Learn How to Calculate Your Brand's Value
What is a brand really worth? In companies where budgets are tight, how do you go about explaining the importance and the equity that brand can carry?
A brand can be considered intangible, and it’s difficult for people to understand the value that it brings to a company. It’s important when sitting down to create a brand valuation to determine what your brand includes.
It could include your trademark, logo, packaging, marketing strategy, digital assets, brand colors, etc. It’s really anything that consumers associate with your brand image. Strong brands carry a great deal of value, as can be seen by the world’s five most valuable brands recognized by Forbes magazine, as of 2018:
- Apple: $182.8 billion
- Google: $132.1 billion
- Microsoft: $104.9 billion
- Facebook: $94.8 billion
- Amazon: $70.9 billion
Brand Development and Valuation
Brand development requires money and is essential to be able to forecast the value of the brand to executive leadership and investors. Brands help identify and differentiate goods and services from the competition. But how can the value be shown on a balance sheet?
There are various ways to approach the valuation of a brand, and many of them are debatable. The concept of value often can be a difficult concept to understand. This is because value means different things to different people, so it’s not an objective concept. Valuation is determined by the use of the brand. Popular valuation methods and approaches include:
Cost-Based Brand Valuation
The brand is valued using the sum of individual costs or values of brand assets and liabilities. It’s the accumulation of the costs that have been incurred to build the brand since inception. Items you would include when evaluating costs include historical advertising, promotion expenditures, the cost of campaign creation, licensing and registration costs. You could use this method whether you have just created a brand or you’ve gone through the process of re-developing the brand.
Using cost-based valuation requires you to evaluate the cost of the brand and restating actual expenditures in current cost terms. The same method could be used if you had just worked to re-develop and launch your brand. One thing to keep in mind, while costs can be collected and used, the figure doesn’t necessarily represent the current value of a brand.
Market-Based Brand Valuation
This method uses one or more valuation methods by comparing similar brands which have been sold. You would use comparable market transactions like the specific sale of a brand, comparable company transactions, and/or stock market quotations. Market-based brand valuation is what a brand can be sold for. The brand value using this method is equal to a market transaction price, bid, or offer for identical or reasonably similar brands. In real estate terms, it's like researching the sales prices of similar homes in the same neighborhood before putting a price on your own home.
Income-Approach Brand Valuation
This method is often referred to as the “in-use” approach. It considers the valuation of future net earnings that can be attributed directly to the brand to determine the value of the brand in its current use. The brand value using this method is equal to the present value of income, cash flows, or cost savings actually or hypothetically due to the asset.
Brand equity is one of the few assets in business that can provide a sustainable competitive advantage. There are many methods that can be used, which means it’s not difficult to manipulate the results of measuring one’s brand equity.
In order to prevent abuse of this, it’s important to identify the objective of the valuation and use the appropriate method and assumptions to determine a fair value. It’s fair to say that brand valuation can be more of an art than a science, but it can help in identifying and developing the value proposition behind your brand.