Appendix 4: Example of Sales versus Income
Emsi’s economic impact study differs from many other studies because we prefer to report the impacts in terms of income rather than sales (or output). Income is synonymous with value added or gross regional product (GRP). Sales include all the intermediary costs associated with producing goods and services. Income is a net measure that excludes these intermediary costs:
Income = Sales – Intermediary Costs
For this reason, income is a more meaningful measure of new economic activity than reporting sales. This is evidenced by the use of gross domestic product (GDP)—a measure of income—by economists when considering the economic growth or size of a country. The difference is GRP reflects a region and GDP a country.
To demonstrate the difference between income and sales, let us consider an example of a baker’s production of a loaf of bread. The baker buys the ingredients such as eggs, flour, and yeast for $2.00. He uses capital such as a mixer to combine the ingredients and an oven to bake the bread and convert it into a final product. Overhead costs for these steps are $1.00. Total intermediary costs are $3.00. The baker then sells the loaf of bread for $5.00.
The sales amount of the loaf of bread is $5.00. The income from the loaf of bread is equal to the sales amount less the intermediary costs:
Income = $5.00 − $3.00 = $2.00
In our analysis, we provide context behind the income figures by also reporting the associated number of jobs. The impacts are also reported in sales and earnings terms for reference.