How to Put A Value To Your Brand and Show its Worth
Your time is valuable, your work is valuable, and, let’s say, you put a whole bunch of time and work into your home–that’s added value to that home. All of this work is done, you remodel every bathroom, you put in new counters in your kitchen and paint the cabinets to match, and knock down a wall or two to open the place up. You give your home a thoughtful aesthetic–one that has real appeal with its beautiful, cohesive presentation. The time, effort, and intention that went into making your home the way it is now is worth something, something beyond the cost of the physical items. And you expect that value to be reflected in the price the purchaser will pay.
The same goes for your brand.
As a small business owner who has (hopefully) put time, effort, and money into building their business into a well-rounded, successful machine. The value in your business is in your physical assets, your reserves, your cashflow, your customer base and your brand. The first few items have hard costs and are easier to value (albeit there will still be gray areas and various opinions). Your brand, however, is more tricky to value. But, we’ve seen that branding can be a pretty influential line item when it comes to eventually selling your business, so how the heck do you find the value and justify it to a potential business buyer? There are different ways to skin this cat, but in this brief-ish post, we’re going to cover one we recently helped a client walk through and present to their potential buyer.
Branding 101, Why The Heck It’s So Dang Important
One of the major payoffs when it comes to investing in pro branding is the significant bump in the right direction when you go to value your business for a sale. Building a well-put-together, cohesive, powerful, recognizable brand makes every business better (yep, even laundromats, example to come). This work plays a huge role in marketing efforts, customer relationships, referrals, processes, professionalism, company culture, and, at the end of the day, sales.
How A Great Brand Adds To Your Business Valuation
You’ve invested in hiring some brand development help, marketed that brand with impressive brand assets, and have a heap of on-brand material with an audience who knows your brand when they see it. You should be able to get monetary value for that brand that you’ve built, and this isn’t just for the giant businesses, even for a small business, being able to justify the value of your brand is crucial come sell time.
Now, it’s no question that the value of a brand varies business to business … a lot. Take Laundromat ABC, a business in a nice midtown location with 50 machines. The owners haven’t invested any efforts or funds into branding, and, consequently their brand value line item is a nice round zero. Now consider Peach Pit Laundry, also a business in a nice midtown location with 50 machines. Except Peach Pit has invested efforts and funds into branding since their beginning. This is no ordinary laundromat, it’s actually the coolest laundromat you’ve ever heard of. The company has great brand work, a catchy, unique name, graphics that are sure to catch your eye, tons of ads that are seen (and recognized) by hundreds of thousands of people a month, and a sweet jingle that everyone in the area recognizes. The branding is the reason customers not only come in for the first time, but also begin to frequent Peach Pit, and therefore the brand is a very valuable line item to a new owner.
How to Determine the Value of Your Brand, AKA The Math Part
Disclaimer: The numbers here are simplified to illustrate this example.
A small business owner looking to sell typically considers year-over-year numbers, makes projections for the upcoming years, adds up the value of assets and comes up with their sell number. These numbers are attainable and relatively easy to support with evidence. Overlooking the brand is leaving money on the table. But, how do you calculate brand value to a business? For a small business, consider this:
What’s the total income you can wisely attribute to branding efforts and investment since launching?
For small businesses, this is typically a pretty high percentage because the owners put in all the sweat and money to get the brand out to the masses, earn brand recognition in the area they serve, consistently train employees to deliver the same quality of customer service and friendliness and invested in brand development and marketing collateral. For simplicity, let’s say you’ve owned this business for three years, and in the first three years in business, you could attribute, on average, 40% of the new business to your branding efforts and investment (you hired creative help to build an attractive brand and attribute 40% of all new customers came through the door because they were intrigued by your brand). Can you justify that percentage would still be the same under new ownership, all other variables staying constant? If so, or if not, you at least can start putting some numbers together to justify brand value to new owners.
In coming years, the new owners are going to initiate their own marketing efforts and customer acquisition, but your initial brand efforts and investment will continue to show value in bringing customers through the door. Use a tapering model to come up with your numbers:
- Your year-over-year average = 40% of total income attributed to your branding efforts
- The first year under new ownership, you believe the owners will be able to still attribute 40% of new business to your branding efforts and investment
- The second year under new ownership = 30% (because in their first year as owners, they made their own investments to attract (and retain) customers)
- The third year under new ownership = 20%
In this simplified example you’re arguing that the new owners will continue bringing in new customers based on your initial branding efforts. Let’s say (again, being simple simple simple with this example) the new owners expect to bring in $100k each year for the next three years:
40% of $100k + 30% of $100k + 20% of $100k
($40k + $30k + $20k) = $90k in brand value you’re asking for
From here you can get more sophisticated with your justification for the potential new owners and enter into negotiations. EVERYTHING is on the table during a business sale and having a method to valuing your brand puts this line item on the table as well.
Branding Is Worth the Big Bucks
All in all, branding will take you to the top–the top of your market, the top of your customer’s minds, and to the top monetarily when it comes time to sell your business. If your business is in need of getting to the talk, the brand experts at Bareknuckle can help. Schedule a Free 15-Minute Call.