Valuation is a complex process and requires skilled professionals to evaluate the assets. Some of the most common methods of brand valuation are:
(1) The market approach, which assigns a monetary value to a brand based on comparisons of transactions, such as royalty rate involving similar brands. For example, if a well-known brand in the same industry was assigned or sold for ₹50 lakh, then such data can be used as a yardstick to arrive at the valuation of another brand in the same industry.
(2) The future income approach, in which a monetary value is assigned to a brand based on the expected future income attributable to the brand. For example, if a well-known brand earns a license/franchise fee of ₹50 lakh every year, then all such future cash flows are discounted to arrive at a valuation for the brand today.
(3) The cost approach, in which a monetary value is assigned to a brand based on the cost accrued in terms of advertising and brand building and the cost of replacing the brand with a brand of an equivalent market power.
(4) The relief from royalty approach, in which a monetary value is assigned to a brand based on the expected royalty savings due to the ownership of the brand. For example, data relating to royalties earned from the same or similar brand and additional revenue on account of the brand can be used to arrive at a valuation under this method.
Source: Barandbench
