as highlighted in The money trail, Eden Community Outdoors was able to use the LM3 to demonstrate its impact on the local economy, which helped the organisation to secure funding for a new post to take work on local economic impact forward.
Contact us for a briefing on how to measure local economic impact, including use of LM3. Find our more here.
The Money Trail: Measuring your impact on the local economy using LM3
Plugging the Leaks contains additional documents.
There is also an online version of the LM3 tool.