The ROI of Brand Investment
- With recession looming, expect more scrutiny on marketing budgets
- Whilst there are clear methods to defend direct response and digital budgets, the longer term brand-building budget is harder to justify
- This article provides four methods to calculate and defend the ROI of brand investment
With recession looming, the CFO is likely to probe marketing budgets and the CMO can be ready to respond to this inquiry by building a strong case in the language of the CFO: hard numbers.
Depending on the appetite and proximity of the CFO to the nuances of marketing, the first step might be to recap that marketing has two speeds.
For immediate effect and impact to quarterly financials, direct response will be understood quickly, but brand building will be a more subjective and abstract notion to explain.
In accounting terms, a brand is equivalent to a long-term asset and as such, it has ‘economic benefit beyond the current financial period’. If accounting standards permitted, a brand would be considered as a capital budget with an associated long-term depreciation life, e.g. 10 years.
In this context, it is equivalent to building a factory – some up-front investment is required, but that investment will pay back dividends over many years.
Unfortunately, the CFO’s accounting standard framework does not allow brands to be formally recognised as an asset, as explained in my previous article, but there is a gold-standard formal framework, created by the International Organization for Standardization (ISO) as ISO 10668.
This article outlines four options to valuing a brand. From this value, the CMO can defend – or even increase – the annual budget by likening it to a depreciation or maintenance schedule for this important business asset.
1: ISO 10668: The gold standard in brand valuation
This standard was developed with the full support of the Australian Marketing Institute in 2011 after a four-year consultation process. It recognises that brand valuation is complex but important, yet one that accounting standards don’t cover.
The standard details three valuation approaches:
- Income Approach: The current value of the income that the brand will generate. Within the approach, various methods are listed to derive the income that the brand earns, mostly requiring behavioural or survey data to establish the premium that the brand commands.
- Market Approach: Uses comparisons of similar brands where values have been published.
- Cost Approach: Simply the cost of the brand to date.