Demystify brand value: A SME guide to choosing the best brand valuation methods

When you’re putting a value on a brand, things can get a little misty.

Don’t get us wrong: brand valuation is hugely beneficial for organisations going through or aiming for growth, helping to calculate a tangible value to raise investment funds, support exit strategies, or optimise for business as usual. On the other hand, modern brand valuations can often feel complex, inaccessible, and frustratingly geared towards large multinationals. In turn, this unnecessary inaccessibility and complexity can put SMEs off pursuing a brand valuation. In short, it can all get a little… opaque.

As you can imagine, we’re not big fans of hazy brand valuations that leave you feeling lost. Fortunately, there are plenty of options for SMEs looking to effectively value their brand, from cost-based to market-based approaches. The question is, which one suits your brand best?

The most common brand valuation methods

Sticking your finger in the air and seeing which way the wind blows isn’t going to cut it. With the pressure on marketers to prove ROI, it’s critical to understand the different methods and their limitations. To help demystify brand valuation and stop SMEs entering analysis paralysis, we’ve compiled a quick guide on the most common approaches available, as well as the main advantages and disadvantages of each.

The cost-based approach

A methodology that estimates the financial worth of a brand by measuring the costs incurred from building it.

The advantage

It’s simple. This approach is straightforward. All that’s needed is to add up the brand’s financial investment to date through internal and external costs. This approach also taps into readily available financial data, so you get an objective view. If you’re in those exciting early brand stages (congrats — they’re our favourite), this method will give you a baseline value.

The disadvantage

It’s myopic. You might get a baseline value, but it’ll be short-sighted in its vision. It won’t link brand to market value and, in turn, won’t show the true impact of a brand on a business. It also runs the risk of being misleading, as it doesn’t take into account how efficient the brand investment has been.

In summary: The cost-based approach is accessible and provides an initial valuation, but won’t calculate the true value and impact of your brand.

The market-based approach

This method calculates a brand’s financial value by comparing it to similar brands that have recently been bought, sold, or licensed in the market.

The advantage

It’s based on real-world markets. This approach is rooted in the reality of a brand’s industry category. As such, it may appeal to potential buyers and investors while providing valuable insight into the multipliers used in category valuations.

The disadvantage

It’s hard to compare. For SMEs, it’s often hard to find comparable businesses in terms of product, size, or service offering. This is particularly true in emerging, innovative categories. There may be a lack of public data from which to make comparisons, too.

In summary: This approach is rooted in tangible data but risks being impractical, as comparable brand data is often unavailable.

The royalty relief method (an income-based approach)

This approach estimates a brand’s value by calculating the hypothetical royalty payments for licensing it to a third party.

The advantage

It’s focused. The royalty relief method singles out financial value based on licensing deals that uncover a brand’s tangible value.

The disadvantage

It’s complex. Similarly to the market-based approach, finding licensing agreements from comparable brands can be challenging. It also relies on accurate revenue projections as part of the calculation, which may be difficult for SMEs.

In summary: A royalty-relief method can generate a robust, tangible valuation, but it needs credible finance forecasting inputs to be accurate.

The income-split method (an income-based approach)

An income focus calculates value by quantifying the portion of a business’s total profit attributable to the brand.

The advantage

It’s financial and audience-focused. This approach lasers in on a brand’s ability to generate profits and influence audience decision-making. It also gives deeper and more holistic measurement into the brand’s role.

The disadvantage

It’s subjective. Determining the exact percentage of economic profit attributable to the brand is subjective and requires detailed supporting analysis (such as behavioural, market, and financial).

In summary: An income-split method can create a robust, tangible valuation that unlocks the brand’s deeper value, but it needs rigorous supporting analysis.

The hybrid approach

Combining elements from the cost, market, and income-based methods together with brand equity measurement. Both Interbrand and Brandz use hybrid brand valuation approaches.

The advantage

The depth. Together, these methods provide deep analysis built on proprietary data, building credibility and uncovering strategic insights that support the overall brand valuation.

The disadvantage

The cost. The degree of data generation and analysis can lead to project costs beyond SMEs’ reach. Large and established brands typically use these hybrid methods in the market.

In summary: A hybrid method can supply the depth of insight needed to comprehensively evaluate your brand and give strategic direction. Unfortunately, the most common approaches will be beyond most SMEs’ budgets.

Meet the UnitedUs brand valuation machine

Each existing method has advantages and disadvantages, as none of them have been created with SME needs front and centre. As a result, practical, accessible, and cost-effective SME brand valuations are difficult (we’d say impossible) to come by.

We think that’s rubbish. So we created our own.

Step in: the UnitedUs brand valuation machine. The brand value defogger, if you will. Our cost-effective and accessible hybrid approach is specifically tailored to SMEs who have been left out of the conversation for far too long. We give you the depth of analysis needed to build a truly robust valuation, driving investment or exit strategies, as well as guiding business as usual. The result? Your brand value, clear as day.

If you’d like to find out more, we’d love to chat. Get in touch with one of our partners — Luke, Natalie, or Jan — today. They won’t bite. Promise.

Brand Valuation