Both achieve the same result.
Take a grocery store for example. Some have marketing expenses, loss leaders, and spoilage issues. Most grocery stores have a low profit margin, around 2%. That means grocery stores don’t take a big cut of the profit,
Equivalent Revenue = Energy Savings / Profit Margin
So let’s say that an LED lighting project, which will not only reduce energy consumption by $10,000 a year, but also make produce look more appetizing, is up for discussion.
$500,000 = $10,000 / 2%
So which is it? A grocer could create a marketing campaign designed to attract an additional half a million in sales in a year or spend say $10,000 to get the same effect. Which one is easier? Which one is more guaranteed to bring in revenue?
Because I work mainly with local governments, let’s use the same formula for cities. Surprisingly enough, local governments have the lowest profit margin of all, with revenues originating from sales tax and property tax. Let’s take your typical Fresno County city for example.
How much money do people have to spend for a city to receive one dollar?
- $1.00 to a typical Fresno County city (0.75%).
- $0.13 to the County Zoo Authority (0.10%).
- $0.67 to the Fresno County Transportation Authority (0.50%).
- $0.17 to Fresno County Public Libraries (0.125%).
- $0.33 to County Transportation Funds (0.25%).
- $1.42 to the Local Revenue Fund 2011 (1.0625%).
- $0.67 to the Local Revenue Fund (for Health and Social Service programs) (0.50%).
- $0.33 to the State’s Education Protection Account (0.25%).
- $0.67 to the Local Public Safety Fund (0.50%).
- $0.33 to the State Fiscal Recovery Fund (0.25%).
- $0.33 to the State General Fund (0.25%).
- $4.92 to the State General Fund (3.6875%).
All in total, that’s $10.97 in taxes generated, of which the city receives $1.00. That also means, that if we divide $10.97 by the sales tax rate, 8.225%, we’ll come up with the amount of $133.33.
$133.33 spent for the city to collect just one dollar, or a profit margin of 0.75%. That’s not a whole lot, so effective spending is essential. Which leads us (of course) to energy efficiency!
If this city was able to save $10,000 per year on energy, that’s equivalent to an additional $1.3 million being spent in the city. How else could a city encourage its residents to spend an additional $1.3 million? Pay-to-sit park benches?
Or how about getting people to buy this whole lot of cars?