Digital signs can be a great success even when they’re not on a freeway. Here’s a real life success story from one of Billboard Loans clients. The client installed a 10 by 24 sign on a secondary road leading to a Costco. One side of the sign was static and one side was digital. The sign generates a 34% return on capital.
The cost of the sign was $135,000.
Sign revenues are $62,400. 7 of 9 flips are sold for an average of $742/month.
Sign expenses are $16,042 consisting of the following.
- Rent $1,200 ($100/month)
- Electricity $1,800 ($150 month)
- Insurance $600 ($50 month)
- Internet $600 (50 month)
- Replacement expense for the sign is $11,842/year assuming 11.4 year useful life for the sign (100,000 hours). Many operators fail to take replacement costs into account. This may not matter for steel with a 50 year useful life but it’s important when investing in digital billboards which will experience brightness issues and become technologically obsolete at the end of 10 years.
Sign Profit = $62,400 – $16,042 = $46,358
Return on Capital equals Profit/Investment = $46,358/$135,000 = 34%
Two things make this sign a home run for the current owner. A cheap fixed rate lease and the lack of sales commissions because the sign’s owner sells the board. If you adjust expenses for a 20% of gross lease and 20% sales commissions then the profit on the sign drops to $22,698 and the sign generates a 17% return on capital. A 17% return on capital is still outstanding when you consider that you’re taking replacement costs into account but it shows how land lease costs and sales costs can dramatically impact the return on a digital sign.
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