ISSUE THIRTY-EIGHT 2002

S I G N L I N EThe Value of Signs for Your Business

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For centuries, commercial signage has existed asthe primary method by which one personcommunicates a prospective business transactionto another. Place-based communication devices andgraphic systems (“signage”) have evolved inresponse to culture and technology, but as thisprocess of change and expansion of the medium ofsignage has occurred, it has never strayed from itsoriginal purpose: communication, or, in terms ofthe U.S. Constitution, speech.

Evolving in Response toCulture and TechnologyA brief overview of the convergence of theautomobile and three specific technologies in the1920s and 1930s – electricity, plastic, and neon –and how these inventions over time altered, andwere altered by, communication needs establishessome essential context in which to understand thevalue signs bring to a business.

The automobile was one of the most influentialinventions of all time, and entirely changed theAmerican lifestyle. At the end of the 1920s, thenumber of automobiles in the country was alreadynearly equal to the number of families. Roadconstruction, the oil industry, and the suburbanhousing boom that resulted from this new mobilityworked to greatly increase the prosperity of theaverage American, in turn creating greater demandfor consumer goods.

The mobile and fast-paced American consumerincreasingly demanded economy, convenience, andcomfort. Gasoline service stations and the fast foodindustry began to emerge. An exceptionallyefficient and diverse transportation system wasdeveloped, bringing down distribution costs.

Plastics were the subject of a frenzy of excitementand development during the 1920s and 1930s andas a result, a wide variety of low-cost consumergoods were suddenly within reach of mostAmericans. Rural electrification in the 1930sfurther stimulated consumerism as more Americanswere freed from the drudgery of manual labor athome.

During this time of rapid cultural change andevolving consumerism, signage began to change.It was no longer sufficient to have a hand-paintedwooden sign marking your business location; withall these new consumers – and new competition –businesses quickly learned that an attractiveilluminated, auto-oriented sign was the best way tostand out in a crowd.

The first electrical illuminated signs were made ofmetal, wood, or colored porcelain enamel and oftenwere framed with incandescent bulbs. But in the1930s, the new technology of cold-cathode “neon”lighting came into vogue for signage. The customcapabilities of neon lighting meant it adapted wellto the changing culture. It was first used byentertainment businesses; it then was usedextensively as an Art Deco design element; and afterWorld War II it took on a new personality, at firstdecorating drive-ins and diners, and soon enhancingthe communication of all kinds of businesses. Of

Note: Signs are so common in our society thattheir advantages are all too often discounted, bothby sign users and by regulators. This is the secondof a two- part special Signline report. This reportexamines the value of signs to the user, lookingspecifically at the value of signage to a business.The first issue looked at the value of signage to acity, in promoting street smart planning and soundfiscal health.

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The automobile was one of the most influentialinventions of all time, and entirely changed theAmerican lifestyle. Mobile and fast-paced Americanconsumers increasingly demand economy,convenience, and comfort.

course, it was well-utilized in Las Vegas during thisperiod, and continues to be prominent there today.

Acrylic resins were developed for use in signs in the1930s, but plastic signs did not become prominent untilthe 1950s. In the late 1950s and into the 1960s,inexpensive colorful plastic signs replaced the durableolder porcelain and metal signs, which required a largerinitial investment. Not only did the signs save businessesmoney, but also consumers, who were infatuated withinexpensive disposable goods, found them attractive andstylish. Over time, many forms of entertainment mediadeveloped; in response, the sign industry began to utilizetechnology enabling it to print magazine-quality pictureson plastic signs.

Signs have continued to respond to cultural changes; asthe culture has become more entertainment-oriented andtechnologically savvy, signs have become moreinteractive and sophisticated in order to continue toattract attention and communicate their message. Theelectronic message centers that displayed time andtemperature information in the 1960s and 1970s haveevolved into electronic video screens that are computercontrolled, capable of withstanding extremes of weather,and offer picture quality that rivals big screen televisions.

Today, sign-building materials have expanded beyondplastic, wood, metal, and neon, to include a whole hostof materials, each suited to communicate specific kindsof messages to specific groups of potential customers.A wide range of lighting devices, including incandescentlamps, neon, and fluorescent lamps, to name a few, forma critical part of modern commercial communication,

and their use is carefully tailored to effectivelycommunicate with potential customers.

The Most Effective Forms ofSignagePossibly the most effective forms of business signageever developed, however, have been the signaturebuilding and sign centric integrated site design.

