Methods of Valuation of Brand

COST

• This cost method looks at gathering/collating all the costs that were incurred in creating a brand or what it might cost to recreate a brand hypothetically.

• However, this method is very rarely used as it does not reflect the true worth of the brand value. The costs incurred are more often than not substantially less than the actual value of the brand. In the same way the price of a property is not identical to the cost of the raw materials, labor and other cost to construct it.

MARKET VALUE

• This method is like attempting to value a property where we look around for the disposal value of similar and identical properties sold in the surrounding vicinities.
• Therefore, the difficulties of comparing apple with apple and to get the best available information render this market value methodology as a theoretical approaches. Don’t forget that each brand is unique in its own way.

ECONOMIC USE

• This methodology is similar to a cash flow valuation that analysts use to value equity. However, it focus on the gross profit attributable to selling a branded rather than a non-branded item.
• It therefore is commonly based on the discounted value of future brand earnings.
• It records the economic value of the brand in its current use, to its current owner.

ROYALTY RELIEF

• It can be construed as the opportunity cost where the valuation methodology is based on the assumption that if the company in question did not own its own brand it would need to license one from someone that did. A “ cost” therefore needs to be incurred which is then the royalty rate charge based on turnover.
• Incidentally, “royalty relief means that as the company owns the brand, it therefore does not need incur this charge- hence a relief to the company.