What simple rules of thumb do you use to manage your out of home company?  Here are some of Billboard Insider’s favorites.

• Out of home lease costs should be less than20% of revenues.  Lease costs may have to be higher in urban areas, but they shouldn’t exceed 20% in rural areas.
• Sales commissions should equal 5-20% of collections.  Billboard Insider is biased toward collections because you only want to pay your sales reps for good business.
• Debt/Cashflow should be less than 5:1.  When debt/cashflow is less than 5:1 you can pay off all your debt at a 8% interest over 10 years while maintaining a 1.25X debt service coverage.  You always want a cushion between what your current cashflow is and what your debt service in cash there is a recession and your cashflow declines.
• When you build, the value you create should be triple your construction costs.  Take this simple example.  You build a new static billboard for $50,000.  You rent out the 2 faces for a total of $24,000/year.  Rent is 20% of gross or $5,760/year.  Sales commissions and electricity are a total of 10% of $2,400/year.  That leaves billboard cashflow of $15,840/year which equates to a $158,400 value at 10x billboard cashflow.  In other words, you’ve spent $50,000 to create $158,500 of value.

What simple rules of thumb do you use to manage your business?  Email davewestburg@billboardinsider.com or use the comment form below and we’ll run a followup article.

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