The Ripple Effect
What if I told you that you could turn $20 into $1000 and all you had to do was spend it. Sounds like a scam right? It’s not. In fact, it is a simple and extremely important economic principle known as the multiplier effect of money. In times like these, my survival instincts tend to lead me back to the principles I learned in business school, but don’t worry, I’m still making bourbon too. The urgency of spending money locally is more important than ever and I’m going to explain how in a perfect scenario a very small purchase by you in a local business can end up being a massive investment in the community. Let’s assume for a minute we aren’t in a pandemic and business is being conducted as usual (this is solely for ease of explanation, and doesn’t change the principle of the matter at all)
You spend $20 on a bangarang pizza from Chef Charles.
... This money is transferred to payroll and is payed out to an employee, Amy, as wages, and Amy decides she would like to buy dinner and a drink from Cellar 152 for $16 (she tips the server Dan $4), then what the heck, Amy decides to join Dan (whose shift just ended) for a drink at town club. Amy uses an additional $8 of other money to buy 2 drinks. Dan uses the $4 he made plus an addition $4 from other tips to buy two drinks. Together they tip the bartender an additional $4. The next day Dan receives his paycheck from Cellar 152, $16 of the total amount in it were from the money Amy originally spent having dinner there. Dan uses this money to gas up his car at the local gas station who in turn has an account payable to Townline Ciderworks (and so the $16 in gas gets used towards the 100 dollars invoice due for canned cider) The next day Chris uses his $4 from tips plus he collects his paycheck, $16 of which was funded by Dan and Amy buying drinks there. Chris decides he needs to go grocery shopping with $20 at the Village Market, but first he decides he wants to stop for a $5 latte at Planetary Coffee...
... Are you starting to see the significance? From your one-time $20 pizza purchase you just sent a ripple of money throughout the community to the tune of $112 directly and $21 through indirect additional spending… all in less than 24 hours, meaning that over the course of a week your $20 will trigger nearly $1000 commerce. This makes you pretty much a fucking magician.
Now for those of you who are skeptical, I understand… this is a model that assumes 100% of the money is spent locally, and it gets spent instead of saved. This is for conceptual purposes only so calm down asshole, I can’t do a perfectly realistic one because this shit is complicated and my motivation for mathing is at an all time low. The important thing is, your local dollar spent makes a hugely massive difference. It is why both personally and professionally we strive to support local, and why anyone can make a difference. Thank you for your continued support, we are looking forward to serving you all again in the future.
This blog is our journey. Distilled.