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.
Brand Valuation refers to the process that is used to calculate the value of a brand or the amount of money a third party is willing to pay for it or the financial value of the brand.
COST-BASED APPROACH OF 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 for this method is that though it makes the calculation convenient and easy, however, it looks over the success of an established brand.
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