- Calculate royalty rate – the brand strength score is applied to the royalty rate range to arrive at a royalty rate. For example, if the royalty rate range in a brand’s sector is 1%-5% and a brand has a brand strength score of 80 out of 100, an appropriate royalty rate for the use of this brand in the given sector will be approx 4%
- Determine brand-specific forecast revenues using a function of case sales, average prices and equity analyst forecasts to determine the proportion of a parent company’s revenues attributable to a specific brand
- Apply the royalty rate to the forecast revenues to derive brand revenues
- Brand revenues are discounted post tax to a net present value which equals the brand value
Brand ratings
These are derived from the Brand Strength Index which benchmarks the strength, risk and future potential of a brand relative to its competitors on a scale ranging from D to AAA. It is conceptually similar to a credit rating
AAA – extremely strong, AA – very strong, A – strong, BBB-B – average, CCC-C – weak, DDD-D – failing
Analysis by Brand Finance (brandfinance.com). Other commentary contributions from Ed Will of Breakfast (breakfastagency.com).