A Billboard Insider reader asks” “What financial ratio and metrics do you recommend for a small billboard operator.”  Here are the 5 financial metrics you should use to manage your out of home company.

Occupancy Rate (occupied billboard faces/total billboard faces)

This is the ratio of your sold billboard faces to your total billboard faces.  Billboard management software from Apparatix, Billboard Planet or SignDash will calculate and display this at a glance. The industry rule of thumb is that 80% ocupancy is normal.  Below 80% and you have work to do or you may be setting your rates too high.  Above 80% and you may have room to increase rates.  Makes sense to track last month, this month and next month.  You might also want to track occupancy for your digital signs along.  Digital signs can have occupancy which fluctuates more than static signs because more of the contracts are short term.

Billed revenues to 100% occupancy revenues

Billed revenues consist of what you billed your clients this month.   100% occupancy revenue consists of what your revenue would be if every billboard is sold at your rate card.  The gap between billed revenue and 100% occupancy revenue is how much money you are leaving on the table each month.  Your target should be 80% or higher.

Lease Costs to Revenue

Leases will be one of your largest expenses.  Lease costs should be 10-20% of revenue if you have a rural or small market plant.  Lease costs may be 30-40% in an urban market.

Cashflow margin (EBIDTA/Revenue)

Cashflow (EBIDTA) is revenue before interest, depreciation, amortization and federal income taxes.  It consists of how much cash your business generates after paying employees and vendors.  It’s what’s left in the bank at the end of the year to pay lenders or Uncle Sam or to spend on capexp or to distribute to yourself. You add back interest in order to be able to compare your firm to other companies who may have higher or lower leverage than yours.  You add back depreciation and amortization because they are non-cash charges.  You should also add back income taxes.    Cashflow should include all of your overhead expense.   A well managed out of home company should have a cashflow margin of approximately 30-50%.  You can also use the 20/20/20 rule.  Leases should be no more than 20% of revenue, sales costs should be no more than 20% of revenue and all other expenses should be no more than 20% of revenue.  Cashflow margins can vary dramatically based on how much or how little salary you take.  Some out of home company owners take little or no salary to maximize cash to be able to grow.

Debt/Cashflow(EBIDTA)

You can measure your financial health by calculating your Debt/cashflow(EBIDTA).  Debt consists of what you’ve borrowed from lenders.  Cashflow consists of the last 12 months earnings before interest, depreciation and amortization.  You should calculate this on the trailing 12 months to even out the impact of seasonality.  Rapidly growing out of home companies can use the last three months of EBITDA annualized  Debt/Casfhlow should be less than 5:1.  At 5:1 or less, you can retire all your debt within 10 years based on your current revenue.  You never want to have to count on an increase in revenue to avoid a debt default.  Lamar’s Debt/cashflow is a low 2.83.  OUTFRONT’s debt/cashflow is 4.7.  Clear Channel Outdoor’s debt/cashflow is above 10.

What out of home metrics are important to you?  Email davewestburg@billboardinsider.com or use the comment form below