The signature building is a form of signage that wasinitially mastered by the gasoline service stations andfast food restaurants. Taking their cues from thesuccesses of Las Vegas, with its use of a thin skin ofsignage covering an entire building, and from the outdooradvertising industry, with its emphasis on repetition ofan identical image at various locations throughout anarea to build and reinforce memory, companies learnedto turn each business site into an instantly recognizedvisual display that looks nearly identical to every othersite in the chain. This all-over site design functionsexactly like a billboard, with each site helping build andreinforce memory of the brand.

Sign centric design, in which the design of the signage,both ground- and building-mounted, is tied to the designof the building itself, works in much the same way.

These two forms of signage, especially when coordinatedwith national multi-media advertising, allow thebusinesses that utilize them to bring in 15% to 40% morein gross income than their unaffiliated counterparts, allother things being equal. This has worked for the benefit

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Signs have continued to respond to cultural changes; asthe culture has become more entertainment-oriented andtechnologically savvy, signs have become more interactiveand sophisticated in order to continue to attract attentionand communicate their message.

of the consumer, because the businesses utilizingsignature buildings and sign centric design have beenable to be more competitive by reducing prices.

Fortunes have been built on this concept through thecreation of the business form franchise, including suchwell-known brands as Best Western Motels, MidasMuffler, and Century 21. These businesses, eachindependently owned and operated, have an integratedsignage package and business plan that ties the businessin to a national advertising program. Their logo andslogans are repeated in all their advertising. Often, theirbusiness is the first one a person thinks of when lookingfor a place to buy the particular product or service offeredthere. So powerful is this integrated signage that theindependent businesses that utilize it can experienceincreases in income rivaling those experienced by chains,corporations and business product franchises.

How can we say the signature building and the use ofsign centric design are the most effective forms ofbusiness signage? The reason is simple. The purposeof business signage is to communicate a message. Whenpeople are “receiving” the message, they respond. Noform of commercial signage elicits a response like theall-over site design of the signature building or signcentric design. The increase in business revenue thatresults from this integrated signage is an irrefutableindicator of its effectiveness.

Signs Provide Marketplace EntryClearly, the chains, corporations, and franchises thatutilize these powerful forms of signage, tied in to nationaladvertising campaigns, have a tremendous advantage.How can “mom and pop” compete with such anadvantage? What will grant the small business ownerentry to the American marketplace?

The answer is simple: the on-premise sign. It is theleast expensive, most effective form of advertisingavailable to the small business. In its most basic form, ithas been shown to be responsible for bringing in as manyas half of all new customers, though 25% is more likelyto be the case. When it is designed as part of an overallsite motif, and tied in with other forms of advertising,its benefits to the bottom line can be even moresubstantial.

Signs open the doors of a community to all and allow allto participate in the economic activity going on there.Half of all first time customers will stop because theysaw the on-premise sign. The sign allows any Americanwho wants to open a business, no matter who they are,to effectively compete with a wealthy or well-connectedbusiness owner. Furthermore, the sign tells everyonewho sees it that they are welcome to come inside andconduct a business transaction.

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“The exposures generated by the on-premise signnot only cost far less than other media exposures,they are also far more effective. At least 98% ofall retail sales are place-based – and the on-premise sign is right there on-site, marking thevery location at which the purchase could occur,and only advertising to those who actually movethrough the trade area.”

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Sometimes a business owner dismisses the value of asign because he or she believes that “everybody knowsme.” But this ignores an important truth about ourculture: that not only are we a mobile society, but weare to some degree a portable society. Fully 18.6% ofour populace relocates each year – and that figure doesnot account for the number of peoplewho change jobs each year and nolonger commute to a particular tradearea. This means theoretically thatalmost 20% of a business’scustomers must be replaced eachyear as they move away.

Measuring the Valueof a SignWithout a doubt, signs benefitsociety. They allow businesses tobetter meet the needs of theconsumer, both by creating apleasing cultural environment and by increasing salesso that prices can be reduced. They also open society soall Americans have an equal opportunity to participate.This makes signage very valuable. But how is that valuemeasured and quantified? It all comes back to theessence of signage: communication.

The value of a sign can be measured in three basic ways.The first method determines the how many people thesigns message reaches, and the cost to replace thoseexposures of the commercial message in other

advertising media. The second is based on comparisonsin market value to similar business sites with and withoutgood visibility to the street. And the third methoddetermines how many customers have stopped at thebusiness because they saw the sign, and what percentageof their purchases is profit for the business. These three

methods for estimating value are described in more detailbelow. Valuation and evaluation techniques andestimates can vary depending on specific assignments;these brief descriptions are not intended to demonstratethe entire range of techniques or methods that can beutilized when estimating value.

