How do you measure brand value?

Full Explanation

There are three main approaches to measuring brand value. The Relief from Royalty method calculates the present value of royalty payments the company avoids by owning its brand — using royalty rates from comparable licensing agreements (an illustrative 1-8% of revenue depending on the industry; the actual rate depends on the comparable licence evidence for the brand). The Price Premium method measures the additional revenue generated because customers pay more for a branded product versus a generic equivalent. The Demand Driver approach attributes a portion of total enterprise earnings to the brand based on its role in customer purchase decisions. For financial reporting purposes under IFRS 3 and ASC 805, the RFR method is most commonly accepted by auditors because it relies on observable market data. Opagio Intangibles' Asset Valuator runs the RFR method on a company's own revenue forecast, for uses such as M&A, licensing and fundraising. A brand valuation does not put the brand on the balance sheet: under IAS 38 and FRS 102 a brand built in-house is never recognised, and only an acquired brand is.

For SMEs, intangible asset valuation is particularly important during ownership transitions, investor negotiations, and strategic planning. Many business owners underestimate the value held in their customer relationships, proprietary processes, and brand recognition. A structured valuation exercise often shows that a large share of a business's value sits in intangible assets its balance sheet does not record. This insight can materially change how founders approach exit negotiations and growth investment decisions.

Related Glossary Terms

Related Questions

Further Reading