Can a $500 Sign Generate $1.9 Million in Additional Revenue for a Health Clinic?

A Sarasota, Florida health-care clinic had a great suburban location, demographically. However, due to its location at the end of a two-story complex surrounded by oak trees, its fascia signage simply wasn’t visible from the interstate (0.2 miles away) or the four-lane frontage road with a median. The owner had a dozen other clinics, so he knew something was wrong with the amount of business the clinic was conducting.

The owner subsequently placed a very simple 10 x 24-inch. sign in plain site, with only the clinic’s name and the words “urgent care.” Within 24 hours, the number of clients nearly doubled. Over the course of a year, this increase would equal nearly $1.8 million in additional revenue. To read the full story, go to http://www.nxtbook.com/nxtbooks/STMG/sott_201411/index.php#/110

Duke University Economic Professor Applies “Game Theory” to Signage

David McAdams, an economics professor at Duke University, has authored a paper entitled “The Economics of On-Premise Signs” in conjunction with the United States Sign Council. In it, he contrasts the philosophies and ramifications of sign codes in Henrietta and Brighton, New York — two communities with similar demographics, both of which are near Rochester, NY. Henrietta’s sign code will allow up to 80 square feet of signage, while Brighton limits it to 30 square feet.

In the paper, McAdams assesses the Strategic Rationale, which suggests that, if one company benefits from a larger sign, other businesses will suffer. This has also been referenced as a “zero net gain.” McAdams counters, however, that better signs will encourage other businesses to acquire better signs, which will create more business for everyone, and benefit the town in the form of higher tax revenue.

An overview of the McAdams paper can be read at http://www.nxtbook.com/nxtbooks/STMG/sott_201512/index.php#/92. The full study is available from the United States Sign Council website, http://www.ussc.org/USSC-publications.php

How Can the Value of an On-Premise Sign Be Calculated?

Richard Bass is a certified appraiser in Sarasota, Florida. During his more than 30 years in business, he has testified in court as to how a sign’s value can be appraised. In a presentation for The Signage Foundation, bass outline three case histories where the absence of a sign could be measured economically. Planners, Signs and A Community’s Economic Well Being (Powerpoint) – Rick Bass

In a 1995 case in Decatur, Georgia, a Days Inn was allowed to use an electronic message center for four years that was actually situated on a third party’s property. Property ownership changes occurred, so a payment needed to be determined. Three approaches were used: comparable sales, income and cost.

For the “comparison” method, the sign was compared to a billboard, Based on outdoor-advertising prices, for the 49 months, the price was calculated to be approximately $1.6 million.

The “income” approach examines Days Inn’s income for the same time period: $8.4 million. The percentage of this attributable to the sign was calculated at 25%, which made it $2.1 million. Because half of the guests already had reservations (which meant the sign didn’t draw them in), the figure was reduced to $1.050 million. Adding a 10% for interest earned, the final figure became $1.2 million.

The “cost” approach considers how else the property could be used. based on 238 units, the value of each motel room was set at $31,765. If they were all converted to apartments, their value would be $25,000 each. The value difference, $6765, multiplied by 238, becomes approximately $1.6 million.  The full story, with detailed calculations, appeared in the April 1999 issue of Signs of the Times magazine.

Can the Loss of a Sign Cause a Successful Business to Fail? And Surrounding Businesses? And Hurt the Community?

In the mid-1990s, Terry Shulman’s was a successful drug store situated in the Gulf Gate Mall in Sarasota, Florida. It was located in the back side of the mall, so it couldn’t be seen from either of the two major arterial roads. However, it paid $3,500 for a freestanding pole sign. Its retail sales had increased 10-18% since it had relocated to the mall, and they peaked at $5 million.

The mall changed ownership. A new tenant, T.G.I.Friday’s, came, and its corporate policy demanded a pole sign. Without Shulman’s knowledge or consent, its freestanding was replaced with a T.G.I.Friday’s sign. Over the next four years, Shulman’s sales dropped by approximately $250,000 annually.

