If someone asked you what the impact of tourism is in your region, what would you say? You might point to the number of visitors in a season or the number of hotel bookings. Those are great measurements; when it comes to destination development, there is so much more.
Understanding tourism’s return on investment (ROI) is like looking at a mosaic. If you focus on just one aspect, you will miss the bigger, more complex, more impressive picture. Best of all, you can calculate ROI in just four steps.
Nearly every area uses a tax of some kind to fund tourism efforts. These taxes differ in type and rate from place to place and state to state. The most common, almost universal tax is commonly referred to as a “lodging tax”. You need to start there. If your city, county, or state uses other taxes, like a restaurant tax, list those too. When you have your list, add the amounts to get a total tourism tax rate.
Here is a quick example:
1% restaurant tax + 2% lodging tax = 3% total tourism tax
When someone spends the night in your destination, whether it be a hotel, Airbnb, bed and breakfast or similar, the visitor is charged a lodging tax. Those taxes are collected by the establishment and eventually distributed to the governing entity, like a county, which leaves the management of those funds to a tourism board.
Example:
Lodging TAX Revenue = $50,000
Similarly, if your area has a restaurant tax, each time someone visits a restaurant or establishment required to charge the restaurant tax, that money is collected and eventually makes its way back to the tourism board for management.
Example:
Restaurant TAX Revenue = $40,000
Add up the different categories of revenue to find your total Tax Revenue.
Example:
Total Tourism TAX Revenue = $90,000
When someone visits, spends the night, or even drives through your destination, they spend money.
States usually publish tourism data available by county to help tourism directors see different types of visitor spending. Here are examples from Colorado and Utah.
The economic impact on your county due to travel spending will be in these reports.
To calculate ROI, we will use this number as an example:
Total Economic Impact – $10,000,000
Believe it or not, after you know where to look and what to do, this is the easiest step! To calculate ROI, you will need to know your annual investment in tourism. That is as simple as looking at your annual tourism budget. Be sure to use the annual budget amount from the same year as the economic impact numbers.
Your ROI on tourism can help you understand how much revenue your tourism efforts bring into your DMO.
For the sake of simplicity, let us say your annual budget is equal to the amount of tax revenue you received (which is fairly common), and let us use the total tax rate from our examples above:
Example #1:
Total TAX Revenue = $90,000
Total Economic Impact = $10,000,000
ROI = $10,000,000 / $90,000
$10,000,000 / $90,000 = 111
$111 to $1 ROI
In other words, you invested $90k, and your return was $10M. That was a return on investment (ROI) of 111. For every dollar you spent, you made $111! (If only every investment were that lucrative!)
Even though the math is correct, and all the numbers are right… sometimes the staggering ROI from tourism is hard for folks to wrap their heads around.
There are, of course, some assumptions. We are assuming that you, your DMO, is the only entity spending money on marketing and advertising and that the $90k is the only contributor to the total economic impact. This obviously is not the case. If you are able to get marketing budgets from most of your large attractions, etc. and re-calculate, it will be more and more accurate. You will find that the ROI is still extremely large. At the state level, many states see upwards of a $400 to $1 ROI!
You might be interested in seeing what these numbers mean for the businesses that collect the tax. In our examples above, that is a combined tax for lodging establishments and restaurants.
For the sake of simplicity, let us look at one specific category: lodging. In this example, we will use our number from above:
Lodging TAX Revenue = $50,000
Now let us say your lodging tax RATE is 2%.
Lodging Tax Rate= 0.02
Calculate the total revenue lodging establishments had for themselves:
Lodging Revenue = $50,000 ➗ .02
Lodging establishments, in this example, had revenues of:
$2,500,000 = $50,000 ➗ .02
While those numbers are great, we really get excited when we see consistent year-to-year growth in tourism in a destination. Even moderate growth, like a 10% increase in tax revenue per year, has a big impact on the numbers above.
In our example, a 10% increase in tax revenue from accommodations would result in $250,000 in additional revenue for lodging establishments. That is just counting heads in beds, not the money visitors spend eating at local restaurants, enjoying local attractions, or even filling up their cars with gas! A 10% increase in travel spending in our example above would mean an additional $1,000,000 in economic impact to the area.
Beyond the total tourism revenue, other benefits play important roles in your tourism ROI picture.
One is job creation. According to the latest data, 16 million people work in tourism in the U.S. and 7 of the top 20 fastest-growing industries are in leisure and hospitality. Another way to put that is, when tourism grows in your region, so does job creation.
The sales tax collected also grows as tourists drive through a region and fuel up, eat in local restaurants, stay in hotels, shop locally, et cetera. In 2023 alone, travelers in Fremont Country, Colorado, produced $6.7 million in local and tax receipts.1
Tourism has a tremendous effect on wages. From 2019 to 2023, Fremont Country experienced a 33% increase in wage earnings as a direct result of travel.1
There are also societal benefits to tourism. Tourists who show interest in local culture and heritage many times are inspired to make investments to protect these treasured parts of your region. Similarly, local festivals and events can experience new life when visitors join locals in the celebrations. Community members also benefit from infrastructure improvements such as new roads, sewage systems, parks, and public transportation built to accommodate or attract more tourists.
Calculating the total benefit of tourism may seem like just crunching numbers, but as a powerful strategic planning tool, it is so much more than that. Whether you are talking to government officials, local residents, funders, or anyone else, pointing to ROI will show the lasting value tourism brings to your region.
Contact DestinationiQ today to learn how we can help increase the tourism ROI in your region.
1 Dean Runyan Associates. (2023, July). The Economic Impact of Travel. https://drive.google.com/file/d/1-JV6YfMyRW4awSd_WaQCHEFo1A-w8Cbs/view
