In branding, there is an invisible domino effect that surprisingly creates a positive change and brings a dramatic shift in the whole position and understanding of the brand. I say this because, like dominos, in branding, everything is interlinked and associated with one another. If one thing is working fine, you can see its effect on the other elements, and likewise, when all factors work in a synergy, they create brand value. Yes, that’s what we are discussing today. Every position contribution adds to the brand value and equity, which works in the favor of the brand in the market. When measured correctly, brand value can account for billions on the balance sheet—or millions in a startup acquisition.
Today we are going to elaborate on the subject of brand valuation and why it matters in the context of products and services actively getting promoted in the market. But before that, I suggest we talk about things slowly and steadily. Let’s begin with the most basic question so that we ensure that everyone comprehends this and is on the same page.
What Is Brand Valuation?
To give you a one-line definition, it is the calculated financial worth of a brand. This is more of a quantitative term and includes a three-part methodology that covers financial performance, brand role, and brand strength. It goes beyond visual identity to encompass recognition, trust, customer preference, and loyalty, all of which are useful and drive future revenue.
As per Interbrand Best Global Trends 2023, Apple was valued at $502.6 billion, becoming the world’s most valuable brand for the 11th consecutive year. A company’s brand value itself is a key metric of defining its performance. Not only that, it shows how much the brand is loved by the people and how deeply they have penetrated the market.
How Brand Value Shows Up in Accounting
In accounting terms, brand value is often treated under the label “goodwill.” It is observed as a sign of good market reputation. Because come on, not all companies are brands, and not all brands have brand value. This here reflects the premium paid over a company’s net assets during an acquisition. When a buyer acquires a startup for more than its tangible book value, the excess, which we typically know is often in the millions or more, is primarily due to the brand value, name, and aura that the brand carries with itself, including, of course, the customer relationships and reputation.
Let’s look at this statistic: according to a PwC analysis, over 50% of global M&A deal value is now attributed to intangible assets, including brands. This indicates that in mergers and acquisitions, most of the money is given for the intangible assets rather than capital assets. In simple terms, while a brand may not show up directly on the balance sheet, it has a very real influence on how businesses are bought, sold, and valued.
Why Brand Valuation Matters for Startups
Alright, this is an interesting question. Well, to be honest, it should be considered as a brand strategy ROI. I believe that startups require the most amount of brand value recognition because when you are a startup founder, you are new to the market, and your brand valuation is nothing in front of the industry giants or niche players. For any early-stage companies, tangible assets are minimal.
In contrast, what they do, how they do it, what they offer, and what they are going to build bring in their real valuation. These are your brand assets. They can drive higher perceived value, lower customer acquisition cost, increased investor interest, and better acquisition outcomes.
A study by McKinsey found that strong brands outperform weak brands by 20% in shareholder returns over a 10-year period. So currently you are a startup, but you can see how in the long run, this will offer you more weightage and value.
The Three Main Brand Valuation Methods
Let’s keep it simple. This section will inform you about how you can calculate or derive the brand valuation using three primary methods.
Cost-Based Valuation
In this method, the cost is taken as the focal point, and the cost estimation to recreate or build a brand is taken into account. It covers all the expenses from advertising, design, marketing, and so on. This method is beneficial for internal audits, but the drawback is that this method doesn’t reflect customer perception or market influence.
Market-Based Valuation
This second method is a comparison technique. You compare your brands to similar products sold in the market. From the comparison, you derive key insights that help you determine your brand’s valuation. This method is based on multiple assumptions but offers a ballpark figure.
Income-Based Valuation
This last technique uses the future cash flows that are linked to the brand and then discounts them with the present value. Contrary to most beliefs, this is considered one of the widely accepted valuation models as it directly links brands to their business performance. When it happens, the brand automatically becomes more valuable from a long-term perspective.
How to Build Brand Value from Day One
Here is a quick list of tasks and processes that you can implement to kickstart your brand valuation journey from day one -
- Become consistent at what you do and in all the things you are offering via the brand, such as the same voice, message, and visual identity across all channels.
- Seek, spot, and adapt to effective brand positioning.
- Keep tracking the brand perception through surveys, NPS, engagement metrics, and other indicators.
- Form a synergy between branding and business. This will take time, but it will be beneficial in the long run.
Final takeaways
Here's the truth nobody is telling you. A business is only accounted for, but a brand is valued not just in the accounting records but in the market, in the society, and in the minds of the people. If you’re a founder, know that your brand is your most underleveraged financial asset. Your brand value defines how much people love you as a brand, and the numbers won’t lie in painting the true picture of your brand’s weightage and reputation. Whether you're preparing for funding, acquisition, or IPO, understanding and investing in brand value can be the real game changer for you.
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