How to do Brand Valuation?
The business valuation process is a challenging task. While the valuation of a brand may seem simple and appealing, they offer proper financial techniques, the truth is the bigger a brand is, the more complex and challenging the task of brand valuation is. A lot of factors should be taken into account and the valuation of trademarks, patents, goodwill, etc. also play a major role in the process.
COST-BASED APPROACH TO BRAND VALUATION
The techniques under this method are concerned with the costs that are used in creating or replacing the brand. It is further subdivided into the following methods:
- Historical Cost Method - The approach includes the historical cost of making the brand as the actual brand value. It is regularly used on the preliminary levels of brand creation when specific market applications and advantages cannot yet be identified. However, the shortfalls of this approach are that there exist difficulties as to what could classify as marketing costs and the next amortization of marketing cost as a percent of sales over the brand's expected life.
- Replacement Cost Method - This method states that the brand valuation should be done by taking into account all the expenditures and investments that are required to replace the brand with a new one that has equivalent value to the company. The drawback of this method is that though it makes the calculation convenient and easy, however, it looks over the success of an established brand.
FORMULARY APPROACH TO BRAND VALUATION
The Formulary techniques are those that are significantly used commercially by consulting other organizations. This method is similar to the income or economic use approach differing in the magnitude of commercial usage and employing multiple criteria to decide the value of the brand. As we mentioned various techniques above, it is clear that a valuation of a brand is a challenging and tricky task no matter where brand valuation is done. Each brand may require a different technique. Some firms follow the Income approach for brand valuation in Mumbai, on the other hand, various firms use a combination of cost and formulary approach for brand valuation in Gurugram. It is on the will and analysis of the analyser, what approach they think is the best for them.
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