Just like any other new technology, the cost-benefit analysis is the first step towards evaluation of an investment in a digital signage platform. Several factors must be taken into account: business type, marketing strategies linked to purchase increase, brand diffusion and consolidation, new product launches, promotion of discounts and offers, income generated from the divulgation of advertisement through a network on behalf of third party customers.
Whatever the motivation (direct promotion of one’s own products or resale of advertising spaces), the value chain linked to the development of a digital signage project unfolds in various stages, from content creation to delivery.
Depending on the organization, some of these functions can be managed either by third parties or pre-existent resources and competencies.
Now let’s consider two main business models: Direct promotion and Resale of services and advertising spaces.
Direct promotion
This digital signage model is a valuable tool that helps achieve effective development, management and diffusion of ownership content or content directly linked to the organization, with the objective of increasing sales, improving the company image or implementing forms of communication correlated to the company mission.
In this case, the areas of message divulgation can either be proprietary or at the disposal of the message producer, as in the case of outlets or public access points.
The return on investment is closely related to purchase enticement, increase of quality perception of a product or service and strategies for enhancing customer satisfaction right at the sales point. Model illustrated below:
Resale of advertising spaces
The main objective of this digital signage model is to gain profit from the provision of services for content development and/or resale of advertising spaces. These services can be supplied either directly or through advertising agencies. Content is delivered to highly frequented areas, like supermarkets, sports stadiums, stations and airports. Model and target users illustrated below:
However, for some organizations, the applicable model may be a halfway step between the two, implying both promotional and direct communication components and the income generated from the resale of advertising spaces to suppliers and partners or granted for use to advertising agencies.
Total Cost of Ownership (TCO)
Another important element for ROI analysis is the Total Cost of Ownership (TCO), which, in the case of digital signage, includes all costs associated with software, hardware, implementation and maintenance. Generally speaking, the ROI and TCO relationship evolves inversely over time.
As per the first model (direct promotion), all costs associated with the hardware and software system, installation, management and update, are borne by the organization. Production, management and content divulgation costs must also be taken into account. In this case, ROI estimation is based on the following factors: total investment (installation, system maintenance and operativeness purchase costs, i.e. TCO) and net profit (increase in advertising income generated from the digital signage system).
The second model implies the installation of the system and the organization requires a contribution fee from its suppliers or partners in exchange for dedicated advertising spaces or sharing of purchase and maintenance costs, until income generated by advertising is produced.
In this case, ROI estimation is based on the following factors: investment (system installation, maintenance and operativeness purchase costs, i.e. TCO) and net profit (sales increase and advertising income generated from the digital signage system). To obtain the best possible results, the digital signage system should include a reporting system for invoicing purposes.
Conclusion
Several variables should be kept in mind in the TCO calculation, such as ease- of -use and ease- of- learning, in consideration of the time needed to get acquainted with the management tools. In short, variables that most effect profit and management expenditure forecast are associated with initial investment minimization, time to market optimization and a reliable budget forecast for management and technologic updates.
The Software provided as a Service (SaaS) implies the distribution and use of the software through the Internet and helps keep initial costs of investment and management expenditures for a proprietary infrastructure to a minimum.
