It’s easy to figure out the value of a product or service to a business. Just tally up the revenue generated by any particular product or service, and compare that to the business’ overall revenue.
It’s often easier to do this with smaller or more specialized companies, but it’s possible at any scale. Just look at Apple. It’s the most profitable public company in the world, but its entire income statement can be boiled down to just five lines of business: the iPhone, the Mac, the iPad, wearables (Apple Watch) and accessories (Apple TV, and services (the App Store). In the first quarter of this year, the iPhone contributed about 53% of Apple’s total revenue, with no other line of business contributing more than 20%. Without the iPhone, Apple isn’t worth much.
Savvy entrepreneurs know this simply isn’t true. The iPhone simply wouldn’t be what it is without Apple’s brand supporting it. The cachet of Apple’s brand has done a historically fantastic job at selling the iPhone as a premium product in a mobile phone market saturated with $1,000 phones offering bleeding-edge performance.
What’s Apple’s brand worth?
Answering that question isn’t as simple as looking at an income statement. Some companies attempt to attach a value to their brands through a line called “goodwill,” but this is generally only used in the process of a business acquisition.
How to value a brand
That’s where experts like BrandZ come in.
BrandZ is a collaboration between advertising conglomerate WPP and analytical consulting firm Kantar. Each year, BrandZ publishes a deeply-researched, comprehensive, and free guide to the world’s 100 most valuable brands. Apple’s brand, unsurprisingly, is one of BrandZ’s most valuable, as it’s estimated to be worth $310 billion in 2019. Surprisingly, however, Apple isn’t the most valuable brand in the world. This year (for the first time), it’s Amazon, worth an estimated $316 billion.
What does that mean for you?
You might not have access to high-priced consultants who do nebulous things such as calculate brand value, but you can still hack it together on your own.
According to Brandz’s methodology explanation, there are a few figures you need to calculate your brand’s value — whether you have one or more than a dozen:
- How much of your company’s earnings come from that brand?
- How much will that brand contribute to future earnings? (6x to 12x multiple)
- What is the premium (sales volume, pricing power, etc.) of that brand?
- Is it “meaningful”?
- Is it “different”?
- Is it “salient” (easily memorable)?
It boils down to a combination of a brand’s actual contribution to your company’s bottom line, its hypothetical long-term contribution to the bottom line, and the sales and profitability driven solely by your customers’ connection to that brand. BrandZ has an involved, proprietary calculation, but you can just make an educated guess.
How many brands do you have?
Most companies, like Apple and Amazon, are built around a single overarching brand. However, as companies grow, many will diversify into multiple brands. For example, Facebook and Microsoft are both top-ten brands on the BrandZ most valuable list for 2019, but brands they own through acquisitions — Instagram and LinkedIn, respectively — are both listed on the “top 10 risers” list of brands with the largest percentage growth in value from 2018.
If your business is a laser-focused Apple type, with one core brand, it’s pretty easy to calculate how much of your earnings come from your brand: 100%. At that point, it becomes more important to get an objective valuation of future brand earnings and the “brand premium” you can command in the marketplace against your competitors. Future earnings for a one-brand business would simply be an assessment of your future growth rates. The brand premium is essentially the marketing value of your brand. How much more can you charge, and how many more customers do you attract, simply on the strength of your brand?
What’s your brand worth? If you think you could boost your brand’s value with a smart promotional campaign, you can get started right away with a business loan or line of credit from Amerifi. Just reach out to us to get started!