A recent article on the public restaurant chain Cracker Barrel says the company is a huge billboard advertiser. Cracker Barrel caters to travelers and billboards are great at reaching travelers. Here's a direct quote from Cracker Barrel's most recent 10-k:
"Outdoor advertising (i.e. billboards and state department transportation signs) is the largest advertising vehicle we use to reach our traveling and local guests. In 2013 we had over 1,600 billboards and this expenditure accounted for 49% of our tortal advertising spend."
Get in touch with Cracker Barrel if you have signs near their stores.
Monday, December 23, 2013
Friday, December 20, 2013
Outdoor Revenue up 3.5% in third quarter 2013
The Outdoor Advertising Association of America reports that US outdoor revenues rose 3.5% during the third quarter of 2013. Outdoor revenues grew slightly less than the 4.1% growth in US GDP in the third quarter. Outdoor revenues have risen for 14 straight quarters and outdoor has performed better than most other US Media sectors since the 2009 recession.
Thursday, December 19, 2013
Billboard Loan Fees and Their Impact on Financing Costs
Am amazed how often borrowers begin a conversation with me by saying "what's your interest rate?" Interest rates are important, but you also need to take into account loan fees and prepayment penalties in computing the total cost of a loan.
I typically charge a 2% loan fee, a 1% transaction fee and an interest rate of prime plus 6% with a floor of 12% for a five year commitment. There is no prepayment penalty and no success fee or exit fee. The annual cost of one of my loans is 12.6% computed as follows:
Annual interest rate: 12.00%
Annual cost of fees (3%/5) 0.60%
Annual Cost of Loan 12.60%
Here is a loan structure which I have seen several times in the industry from another lender. The interest rate is 11.5% for a three year commitment. It appears cheaper but there is a 5% loan fee due in the beginning of the loan and a 3% exit fee due at the end of the loan. The annual cost of this loan is 14.16% calculated as follows:
Annual interest rate: 11.50%
Annual cost of fees (8%/3) 2.66%
Annual Cost of Loan 14.16%
Conclusion: Look at all costs when trying to decide what loan is your best option.
I typically charge a 2% loan fee, a 1% transaction fee and an interest rate of prime plus 6% with a floor of 12% for a five year commitment. There is no prepayment penalty and no success fee or exit fee. The annual cost of one of my loans is 12.6% computed as follows:
Annual interest rate: 12.00%
Annual cost of fees (3%/5) 0.60%
Annual Cost of Loan 12.60%
Here is a loan structure which I have seen several times in the industry from another lender. The interest rate is 11.5% for a three year commitment. It appears cheaper but there is a 5% loan fee due in the beginning of the loan and a 3% exit fee due at the end of the loan. The annual cost of this loan is 14.16% calculated as follows:
Annual interest rate: 11.50%
Annual cost of fees (8%/3) 2.66%
Annual Cost of Loan 14.16%
Conclusion: Look at all costs when trying to decide what loan is your best option.
Tuesday, December 10, 2013
What Businesses Benefit Most From Billboards
Just read a blog post titled Billboards for Small Businesses: 7 Reasons To Think Twice. The post is skeptical about billboard advertising: billboards are expensive, they created unwanted calls from sales reps, they have a limited run and they can't be personalized. The article concludes, however, with an excellent summary of the types of companies which benefit from billboard advertising:
Local Businesses. - Restaurants and retailers near the board. Think "Turn Here" or "Next Exit" candidates.
Businesses Selling High Ticket Items. - Auto dealers, jewelry stores, appliance dealers. My highest grossing billboard is sold to a jeweler.
Businesses with mass market products. - Tax accountants, plumbers, doctors, dentists, attorneys.
Creative businesses who want to build a brand. Brand advertising occurs most often in big cities like LA and New York. I get little brand advertising at my plant because it is located in a smaller city. Also, brand advertising is very cyclical and dries up in a recession.
Local Businesses. - Restaurants and retailers near the board. Think "Turn Here" or "Next Exit" candidates.
Businesses Selling High Ticket Items. - Auto dealers, jewelry stores, appliance dealers. My highest grossing billboard is sold to a jeweler.
Businesses with mass market products. - Tax accountants, plumbers, doctors, dentists, attorneys.
Creative businesses who want to build a brand. Brand advertising occurs most often in big cities like LA and New York. I get little brand advertising at my plant because it is located in a smaller city. Also, brand advertising is very cyclical and dries up in a recession.
Friday, December 6, 2013
A Digital Sign Home Run
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.
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.
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