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.