How to Make Your Brand Valuation (A Step-by-Step Guide)

What is brand valuation?

Brand valuation is a process of estimating the financial value of a brand, which represents the intangible assets of a company. It is an assessment of the worth of a brand, based on its market position, reputation, customer loyalty, and other factors that contribute to its perceived value.

The valuation of a brand involves analyzing various elements, including the brand’s strength, the value it adds to the company, and its ability to generate future income.

Why you may need a brand valuation?

Understanding the value of the brand

Brand valuation helps businesses to understand the financial value of their brand, which is often one of their most valuable assets. It provides insights into the strength of the brand and its contribution to the overall value of the company.

Informing strategic decisions

It can inform strategic decisions around branding, marketing, and investment. It helps businesses to identify the strengths and weaknesses of their brand and to make informed decisions about where to invest resources to improve their performance.

Supporting M&A activities

It is often used in M&A activities to determine the value of a company’s brand, which is an important consideration in the valuation of the entire business.

Compliance

Some regulatory authorities require businesses to provide brand valuations for financial reporting purposes. For example, International Financial Reporting Standards (IFRS) require businesses to disclose the fair value of their intangible assets, including brands.

Building investor confidence

Brand valuation can provide investors with confidence in the financial performance of a business. By understanding the value of the brand and its potential for future growth, investors can make informed decisions about whether to invest in the business.

How to calculate brand value?

First of all, you need to understand the key factors that influence brand value.

The level of brand awareness is a critical factor in brand value. Brands that are well known and have high levels of visibility tend to be more valuable.

  1. The level of customer loyalty to a brand is another important factor. Brands that have a strong following and loyal customer base tend to be more valuable.
  2. A brand’s reputation, which is the collective perception of its quality, reliability, and credibility, can have a significant impact on its value. Brands with a positive reputation tend to be more valuable.
  3. A brand’s ability to differentiate itself from its competitors is another important factor. Brands that are seen as unique and offer a differentiated value proposition tend to be more valuable.
  4. A brand’s financial performance also influences its value. Brands that generate higher revenues and profits tend to be more valuable.
  5. Besides, a market position relative to its competitors can also impact its value. Brands that hold a dominant market position tend to be more valuable.
  6. The strength and protection of a brand’s intellectual property, such as trademarks and patents, can also influence its value.

After understanding key factors impacting a brand, the next step is choosing a valuation method.

Methods of Brand Valuation

A. Income-Based approach of brand valuation

Income-Based Approach of brand valuation is approach of estimating the value of a brand based on the present value of its expected future income. The income-based approach relies on the assumption that the value of a brand is related to its ability to generate income, which is often measured in terms of royalty rates or the projected cash flows associated with the brand.

There are two primary methods used within the income-based approach for valuing brands:

Relief from Royalty (RFR) Method

This method involves estimating the cost that a company would incur to license a comparable brand, and then applying this royalty rate to the brand being valued. The royalty rate is determined based on the expected income that the brand will generate over its remaining useful life. This method is often used when there is a comparable brand with a licensing agreement that can be used as a benchmark. For this method you need reliable database such as Royalty Stat.

Multi-Period Excess Earnings Method (MPEEM)

This method involves estimating the future cash flows generated by the brand, which are then discounted to their present value. The future cash flows are determined by estimating the incremental earnings associated with the brand over a period of time, and then projecting those earnings over the remaining useful life of the brand. This method is often used when there is no comparable brand with a licensing agreement.

 

In both methods, the valuation is based on the expected future income generated by the brand. This approach is often used when valuing well-established brands with a track record of generating stable and predictable income. It is also useful when there is no direct market for the sale of the brand or when there are no comparable sales of similar brands.

 

In summary, the income-based approach to brand valuation is a method of estimating the value of a brand based on its expected future income. This approach is used to value well-established brands with a track record of generating stable and predictable income, and is often used when there is no direct market for the sale of the brand or when there are no comparable sales of similar brands.

B. Cost-Based approach of brand valuation

Cost-Based Approach of brand valuation is a method of estimating the value of a brand based on the costs incurred to create or replace the brand. The cost-based approach relies on the assumption that the value of a brand is related to the cost of developing and establishing the brand, and the amount that would be required to replace it.

There are two primary methods used within the cost-based approach for valuing brands:

Replacement Cost Method

This method involves estimating the cost that would be incurred to develop or create a similar brand, and then adjusting that cost for the amount of time and effort required to establish the brand. This method is often used when valuing brands that are relatively new or have not yet achieved a significant level of market recognition.

Historical Cost Method

This method involves estimating the actual costs that were incurred to develop and establish the brand, including the costs of research and development, marketing, and advertising. This method is often used when valuing well-established brands with a long history of operating in the market.

In both methods, the valuation is based on the costs incurred to develop or create the brand, and the amount that would be required to replace it. This approach is often used when valuing brands that have a significant level of market recognition and established goodwill, and when there is no direct market for the sale of the brand.

C. Market-Based approach of brand valuation

Market-Based Approach of brand valuation is a method of estimating the value of a brand based on the prices paid for similar brands in the market. The market-based approach relies on the assumption that the value of a brand is related to the prices paid for similar brands in the market, and that the value of a brand can be estimated by comparing it to similar brands that have been sold in the market.

There are two primary methods used within the market-based approach for valuing brands:

Comparable Transactions Method

This method involves comparing the brand being valued to similar brands that have been sold in the market. The valuation is based on the price paid for the comparable brand, adjusted for any differences in the size, scope, or reputation of the brand being valued. This method is often used when there are similar brands that have been sold in the market and the sales data is readily available.

Comparable Company Method

This method involves comparing the brand being valued to similar companies that have similar brands. The valuation is based on the market value of the comparable companies, adjusted for any differences in the size, scope, or reputation of the brand being valued. This method is often used when there are no comparable brands that have been sold in the market, but there are comparable companies with similar brands.

In both methods, the valuation is based on the prices paid for similar brands in the market. This approach is often used when valuing brands that are well-established and have a significant level of market recognition. It is also useful when there is a direct market for the sale of the brand or when there are comparable sales of similar brands.

Final thoughts on how to make your brand valuation

If you are a business owner or manager, it is important to take steps toward brand valuation in order to understand the financial value of your brand and make informed decisions about marketing and branding strategies. Here are some steps you can take toward brand valuation.

Conduct research

Start by researching different brand valuation methods and determining which approach would be most appropriate for your brand.

Gather data

Collect data on your brand’s financial performance, market share, customer loyalty, and other relevant metrics.

Choose a valuation method

Select a brand valuation method that is most appropriate for your brand and gather the necessary data to apply the chosen method.

Seek expert help

Consider seeking the help of a professional brand valuation expert who can provide valuable insight and guidance.

Use the results

Once you have completed the brand valuation, use the results to make informed decisions about marketing and branding strategies, and to communicate the value of your brand to stakeholders and investors.

By taking these steps towards brand valuation, you can gain a deeper understanding of the financial value of your brand and make informed decisions to grow and protect it over time.

With our team of experienced professionals, we will analyze your brand’s strengths and weaknesses to determine its true worth. Our comprehensive approach takes into account factors such as brand recognition, customer loyalty, and market trends to provide you with an accurate and reliable brand valuation.

Contact us today to learn more about our brand valuation services and take the first step toward unlocking your brand’s full potential.

How to Make Your Brand Valuation (A Step-by-Step Guide)