Memo From Frank
Every time I drive by the corner of Highway 32 and B Road in southeast Missouri, I am reminded of the opportunity in billboards that most people do not realize exists. A couple months ago, this billboard went up there – and it’s a pretty great sign. For those who have never been to southeast Missouri before, there is a very significant “wine country” there, with about seven major wineries with five-star dining and entertainment. In the summer, they draw around 2,000 visitors per day. Now, you would think “why did nobody build a billboard here before?” Well, that’s a good question. The answer might be that so few people know or understand the industry that the guy that built this one was probably the only one in southeast Missouri that was paying attention.
When Renting Ad Space, Remember That A Billboard Needs
To Be An Investment For The Advertiser – Not An Expense
The whole purpose of a billboard is to sell the advertiser’s product or service. So, in that capacity, a billboard is like a giant salesman. And, like any salesman, to keep his job, he has to sell enough to pay for himself. A good billboard salesman knows this mandate, and knows how to do the math to see if the billboard is a good “fit” for an advertiser or not.
What is the profit per sale?
It doesn’t matter what the product or service costs – what matters is the amount of net profit from the sale. But often the two go hand-in-hand. The sale of a new home might net the advertiser – a home builder – a profit of $25,000. The sale of a new car might net the advertiser – a car dealer – a profit of $1,000. If a hotel rents one extra room, the profit might be $100. So the starting spot for the billboard company is to gain a knowledge of what different types of companies net on each sale.
That tells you the number of items that have to be sold for the billboard to “break even”
If a billboard rents for $1,000 per month, then a car dealer might have to sell only one car per month to break even. On that same billboard, the hotel might have to rent 10 rooms to break even. Yet the homebuilder might only have to sell one home every two years to break even. This is an important point of your sales pitch, because the fewer the items that need to be sold to break even, the better the odds of success are.
But there are exceptions
McDonald’s only makes maybe 10 cents on a hamburger. Yet they are the #2 billboard advertiser in the U.S. How is that possible? Because they do tremendous volume. The average McDonald’s in the U.S. can do over $2 million of sales per year. Restaurants are the main exception to the calculations shown above because of the large number of items sold per day. So even though they have a low amount of profit per sale, they make that up in volume.
Putting it all together
So if we know how much profit an advertiser makes per sale, and we know how many sales are required to break even, then we should be able to decide whether a billboard would make a good sales employee for them or not. Let’s take the example of a hotel on an Interstate. The room rates are $100 per night. The fixed costs at the hotel are the same whether a room is vacant or occupied. So, basically, if a room gets rented, then the hotel made a straight incremental profit of $100. Your billboard rents for $700 per month. So that means that the hotel has to rent 7 rooms per month to pay for itself. Do you think, based on the traffic, that the billboard can do that? Probably. Can it rent 15 rooms per day? Possible. Can it rent one hotel room per day? Likely. So, in this case, the billboard has an excellent chance of being a star performer. But let’s take a business that sells wedding dresses. The profit per sale is $250. How many people driving down the highway are 1) looking for a wedding dress 2) looking for that wedding dress and 3) are going to remember to go to that store? Not many. So a billboard that rents for $1,000 per month would need to make four sales to break even, and that’s extremely unlikely.
You’ll notice the problem with consumer goods
When you do this analysis, you’ll quickly notice that there’s no way that your billboard could ever sell enough Eveready Batteries to break even, or enough Dixie cups. That’s what makes local advertisers so much different from national advertisers. You see, national advertisers will rent enough billboards to actually change the buying behavior of the entire nation. But each individual billboard in that program cannot possibly justify its existence except as a collective whole. That’s why billboard salesman can keep their jobs with local advertisers longer – because that individual billboard actually pays for itself – with national advertisers, the sign is just a number with no identity.
But there still needs to be a profit
Advertisers are not trying to make money for the billboard company – they’re trying to make money for themselves. So a good salesman shows the advertiser how the billboard can not only pay for itself, but actually make money. If a hotel room nets $100, and the sign costs $500 per month, then every room rented after the first five each month is straight profit. Could that sign rent 30 rooms? It’s possible. That’s how to really get the advertiser’s attention.
Don’t think of your billboards as signs – think of them as giant salesman. Each of these salesman need to produce enough results to justify their salaries. Once you can make advertisers realize that you are not trying to take money from them – but make them money – you will close more deals.
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A Billboard Story
Back in the 1930’s – during the depression – the advertising industry faced potential legislation to restrict the ability to advertise. Many people blamed the depression on advertisers who created excess demand for things and ushered in the “roaring 20’s”, which was followed by the Great Depression. But before any laws could pass, America got involved in World War II, and the tables were turned on the government. There was no way to sell War Bonds without giant amounts of advertising. So the politicians quietly derailed all their pending legislation and turned around and became the largest advertiser in U.S. history. And, after the war, they were too embarrassed to pick up the ball and explain how something so bad could be so good.
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