Brand valuation is typically defined as the estimated financial value of a brand. In the case where I was recently asked by a local entrepreneur, “How much do you think this brand is worth?”, I started to think about how I would go about valuing the brand in question and came up with the following valuation metrics, which I was able to use to give me a quick turn answer (they did not have days, but rather hours, to determine an estimated value for an investor meeting):
Recognition: Recognition of the brand name would increase its value by X%, but a key factor is who would recognize the brand, so I also looked at whom, where and why.
Profitability: A brand that makes money is worth much more than a brand that doesn’t, right? Brand names with higher profit margins are generally more valuable, so this was a key consideration.
Market share: Let’s take the product(s) out of the equation and focus on the name. Can this brand, all things being equal from a product perspective, create value enough to have a majority share of the market? This would lead to a pricing premium as well. Brands that are more penetrated into the market would likely be better known and more valuable.
Premium pricing: This is a biggie. A brand which can command a pricing premium would be much more valuable than one which cannot. As an example, a nice wine stem may sell for X dollars, but the same wine stem with a well-known and valued brand may sell for X% more per stem. Yes, I used X’s as there is a percent differential there, but I am not familiar enough with wine stems to state the exact percentage based on the wholesale and retail price points…
Market stability: Brand names in stable markets are generally less risky than brand names that are heavily influenced by change. With an increased probability of change comes a higher risk for obsolescence, which then lowers the value of the brand as well.
Substitutions: Can you be ripped off with a generic brand? Would the consumer pay for the cheaper product? Is the quality of the cheaper product the same? This does contradict the pricing premium noted above on the same wine stem, but the question at hand is does the product that the brand is on warrant the premium price point? In this area, with all things being equal, the higher the revenue impact of the substituted product, the less valuable the brand might be.
After everything is said and done, a key question is not necessarily how do I value the brand, but is there a buyer out there that values it the same? Depending on the brand itself, in order to maintain or even have a value, there needs to be a buyer on the other end that feels the value is worth paying the price for, whether that means buying the product or buying the whole brand.
