[UPDATE: The cost estimates in this post are from 2004. Obviously, you’ll need to update all costs for inflation.]
In 1993, a french company, called Mobil Affiche, developed one of the first mobile scrolling advertising systems, and began deploying the early dedicated advertising vehicles in Europe. Their trucks featured a unique 7-poster system with 5’ x 8’ displays on three sides. Two years later, the trivision advertising truck was invented by Delroy Cowan. Cowan’s 1995 invention combined an Isuzu NPR truck with a custom truck bed and three trivision signs that he purchased from a European manufacturer. His two trucks were the first multi-image dedicated advertising vehicles in the USA. Years later, similar, but refined truck concepts appeared from companies calling themselves Brands In Motion, Billboards in Action, and Admobile.
The ad truck concepts from each of these mobile ad pioneers were different, but they all championed what has become the shared-use model of mobile advertising.
We have previously discussed how one can achieve a reasonable return on investment by dedicating an ad truck to a single client. The single-client model eschews higher advertising rates and greater potential revenue for reduced risk and security. However, there is not a more potentially profitable model for mobile advertising revenue generation than the shared-used model.
In a nutshell, the shared-use model allows advertisers to purchase as little or as much of the available ad space as they want. To support a strong rate card, the mobile advertising provider must design a program that is effective, credible, verifiable, and a good value
The cornerstone of any advertising medium is effectiveness. In mobile advertising, effectiveness is created through a combination of creative ad design, operational logistics, hours of operation, and local traffic patterns.
The perceived credibility of a mobile advertising company is often the difference between closing a contract, and leaving a prospect’s office after a polite, “I’ll think about it.”
An offer to buy advertising on a single truck that a client has never seen does not instill a lot of confidence in a prospective advertiser. Yet an overwhelming number of new Spark truck owners mistakenly believe that 30-60 days of “pre-sales” will allow them to take delivery of their first truck with a sold-out slate of advertisers. That is not a realistic expectation.
The only way to build credibility is by demonstrating credibility. Your truck, spotlessly clean, on the road every day during regular hours, will build your company’s credibility. When it first hits the road, it may be regarded as a curiosity, but it time it will have credibility.
A common question is, “Can you guarantee how many people will see the ads?” That’s not really the question at all. The real question is, “How can I be sure that the truck is not parked behind your office when I’m paying for it to be moving through rush-hour traffic?” The answer is verification. For $30 a month, you can have real-time and historical GPS location data that can serve as proof of performance. It’s not necessary to give a client online access to the GPS system, but you should offer to make weekly or monthly GPS reports available upon request.
If you’ve demonstrated the first three requirements — effectiveness, credibility, and verification — the final requirement, good value, becomes self evident to the customer.
To this point, we haven’t discussed price. Price is never the reason why someone buys mobile advertising. (If you market it as a “cheap” form of advertising, you will be trying to sell your very lightly used Spark truck for sale in less than a year.)
So what does any of this have to do with the shared-use model? Time to talk about price.
Some of our truck owners successfully charge over $1000 per week with a minimum 13 week commitment for a single face of advertising on their trucks. The advertisers believe they received a good value and that the advertising is effective, delivering results for their businesses. The truck owner was perceived as credible, the advertising was effective, and the client could verify that the truck operated the schedule that was paid for.
Plan for overhead
The shared-used model has the highest operating overhead of any of the mobile advertising business models. Most shared-use models feature some combination of the following elements:
- Operation on a specific targeted route
- Visibility during morning, noon, and evening rush hours
- Illumination when needed
- Non-exclusivity for advertisers (i.e. OK for two competing restaurants to advertise)
- Minimum length of term usually 13 weeks, sometimes as short as one month
- Ads priced by the face (don’t wrap all the way around truck)
Weekly operation, from 7AM to 7PM, five days a week requires a staff of several drivers and a payroll of at least 50 hours. It’s common to have a couple of hours of down time in the middle of afternoon when traffic is slow. The understanding that their ad is on the road virtually non-stop throughout the week helps clients get comfortable with the idea that their ad will share the space with other ads.
It will reliably cost $83,000 per year to operate a truck this way. Approximately $7000 per month:
- Truck payment: $2000 (60 month term on a $90,000 truck, nothing down)
- Insurance: $300 (ranges from $150 to $500)
- Drivers Payroll: $2817 (50 hours a week, $8/hr pay, $5/hr taxes & benefits
- Fuel: $1517 (200 miles per day, 10 MPG, $3.50 per gallon)
- Maintenance: $250 (oil changes, tires, brakes)
- GPS service charge: $30
- Total of all monthly expenses: $6,914
$7,000 per month overhead, which continues month after month with 20 advertisers on board, or only one advertiser. Most of our truck owners that run with this model charge between $400 – $700 per week per ad with a minimum contract of 13 weeks. At those rates, they also limit the number of ads per side to no more than 4 at a time, to increase ad frequency, even though the system can hold many more.
Back to the calculator
This is the exercise that gets most of our owners interested in a mobile advertising opportunity. The pricing ground-rules assume the following:
- a base rate is established that equals one week of advertising on one side face,
- back faces are at least 20% more valuable than side faces because motorists can view the ads for a much longer period of time,
- there is a maximum inventory of 4 ads per side available for sale
Here’s the formula for your Excel spreadsheet: Maximum monthly truck revenue = ((8 side faces x base rate) + (4 back faces x (base rate x 1.2)) x 52 weeks / 12 months.
If we use a base rate of $500 per week (typical rate), the calculator exercise plays out like this:
- 8 sides x $500 = $4,000
- 4 backs x $600 = $2,400
- Max weekly rev = $6,400
- Max monthly rev = $27,712
- Max annual revenue = $332,544 = the BIG NUMBER
When the BIG NUMBER shows up on the calculator, or at the bottom of the Excel spreadsheet, it makes the $83,000 annual overhead per truck look quite affordable.
Remember, these numbers are based on only 4 ads per side. Most reading this will try to run the numbers with 10 or more clients.
Gross operating profit is about $250,000 per truck according to this model. It represents a whopping 67% gross margin percentage. The reverse of the 67% gross margin is a 33% break-even ratio. It’s necessary to sell one out of every three ad spaces on your truck at an average rate of $500 per week before the owner can afford to take a salary, and pay for other office and administrative expenses.
The shared-use model in a successful operation rarely if ever approaches the margins detailed above. But the big number is what attracts many into the opportunity. Somewhere in the middle is reality. Spark truck owners should temper their own enthusiasm for the mobile advertising technology with the reality of running a successful sales operation. If the thrill of direct sales is what motivates and excites you, and you find the lure of the big number irresistible, the shared-used model might be best for your mobile advertising venture.