How to Calculate Your Brand’s Equity

By Bill Chiaravalle, Barbara Findlay Schenck

Brands are worth money. As proof, John Stuart, one of the 20th century’s great business leaders and a former CEO of the Quaker Oats Company, is quoted as saying, “If this business were split up, I would give you the land and bricks and mortar, and I would take the brands and trademarks, and I would fare better than you.”

To figure out the equity of your brand so that you know the worth of the asset you’re building, protecting, and leveraging or so that you understand your brand’s possible sale price, use either or both of these two approaches:

  • Assess the costs involved to establish or replace your brand.

  • Assess the economic worth of your brand based on its market share advantage, price premium advantage, cost of sale advantages, and reputation.

Figuring out the cost of establishing or replacing your brand

One approach to estimating your brand’s worth is to figure out what it would cost if you were to create your brand today or if the organization seeking to purchase your brand were to try to build your brand from scratch.

In assessing your brand from this angle, take the following into account:

  • The cost of creating your brand identity, including

    • Name development and registration

    • Logo development and trademarking

    • Slogan development and trademarking

    • Domain name registration and establishment of web presence

    • Development of brand-identifying elements such as a unique and widely accepted color scheme, an olfactory signature or scent, a musical signature, and other elements that contribute to what your market understands to be the identity of your brand

  • The cost to achieve your current level of market awareness, including

    • Advertising

    • Promotion

    • Digital presence

    • Publicity to achieve knowledge of your brand name, your brand message and promise, and your brand benefits and distinctions

  • The cost to attract and retain your current clientele, including

    • Advertising

    • Promotions

    • Lead generation

    • Customer acquisition

    • Relationship development

    • Implementation of loyalty programs necessary to develop the level of customer retention and passion that contributes to your current levels of sales, repeat purchases, and positive reviews, ratings, comments, and word-of-mouth

Determine the economic value of your brand’s premium market position

When businesses get ready to sell brands, often they begin by calculating the actual economic advantage of the brand. You can assess your own economic advantage by watching two indicators:

  • Price elasticity: When your consumer demand remains high even when your prices go up, your brand enjoys pricing leeway known as favorable price elasticity. Price elasticity usually results from high brand value and usually leads to premium pricing.

  • Premium pricing: To assess your brand’s pricing advantage, determine how much extra consumers are willing to pay in order to purchase your branded product instead of the offering of a lesser-known or lesser-valued brand. This difference, multiplied by your sales volume, indicates the economic value of your premium market position.

In other words, high brand value leads to favorable price elasticity, favorable price elasticity leads to premium pricing, and premium pricing leads to higher brand equity.

To calculate the worth of your premium pricing position use this formula:

  1. Determine the price difference between your offering and generic offerings or offerings from lesser-known or less-respected brands.

    For example, if a six-partner accounting firm sells time for $100 an hour and average rates in the firm’s market area are $85, the accountants’ price premium equals $15. Or if a bottled water product sells for $2.29 and competing, nonbranded products or products with lesser brands sell for $1.99, the branded water’s price premium is $0.30.

  2. Multiply the price difference by the number of units sold.

    If the six-partner accounting firm sells a total of 10,000 partner hours a year, its annual price premium equals $150,000 (100,000 hours × $15 price premium). If the bottled water producer sells 600,000 bottles a year, its annual price premium equals $180,000 (600,000 bottles × $0.30 price premium).

  3. Adjust your result to account for future brand performance projections.

    These projections include the likelihood that customers will continue to behave in a similar manner in the future, that the brand’s current economic reality is transferable to new owners, and that the brand’s momentum will continue at its current pace.

    For example, if a service business commands premium pricing in large part due to the powerful reputation of the owner, and if the owner wants to sell the brand and depart the business, then the value of the price premium would likely be discounted by those considering a purchase of the brand.

When calculating the worth of a brand’s premium price position, be aware that the number you arrive at is a valuation starting point, not the finishing line. The effect of future brand-building activities, market growth or retraction trends, actions of competitors, and other market realities affect whether the value of the price premium should be adjusted upward or downward in assessing the brand’s worth.