Estimating the Cost to Replace the Exposures

In advertising terms, each person who sees a sign (orother advertisement, for that matter), constitutes one

Possibly the most effective forms of business signage ever developed have been the signature building and sign centric integratedsite design. The all-over site design functions exactly like a billboard, with each site helping build and reinforce memory of thebrand.

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Signs open the doors of a community to all. They allowanyone who wants to open a business, no matter who theyare, to effectively compete with a wealthy or well-connectedbusiness owner. Furthermore, the sign tells everyone whosees it that they are welcome to come inside and conduct abusiness transaction.

“exposure” to the sign (or advertisement). The numberof exposures generated by a sign is calculated using acareful and systematic process.

First, an average 24-hour (daily) traffic count must bedetermined. This is then multiplied times 30 to establisha monthly count. This is the number of cars that drivepast the business during the typical standard advertisingmonth. But not every car will have just one person ridingin it, so the calculation must be adjusted for “loadfactors” that include whether the area is rural,incorporated, or unincorporated, for example. A

conservative passenger "load factor" multiplier in anurban setting is 1.43.

A certain percentage, but not all, of the people passingcan be expected to be potential customers. If the businessis a veterinary clinic, for example, the calculation shouldbe adjusted by the percentage of people passing who ownone or more pets – a figure generally available from theindustry itself. Other factors that may require adjustmentof the figure include hours of business operation andseasonal traffic variations. The final figure is the numberof “exposures” generated by the on-premise sign and the

TYPICAL COST PER 1000 CONSUMER EXPOSURES COMPARISON

Assumptions Television Newspaper Outdoor Advertising On-Premise Sign

Trade Area 40,000 households Circulation of 333,350 cars per day 30,000 cars per day40,000 households

Consumer 1.25 million 4.75 million 10 million 900,000Exposures(30 days)

Consumer 1,250 4,750 10,000 900Exposuresin ThousandsCost $16,500 $16,500 $16,500 $274*Formula Media Cost ÷ Media Cost ÷ Media Cost ÷ Media Cost ÷

Consumer Exposures Consumer Exposures Consumer Exposures Consumer Exposures

Calculations $16,500 ÷ 1,250 $16,500 ÷ 4,750 $16,500 ÷ 10,000 $274 ÷ 900Cost per 1000 $6.60 $1.56 $0.82 $0.30Exposures

*Although the initial cost of the sign is $16,500, this cost is adjusted to account for a seven year depreciation period andthe addition of 10% for finance charges and maintenance costs. This works out to a cost of $274 for each 30-day period.Obviously, signs have a useful life far beyond a seven year period.

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The exposures generated by the on-premise sign not only cost far less than othermedia exposures, they are also far more effective. At least 98% of all retail salesare place-based – and the on-premise sign is right there on-site, marking the verylocation at which the purchase could occur, and only advertising to those whoactually move through the trade area.

number of “exposures” the business would need toreplace if it no longer could have its on-premise sign.

Next, one would need to determine how muchadvertising in other media would need to be bought inorder to obtain the same number of effective consumerexposures. The chart on the previous page shows atypical cost comparison of various media costs. Itassumes an expenditure of $16,500 on a sign andcompares the exposure value to a similar investment ina range of other media, including television, newspaper,and outdoor advertising.

The exposures generated by the on-premise sign not onlycost far less than other media exposures, they are alsofar more effective. At least 98% of all retail sales areplace-based – and the on-premise sign is right there on-site, marking the very location at which the purchasecould occur, and only advertising to those who actuallymove through the trade area. Other forms of media havea high waste factor, advertising to people who are faroutside a business’s trade area.

Estimating Value by Looking to the Marketfor Cost ComparisonsAnother method of estimating the value of the exposuresgenerated by a sign is to compare the lease or rent cost

per square foot of high-exposure commercial propertyto that of low-exposure, or no-exposure commercialproperty in the same town as the subject sign. The marketis nearly always willing to pay a significantly higherlease or rent for a high-visibility site because highervisibility means more customers. Sites that are moreexposed typically rent for more than sites with poorexposure. A sign allows a less visible site to function asa high exposure site.

The value of the visibility component of a retail site canbe estimated by conducting a survey of rental or leasefigures per square foot for a number of commercial sites,and then determining the square foot rental differencesbetween the sites based on their visibility. This providesthe most basic element needed to estimate the contri-butory value of the visibility component of a commercialsite. It is not unusual for a highly visible commercialsite to lease for 20% to 25% more per square foot thanone with low or no visibility in the same complex.

