Sum total of your reputation

Putting a value on brand is a difficult task, but there are various ways and means

Law firms are already brands. Clifford Chance is as much of a brand as Coca-Cola because it is able to leverage its reputation and history of work to charge higher fees than its more anonymous rivals. So it makes sense to put a value on that brand. It is hard to imagine any business that would not choose to own a convincing ­financial argument that sets out the value of its reputation.

Although organisations tend to agree that the equity of brands needs to appear on corporate balance sheets, the way this is calculated is often contentious.

A number of strategies are used to calculate brand values. Most of the organisations offering brand valuation – from Millward Brown BrandZ to Brand Finance – have proprietary techniques to calculate equity. This means it is hard to find an unchanging list of brand values globally – there is no agreed universal system of valuation.

While many companies have been working together to try to create a global consensus when it comes to measuring equity – an effort that ­resulted in the creation of the ISO 10668 standard for brand valuation in 2010 – this remains a complex and subjective area.

Most of the major valuation firms use variations on a certain set of ­techniques. One broad approach, sometimes known as the ’firm level’ approach, is to subtract tangible ­assets or measureable intangibles from the market capitalisation of a firm. The resulting residual worth is the brand equity.

There is also the ’royalty relief’ method, which uses forecast revenue streams and works out the implicit royalties an organisation is relieved from paying because it owns the brand.

The ’product level’ approach, meanwhile, measures how a product performs compared with its nearest supermarket own-brand (or unlabelled) equivalent. The difference in price can be attributed to the brand value.

There is also a ’consumer level’ ­approach, that aims to value a brand based on consumers’ intentions to buy and their affinity for it.

Over the past decade new ways of valuing brands have crept in. Some organisations now take into account the ’net promoter score’ (NPS), which measures how likely customers are to recommend a product, service or brand. The NPS has become a common metric mentioned during M&A activity.

In the legal world, the brands of some firms could be based on the firm’s reputation, the prowess of the current partners or even the value of the previous year’s business.

With so many variables, brand ­valuation should be seen as a blunt instrument, but sometimes having that weapon to hand is better than having none at all.