Analysts examined several possible factors. New competition, local economic indicators, physical indicators (ie, mall accessibility) and internal mall indicators were summarily dismissed. Analysts then queried shoppers and discovered 90% of all mall visitors shopped at Shulman’s.

Shulman’s went out of business. Its 20,000-sq.-ft. space remained vacant.

Six months later, a research team revisited the mall. Food-court sales were down at least 30%. Six stores that offered female-oriented goods had closed. Here are some other results:

• A certified appraisal calculated the value of the sign at $250,000 annually.

• The mall’s annual income dropped by $1 million.

• Two dozen employees lost their jobs.

• Sarasota lost $18,000 in sales-tax revenue.

Elsewhere in Florida, in Lake City, during the approximately same time period, a Rodeway Inn had a pole sign visible from I-75. The motel had 86% occupancy, gross sales of more than $600,000, and a profit of $128,000. The state route on which it was located was widened, and the Florida DOT took away the sign. The FDOT appraiser valued the sign at $7,000, based solely on its structure. The next year, motel occupancy fell to 42%; gross income dropped to $350,000, and profit plummeted 69% to $40,000. FDOT was faced with paying more than $400,000 for the taking, or paying $90,000 for a replacement sign. It chose the latter.

Can a Grand Opening without a Sign Directly Cause Loss of Revenue?

On August 18, 1995, a Best Buy store was set to open in San Antonio. By contract, the store was to receive two double-faced pylon signs that faced I-470 by June 1. One 297-sq.-ft. sign did become fully operational the day before the grand opening. The second, 207-sq.-ft. sign, however, didn’t become operational until September 4. Contractually, Best Buy was deprived of one sign for 78 days and the other sign for 96 days. Best Buy hired an appraiser to assess the damages.

Of particular note, the value of the signs had nothing to do with the cost of their fabrication or installation. Instead, their value was based on their communicative and visibility function. In such cases, three property-valuation methods are warranted:

  • Market comparison
  • Income capitalization
  • Cost of replacement

For this particular case, the latter two methods were used.

Cost of Replacement

Traffic Audit Bureau (TAB) numbers, which measure the average number of cars (and people) who would pass the signs daily, state that 99,000 people would see the signs. Thus, the two signs “missed” 15.4 and 19 million “exposures,” or roughly 3 million exposures a month, by not being erected in time. According to a licensed appraiser’s “market comparison,” achieving similar exposure would require one mid-week newspaper insert (200,000 exposures @ $7,258) and one Sunday newspaper ad (345,000 exposures @ $12,520), plus a saturation of TV exposure (2.5 million exposures @ $16,926). This totals $36,704 per face or $146,816 per month for all of the signs. By prorating this one-month cost over the 78- and 96-day delays, the replacement cost becomes $424,767.

Income Capitalization

For this approach, 120 Best Buy customers were surveyed over a two-week period. Thirty customers (25%) said they first became aware of the store because of the sign. Another 38 (32%) said the signs were “useful in locating the store.” Only 22 (18%) said they didn’t use the signs to find the store. The other 30 people didn’t answer the question. This suggests 25% of the store’s business was directly attributable to the signs. Historically, a sign’s direct impact on a business’ sales ranges from 10-50%, with QSRs (quick-service restaurants) at the high end.

In its first year of operation, the Best Buy store averaged $308,687 in monthly sales. If the 25% figure is used, the Best Buy signs generated $77,172 in monthly sales the first year. For the 78- and 96-day periods, then $224,000 was directly attributable to the signs.

Best Buy paid monthly rent of $34,626 (approximately 75 cents per square foot), or $1,154.20 daily. Local industrial buildings that don’t need signs paid approximately 40 cents per square foot. So a signless building would pay approximately $620.27 daily, or $533.94 less daily. Again, using the 25% figure, rent directly related to the signs would be $133.49 daily. Thus, for the 19 days, a rebate of $2,536 in rent would be due.

Estimated total damages were calculated at $227,536. Although the case was settled out of court, Best Buy did receive compensation in the form of rebated rent for less than the assessed damages. Terms were not officially announced.

But clearly, the value of the signs, even for just a 2.5-month period, exceeded $200,000.