The next step is to determine how much money thebusiness owner would need to invest to generate interestincome equivalent to the value of the site’s visibilitycomponent. This is done by dividing the annual dollarvalue of the visibility component of the site by thepercentage of interest that would be earned on theinvestment. For example, if the visibility component of

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the business was worth $20,000 per year, an investmentof $250,000 offering an 8% return would be needed togenerate $20,000 in interest each year. Therefore, thevalue of a sign that would make the subject low-visibilitysite into a high-visibility site would be worth $250,000– even if the sign only cost $10,000 to build.

Estimating Value by Tracing RevenuesAttributable to the SignThis method of estimating the value of a sign involvesestablishing the percentage of business revenuestraceable to customers or clients who entered the businesssolely because they saw the sign. Many business ownershave a fairly good idea how many customers they havein a given period of time and the average sale percustomer. Several valuation techniques can be employedto help trace those business revenues. After thatdetermination, these figures can be analyzed to determinethe average amount of profit per customer.

A representative sample survey may be taken to estimatehow the business’s customers first learned of the businessand what prompted the first-time customer or client tostop – word-of-mouth, the Yellow Pages, a radio ortelevision advertisement, a print advertisement orcoupon, or the on-premise sign. The number ofcustomers directly attributable to the sign is thenmultiplied by the average profit per customer todetermine the income loss that would occur without thesign. Finally, this figure is adjusted to determine theamount of the investment that would be needed to replacethe lost income.

For example, assume an average sale at a pizza parlor is$12 per customer, of which $3 is profit. The pizza parlorhas 70 customers on average per day, and profits $75,600

per year. The survey shows that 25% of its customersstopped solely because they noticed the sign. The profitdirectly attributable to the sign, then, is $18,900 per year.An investment of $236,250 offering an 8% return wouldbe needed to generate $18,900 in interest each year toreplace the income lost by the sign.

No Cost-Effective Replacementfor Signage ExistsToday’s businesses have many ways to reach potentialconsumers with their message: network television, cabletelevision, satellite television, the Internet, direct mail,radio, sports and event sponsorships, outdoor advertising,newspaper and magazine advertising, licensedmerchandise, telemarketing – the list goes on and on.Commercial speech is growing so rapidly, and hasexperienced so many different permutations, that it ismore difficult than ever for the average business to selecta feasible and reasonably priced alternative from theavailable options, and to effectively market or advertiseto its entire trade area.

It is signage – place-based communication – that canmost effectively and affordably help a business tie itsother forms of advertising together, and communicateto its target audience (those actually moving through itstrade area). In fact, without a sign to identify a businesslocation, the money spent on other media is largelywasted. It is no exaggeration to say that the part signageplays is significant enough that it can determine whetheror not a business is successful. This important role hasspurred an incredible evolution in the sign industry,ensuring the availability of attractive, interestingcommunication options to suit the communication needsof any business at a price that business can afford.

More prominently locatedretail sites in a shoppingcenter command higherrents because their greatervisibility is proven to attractsignificantly more business.An on-premise signfunctions in the same way,making the business visibleto passing traffic. Aprominent sign can turn anunproductive or low-visibilitypiece of property intosuccessful - and valuable -commercial real estate. Thiscommercial site is not itselfvisible from the street aboveit, but the on-premise sign atthe edge of the road makesthe business below "visible"to passing traffic.

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Can we help?Annual subscriptions to Signline are avaiable for $3 (plus15% S&H - $2 minimum). For more information, call or write:

INTERNATIONAL SIGN ASSOCIATIONsignage.help@signs.org

Phone (866) WHY-SIGN (949-7446); FAX (503) 625-6051For other signage resource help see:http://www.sba.gov/starting/signage

Signline is a public service publication of:

INTERNATIONAL SIGN ASSOCIATION707 N. St. Asaph Street, Alexandria, VA 22314-1911

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Signline Staff:

R. James Claus, PhDAnne Marie Melmon Susan L. ClausThomas Claus Becky Miller

Several legal issues are discussed throughout ISA’s Signline series. Signline is offered for educational and informational purposes only andnot to be construed as giving legal advice to any user. Competent legal advice/advisors should be sought after and obtained by the user.

Without a sign to identify a business location, the money spenton other media is largely wasted. It is no exaggeration to saythat the part signage plays is significant enough that it candetermine whether or not a business is successful.

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