I’m skeptical about digital signs due to the high upfront costs but here’s a real life success story from one of my clients. This one-sided 10X24 digital sign cost $135,000 to construct. It’s on a road leading to costco.
The sign generates revenue of $4,560/month which works out to $570 per each of 8 flips.
Monthly expenses are $350 ($100 rent, $150 electricity, $50 insurance, internet $50).
Cashflow (EBIDTA) is $4,210.
The manufacturer says the sign has a life of approximately 100,000 hours which works out to 11.4 years at 24 hours a day operation.
The IRR on the project is 36%.
Two things make the project a home run.
First, the sign’s owner sells the advertising. If the owner used a sales rep or agency and paid a 20% sales commission the sign would cashflow $3,298/month for a 27% return on equity. Second, the sign lease is fixed as opposed to being a % of gross revenue. If the lease was 20% of gross revenue the sign’s cashflow would be $3,398/for a 28% IRR. If you assume both a 20% sales commission and a 20% of gross sign lease then cashflow on the sign is only $1,722 for a 11% return on equity.
The takeaway: lease and sales costs can have a huge impact on sign economics.
