A brand is an investment. Time. Brainpower. Creativity. Consistency. And money. Businesses that invest in their brand want to know: is it worth it? Who better to ask about the value of a brand than the ones who actually determine business value? We’re turning to Dan Doran, Founder of Quantive Business Valuations, to find out if a brand really does impact what a business is worth.
Q: It’s safe to say you’ve seen in all. When you begin the valuation process, do you look at branding and marketing materials as part of your analysis?
A: Absolutely. I mean for all intents we are talking about the “curb appeal” of a company. Think for a moment about the curb appeal of a house: you literally go through a series of judgments about a house in that first instant you see it. Is it well cared for? Do the owner’s know what they are doing? Am I more likely than not to find problems inside?
I think there is a similar process we go through when looking at a company…we go through those same snap judgments. In my case as a valuation professional, I’m trying to get a feel for how well cared for this company is. As a consumer it’s probably the opposite: I’m wondering how well the company will care for me.
Q: Businesses debate when to refresh or completely overhaul their brand. Do you have advice on when rebranding is a good idea, strategically?
A: Well I do think that it comes down to a question of ROI. How will the “refresh” return value? In same cases it can be a really low bar.
Here’s an example: last year we were engaged to value a trucking company that was preparing for a sale. The company has no website. Every employee used some variation on truckerCo1@hotmail.com.
What was my immediate reaction? Probably the same as every new customer: why on earth hasn’t this company joined the modern world? My actual series of thoughts: I begin thinking that their books are probably a mess and their trucks are old and broken down.
This company absolutely needs to invest in some curb appeal if they are contemplating a sale. Every business seller wants the highest price for their business, so the brand will make a big impact on what a buyer is willing to pay.
Stated more broadly, I think a refresh makes sense the moment your brand doesn’t fully convey your company’s values, beliefs, or unique selling proposition.
Q: Quantive has a strong brand, too. You clearly believe in the value of branding. Why are you investing in it?
A: Most of our clients do their homework, and in most cases people are going to meet Quantive (the brand) before they meet anyone on our team. People come to us with big “bet the company” issues… the type of issues that are life events.
With that in mind, I want our brand to convey what we are: well spoken, thoughtful, technically competent… And yet, approachable. Ultimately clients should feel comfortable that we know what we are doing, and also that we speak plain English and not financial non-sense.
If the above all works out as planned, people should feel like they know us before we ever meet.
Q: So how do you actually quantify the value of a brand?
A: Generally speaking, brand value is an element of “enterprise value” – or the value of the entire company. Think of it this way: without the rest of the company, does the brand have value on a stand-alone basis? In most cases, no.
That being said there are some reasons to value a brand on its own, such as determining lost profits in litigation, in order to meet financial reporting requirements, or in some instances to sell the brand as a stand-alone asset.
There are some specific models used to value brands. These models tend to be similar to appraising other assets (i.e. market approach, income approach, cost approach). Without belaboring the detail (we’ll save that for the next interview!), valuing a brand involves us:
- comparing it to the value of other similar brands
- developing an income approach model, perhaps using a “relief of royalty” analysis
- determining the cost to develop the brand
Many thanks to Dan at Quantive for talking with us about valuation and branding. As a marketer (so naturally, a brand enthusiast), I will always encourage my clients to invest in their brand, even when the ROI is difficult to measure. Whether you are attracting new clients, retaining your best relationships or planning ahead to grow or even sell your business, a solid brand will significantly enhance your efforts.