How to Measure Brand Value
There are some things within a company that are easy to measure. At quarterly meetings and investor updates, executives can point to concrete items like personnel, new customers, revenue, and profits to illustrate the company’s progress and growth. Other things, like brand, are more slippery, but no less important. Brand value is difficult to measure, but that doesn’t mean it can’t be done. Indeed, it not only can be done — it must.
What Is Brand Value and Why Should You Measure It?
So why is it so important to measure brand value? Firstly, it can be an important part of an argument building a business case for branding. Because the idea of a brand is intangible and not directly connected to sales, it can sometimes be difficult to convince other team members to invest in branding activities. When you can attach monetary values to your current and future brand, you start to speak their language, and it becomes easier to gain buy-in.
What’s more, brand should be measured because one of the most fundamental principles of business success is that you must set goals and track your progress toward them. No matter how intangible or difficult to define something is, if you’re investing real money into it, you need to have a solid sense of what you hope to get out of it. There is no way to know if your brand investments are working — or worth it — if you’re not measuring your brand value along the way.
So, this all begs the question: what, exactly, is brand value? The definition is, of course, part of the challenge, because brand is nebulous: it’s a feeling, an impression, a reputation, a “vibe.” However, there are ways to define it in terms of specific, material elements. In this vein, brand value can be thought of as anything that consumers associate with your brand or that influences consumer behavior: your trademark, logo, tagline, visual assets, marketing and advertising strategy, digital assets, customer retention, social media engagement levels, and so on.
How to Measure Brand Value
Having a definition helps nail things down a bit. But, because the definition of brand value is so broad and fluid, the challenge of measurement is still a big one. What’s more, brand value will mean different things to different people in different contexts. This doesn’t mean that it’s useless to calculate your brand’s value. What it does mean is that there are a number of different possible approaches to measuring brand value, and that your company should pick the one that makes the most sense for your identity, circumstances, and goals.
While there are many more possible ways to measure brand value, here are 6 common approaches:
- Cost-based valuation: This method calculates brand value based on how much it cost to build the brand. So, you’d add up all the expenses incurred in brand-building from the very beginning: things like contracts with branding agencies, promotions, trademarks, salaries of employees who focus on brand, marketing, and more. This measurement gives a value based on what you put into your brand, but it’s important to remember that it doesn’t necessarily reflect the current brand value in the public sphere. Based on the success of your branding investment, as well as other industry changes or attention your company has gotten, your brand value could be higher or lower than this number.
- Market-based valuation: This method looks at the market around you and estimates the value of your brand based on the current market climate. One of the simplest ways to assess market-based valuation is to look at the sale price of similar brands that have been acquired. You can also look at other market measurements, such as valuation or stock performance, or even ask leaders in other companies what they would pay for your brand. By gauging a variety of different market measures, you can land on a realistic estimated market value for your brand.
- Income-based valuation: This method looks at the income generated by your brand currently. In other words, what money is your brand bringing in for the company? This takes some discernment, as it requires looking at all the financial streams of your company — income, cash flow, cost savings, future earnings — and assessing which parts can be attributed directly to reputation and awareness earned by your brand. While it can be tricky to land on a number here, it’s one of the most useful frames for understanding brand value.
- Revenue premium valuation: In some ways, this method is a more specific form of income-based valuation, because it compares your brand to non-branded alternatives to determine how much more people will pay for a recognized brand. By seeing if people pick your brand based on brand identity alone — and if so how much more they’re willing to pay — you can get a clear and specific measure of brand value and then extrapolate from there.
- Customer-based valuation: This method involves assessing the number of current customers, predicting numbers of future customers, and assigning lifetime values to each. This lifetime value can be an average that encompasses the typical customer, or you could break customers into different categories with different values. Customers are a good measure of brand value, because loyal customers stick with a company because they like and identify with the brand identity.
- Net promoter score (NPS) valuation. “Net promoter score,” in essence, is a measure of how well your brand does at inspiring organic, word-of-mouth promotion. It is calculated by asking customers how likely they are to recommend your brand to someone they know and rating that likelihood on a scale of 0 to 10. The score is calculated by subtracting the percentage of “detractors” (those who rated their likelihood between 0 and 6) from the percentage of “promoters” (those who rated their likelihood between 9 or 10). In order for someone to recommend a product or service to someone in their community, they need to know, like, and trust the brand, so this is a great measure of brand value.
All of these methods have strengths and weaknesses, and all of them will likely arrive at different numbers when it comes to a brand’s value. This is natural, given the intangible and subjective nature of a brand and its value. But regardless of what method you choose, the exercise of measuring your brand’s value will clearly illustrate its monetary impact on your company, and help you set goals and adjust brand strategy going forward.
Originally published at https://insights.lytho.com.