Finance and marketing don’t always play well together, but sometimes they’re inseparable. One of those inseparable moments is brand valuation – assigning a dollar value to the identity of a company, business unit, or product line.
Placing a dollar amount on a brand is so difficult that valuations from three valuation firms could differ widely, but commonalities do exist. For example, while brand appraisers Forbes, Interbrand, and Millward BrandZ disagree by as much as 100 billion on the exact worth of the Apple brand–145B, 170 B, and 246B, respectively–they all agree that Apple is worth more than any other brand in the world.
This blog identifies the basics of brand valuation along with a practical brand-building action that can be taken today.
EBIT
All brand appraisers begin by digging into the financial reports of a brand to establish the brand’s contribution to its umbrella company’s bottom line. Usually that means Earnings Before Interest and Taxes. This is strictly a quantitative financial process.
Tip: As important as brand building is, keeping your business profitable comes first. Don’t let profit fall forgotten in a flurry to create a flawless public brand image.
Brand vs Product
All brand appraisers contrast the effect of the brand to the effect of the product in order to compare the contribution of each. This is a qualitative analysis to parse whether the brand determines consumer loyalty (like Apple vs Microsoft, Coca Cola vs Pepsi) or price and convenience determine consumer loyalty (Delta vs American Airlines, Texaco vs Holiday). This is where financial analysis depends heavily on qualitative understanding of the business.
Tip: Understand your business enough to know how much of your revenue comes to you because your clients value your identity, reputation, attitude, culture, and concept…and how much revenue comes to you because your product is unique, the cheapest, or most convenient.
Brand vs Other Brand
Brand appraisers want to know not only how much money your brand is making but also how much money your brand can make. This includes both market size and market share. Market share indicates the total potential of all companies in your space. Market share indicates your relative strength in your market. The more dominant you are in either category, the more you’re likely to make if and when the market grows, shrinks, or changes.
Tip: Fight for market share almost as hard as you fight for profitability. While profitability comes first, dominating your space today builds a foundation for an even brighter future tomorrow.
Financial Projection
Since appraisals are fluid, brand appraisers want to know the future value of your brand as well. Just like any other financial analysis, brands have a predicted value. As such, they are subject to the same market drivers as any other valued asset: fear, trust, and greed.
Tip: Know your own financial projections, including the financial projection of your brand. Remember to take all valuations with more than a grain of salt.
Advertising and Brand Activations
Some brand appraisers consider the number of times a brand is mentioned in the media because those mentions or “brand activations” indicate a brand’s ability to persuade consumers to purchase. Media dominance is an important strategic consideration for many of the top brands.
Tip: Remember that advertising/public relations systems can do more than drive sales today. These systems can be a long-term asset.
Consumer Opinion
All brand appraisers care about consumer opinion while others focus on it exclusively. Remember that whether consumer opinion is measured directly or indirectly, brands ultimately reside within the minds of its consumers and nowhere else.
Tip: Care about what your consumers think. Ask your consumers what they think. Act on what your consumers think.
Next Steps
Brand valuation & managing its value through time is complex enough to require expert assistance of a Chief Financial Officer. Businesses without a full-time CFO should consider the advantages of a part-time CFO. Preferred CFO provides an outsourced CFO option that is the most affordable way to gain long-term competent advice without the higher cost of full-time staffed officer.
Please speak with Preferred CFO for help with managing your brand’s value.
