The Digital Signage Insider

Building a Successful Digital Signage Team - Business and Finance

Published on: 2005-10-17

The fourth article in our five part series about building a strong digital signage team has been posted over at Kiosk Marketplace.  (Actually, it was published late last Monday.  I've been remiss in posting about it, and snuck in last week's article about in-store advertising and the First Moment of Truth (FMOT) instead.)  But back to the present matter: In-store TV and narrowcast network owners frequently find themselves financing a significant capital expenditure (100 plasmas and media players can cost a small fortune, let alone 1,000 or 10,000), and many companies are experimenting with creative financing options to limit their exposure and deploy networks larger and more complex than might otherwise be possible.
For example, take what I'll call a "digital signage network owner." This type of firm will typically sign a deal with a retail chain (or several chains), bundle screens, players, software, services and even ad sales together into a single package, and then lease that package to the retailer for an agreed upon period of time. However, depending on the nuances of the package, the digital signage company may have to purchase all of the hardware (which can easily run into the millions of dollars), pre-sell hundreds of hours of advertising time, work out complex revenue-sharing arrangements with the retailer, or even peg their fees to a predetermined ROI number.

Obviously, each of these situations introduces a challenge that, while not unique to the digital signage industry, may be unfamiliar to some. For example, the concept of bundling together hardware, software and services is fairly common, and any number of hardware leasing or factoring companies are available to provide this service. However, factoring a digital signage package can increase its overall cost by 25 percent or more over a period of 3-5 years, and that cost needs to be taken into account. But for small companies deploying a large network, it may be the only way to acquire the necessary equipment, since their only other option is either to drain operating capital (never a healthy business move unless you know that your deal is a really, really, really sure thing), or raising outside funding through an equity sale of some sort (which can be costly and time consuming, even in today's booming private equity market). Larger companies (or subsidiaries of wealthy parent companies) have a few more options, including drawing from lines of credit and internally financing their purchases. But even large firms are loathe to part with so much cash all at once, and often a financing route makes more sense and provides a better path to profitability. And of course, the more financial involvement a digital signage firm can get from their retail partners, the better spread out the risk and rewards are. (As a brief corollary to that: the more financial burden a retailer takes, the more incentive it has to see the program work, and therefore, the more help the digital signage firm will get from the retailer with integrating into co-op programs, etc.)
The article also includes an introduction to calculating digital signage ROI, giving examples for the three sources of data that are most useful to this task:
  • Co-op Marketing Data - vendors pay a monthly or annual fee to be included in the retailer's various promotional materials
  • Affinity Program Data - in exchange for giving up some personal information and having purchase histories tracked, customers are rewarded with discounts on products that they are likely to purchase
  • Register and Inventory Feed Data - the raw sales data compiled from register receipts
Of course, regular readers of this blog will probably recognize those data sources from the last five-part series that I did, Calculating Digital Signage ROI:
  1. Calculating Digital Signage ROI: The Ground Rules
  2. Calculating Digital Signage ROI: Understanding the Limits of Your Data
  3. Calculating Digital Signage ROI: 3 Metrics that Matter
  4. Calculating Digital Signage ROI: Methods to Gather your Data
  5. Calculating Digital Signage ROI: Managing Expectations
Next week, we'll conclude this series with an article on the digital signage sales cycle and the different areas of sales expertise that have proven useful for digital signage firms in the past, so stay tuned!

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