Brand Valuation

Why a precise brand valuation is fundamentally impossible

A brand is not sold separately from the business, and a company's cash flow is composed of dozens of factors — product quality, distribution channels, employee loyalty, reputation. Isolating the portion that belongs to the brand as an asset is a task with initially blurred boundaries. The main difficulty of the income approach is to forecast the cash flow attributable to the brand and to select a discount rate that honestly reflects the risks. Interbrand solves this task through its own Brand Strength Index (maximum 100 points): the higher the score, the lower the risk and the discount rate, determined through an S-curve. But this curve itself is a model, not a physical law, and any model oversimplifies reality.

That is why the study of 82 pairs of data comparing agency valuations with actual brand purchase prices showed a spread with a maximum deviation of 2750%. This is not a methodological error — it is a consequence of the fact that a brand is not evaluated by the market at a point in time, but by a model built on assumptions.

Interbrand vs. Brand Finance: Where Do the Numbers Differ

Both agencies use the income approach, but differently define the portion of income attributed to the brand and differently construct the discount rate. In the same study of 82 pairs of data, Brand Finance showed an average deviation from actual deal prices of 301%, while Interbrand showed 261%. The difference is not in favor of one method — both significantly deviate from market reality, just to different degrees.

The royalty relief method is considered more reliable precisely because it is based on actual licensing agreements, not on projected cash flow models — hence its dominance: more than 80% of all brand valuations worldwide are built on this method. Kantar adds consumer survey data to financial calculations, which makes their valuations less directly comparable to those of Interbrand and Brand Finance — different agencies literally measure not quite the same thing.

Three approaches to valuation: when to apply each

Cost, comparative, and income approaches give different answers to different questions, and the choice depends on the purpose of the valuation, not on the 'best' method.

• Cost approach — estimates how much it cost to create the brand (registration, marketing, design). Suitable for insurance, litigation over rights violations, but ignores the market value of brand recognition.
• Comparative approach — looks for similar transactions with comparable brands. Works if there are public data on comparable deals, which is rare for non-public niche markets.
• Income approach (DCF, Royalty Relief) — forecasts future income from the brand. Most commonly used for business sales, attracting investments, and tax structuring.

How to choose a method for a specific task

For business sales, buyers and investors usually require the income approach with a transparent cash flow forecast — this is the language that financiers use in a deal. For taxation and intra-group licensing agreements, the royalty relief method is more often applied: it is based on actual industry royalty rates and is easier to defend before tax authorities. For strategic planning — building brand architecture, prioritizing marketing investments — a precise monetary valuation is not so critical; what matters more is the trend of the brand strength index over time.

In Russia, the situation is complicated by the fact that federal evaluation standards only provide general definitions of three approaches, but do not specify particular methodologies specifically for brands. This means that an appraiser essentially constructs the methodology themselves, relying on international practice, and the result depends heavily on the appraiser's qualifications and integrity.

Brand evaluation without consulting: what can actually be done independently

Large consulting evaluations are expensive and designed for companies with billion-dollar turnovers. Small and medium-sized businesses need a simplified yet methodologically sound approach.

1. Collecting data on actual licensing rates in your industry (royalties usually amount to 1-5% of revenue for most product categories) and applying them to projected revenue — this is a simplified version of the Royalty Relief Method.
2. Evaluate accumulated costs for brand creation: trademark registration, cumulative marketing expenses over 3-5 years, cost of developing visual identity.
3. Compare with similar transactions in your niche — even approximate public data on the sale of comparable companies provides a reference point.
4. Use structured scoring systems instead of complex financial models. For example, the Chinese standard GB/T evaluates a brand for SMEs across five blocks on a total of 1000 points: material elements — 250, intangible elements — 200, quality — 150, service — 150, innovation — 250. This system does not provide an exact monetary figure, but shows the brand's strong and weak points without requiring expensive consulting.

What data is needed for any evaluation

Without this set of data, no method — whether income-based, comparative, or cost-based — will yield a result that can be defended before an investor, tax authority, or court.

• Financial statements for 3-5 years with revenue broken down by product lines and territories.
• Data on cost structure that allows identifying the operating profit attributable to branded products.
• Industry royalty rates based on comparable licensing agreements.
• Data on brand recognition and loyalty — surveys, NPS, market share.
• Information on the legal protection of the brand: registered trademarks, domains, court disputes.

A telling example of the scale everyone talks about in their reports is Apple with an intellectual asset valuation of $3,3 billion in 2024 year, a rise of 21% over the year. But for the middle market, what matters is not the absolute figure of the market leader, but understanding that even such methodologically advanced an assessment is built on assumptions, not exact calculation.

How to live with the inaccuracy of the assessment

The spread of 2-3 times between methodologies is not a reason to abandon brand assessment, but a reason to treat the result as a range, not a constant. A reasonable practice is to calculate brand value using at least two methods (for example, Royalty Relief and cost-based) and look at the overlap of ranges. If the goal is a deal, rely on the method that the other side in negotiations will accept: buyers tend to trust the income approach, tax authorities — the royalty method with market rates. There is no single standard and there will be no standard in the foreseeable future — too many different interests among those who order the assessment.