Learn How to Calculate Your Brand's Value
How to use methods of brand valuation
What is a brand worth? In companies where budgets are tight, how do you go about explaining the importance and the equity that a brand carries?
The idea of a brand is intangible, which can make it difficult to explain the value that it brings to a company. However, there are multiple ways to calculate brand valuation. The best one to choose will depend on the history of your business, your industry, and your market.
What Is Included in a Brand's Valuation?
Before calculating your brand's valuation, determine what that brand includes. You should consider the value of anything that consumers associate with your brand and image, such as your:
- Trademark or brand name
- Visual assets such as a logo or brand colors
- Unique marketing strategy
- Digital assets or licenses
- Level of customer loyalty
Brand value is an essential tool for developing your brand and forecasting the value of your business. There are multiple ways to approach the valuation of a brand. Which method you choose will depend on your business, industry, and situation.
Cost-Based Brand Valuation
Cost-based valuation is similar to saying that a home is worth the amount of money it took to build and furnish it. This method values a brand using the costs that have been incurred to build the brand since its beginning. Items you would include when evaluating costs are:
- Historical advertising
- Promotion expenditures
- The cost of campaign creation
- Licensing and registration costs
- Cost of any trademarks
Using cost-based valuation requires you to evaluate the cost of the brand and restate the actual expenditures in current cost terms. You can use this method of brand valuation whether you have just launched or gone through the process of re-developing your brand.
It's important to keep in mind that, while this method uses concrete costs to estimate your brand value, the final figure doesn’t necessarily represent the current value of a brand. Changes in public perception of your brand, media attention, or changes in your industry can all raise or lower your brand's value relative to the cost of building it.
Market-Based Brand Valuation
Market-based valuation is similar to researching the prices of houses in your neighborhood before you set a price for selling your home. It uses one or more points of comparison between your business and similar brands that have been sold. These points of comparison could be:
- The specific sale of a brand
- Comparable company transactions
- Stock market quotations
Market-based brand valuation is the amount for which a brand can be sold. The brand value using this method is equal to a market transaction price, bid, or offer for identical or reasonably similar brands.
Income Approach to Brand Valuation
The income approach to brand valuation is similar to looking at a house's potential earnings as a rental property and using that to estimate its current value. This method is often referred to as the “in-use” approach.
To calculate the brand value, the income approach uses future net earnings that can be attributed directly to the brand to determine its current value. The brand value using this method is equal to the value of income, cash flow, or cost savings actually or hypothetically due to the reputation or recognition of the brand.
Why Is Brand Value Important?
Large brands, such as Apple or Google, can carry billions of dollars worth of value. However, even small businesses can carry strong brand value within their industry or local market.
Brand equity is one of the few assets in business that can provide a sustainable competitive advantage. However, because the idea of a brand's value means different things to different people, brand valuation is not an objective concept. The different methods used to calculate brand value means companies can manipulate the value of their brand equity.
This becomes especially important if you are considering a sale or merger, or attempting to expand with help from a loan or outside investors. To demonstrate that your brand's valuation is accurate and reliable, identify the objective of the valuation and use the appropriate method and assumptions to determine a fair value.