WHAT DOES BRANDING COST?
A Quick and Easy Way to Estimate a Budget for Branding.
“What will my brand cost?” is probably not the right question. “How much is my brand worth?” That’s the real question.
When you buy a house, a car, or anything else, you expect to pay what it’s worth. The features determine the value and drive the cost. Brand development is very much the same. What you should expect to pay depends on the features you need or want.
It is not easy to attach value to a brand, nor is it easy to determine how much to invest. Creating a realistic budget is a challenge, but not an insurmountable one. It just takes some considered effort, patience and diligence to figure out the appropriate spend.
IS MY BRAND WORTH THE INVESTMENT?
Brand value studies show that the world’s most valuable brands are the ones with a return on investment exceeding the performance of the S&P 500 for the last 12 years. Regardless of the ups and downs of the economy, well-managed brands have proven to maintain exceptional sustainable performance results.
The brand value of the top 100 global brands has averaged an 8% increase per year over a 12-year span.”1
Very good branding makes very good business sense. However, you don’t have to be one of the top 100 global brands to appreciate that. All businesses, regardless of size or industry, will benefit from a sensible investment in their brand.
Remember, the costs you incur are actually an investment for which you should expect a return.
THREE AREAS OF BRANDING COST INVESTMENTS
It is important to account for all of the potential costs in the development of your branding initiative budget. Although the cost for a brand consultant is one of the principal expenses, it’s certainly not the only cost. A comprehensive branding budget should consider the costs in three different areas of expenditure:
Brand Development is a “soft cost investment”, primarily attributed to outside professional assistance. However it can also include the internal costs of resources to manage and participate in the development process.
Transformation is a “hard cost investment” that will pay for the transition from what the brand is to what it will be. With corporate brands, these costs cover all the items that reflect the brand. This includes everything from business cards, building signage, employee manuals, web sites and numerous other applications. However, foor a product brand, it is the packaging that will require the greatest attention. Retail brands are the most complex. Changes to a retail site could affect signage, architecture, interior design, uniforms, and many other elements spread across a retail network.
Launch is a “promotional cost investment” associated with signaling brand change and building awareness. This typically includes advertising, PR, events, and other go-to-market initiatives.
GETTING THE RIGHT HELP
The principal outside costs of a branding project are the services of a professional branding consultant. Someone with the expertise and experience in branding will be invaluable in making sure you get the results you seek. An experienced consultant will guide you through the process and help you make informed and objective business decisions. The project scope and the caliber of the professional services you engage will drive the cost for these services.
Branding is a collaborative process. It is not something that you would want to hand off to someone else without your active involvement.
The scope of a brand development project will vary by the type of branding problem and range of applications the brand will be applied to. Interestingly, cost is not necessarily correlated to the size of the company. A small or medium size company could require the same extent of work as a much larger corporation.
HOW DO I ESTIMATE WHAT TO SPEND ON BRAND DEVELOPMENT?
Of course there is always more than one way to create a budget. However, guessing is not one. For a real-world reference point, ask another company who has gone through a similar type of project. Referencing something that has been done in the past is a good benchmark, but no two projects are the same. Sooner or later you’ll need to “roll-up-your-sleeves”.
A QUICK BUDGETING FORMULA FOR BRAND DEVELOPMENT
Before taking the time to dive into the details of calculating a branding budget you might want to just get a rough idea of what it could be. A good way to get to an order of magnitude budget is is apply what we call an IBI (Initial Brand Investment) formula. It’s a quick and easy way to get to approximate a budget with a limited amount of information.
IBI = AGR (Annual Gross Revenue) x PSF (Professional Services Factor – %) amortized across EBL (Expected BrandLife – Years).
- First, you simply need to know the AGR (Annual Gross Revenue) of your company.
- Then, apply the PSF (Professional Services Factor). That factor ranges from 2% to .5% depending on the AGR number (see table below). The smaller the revenue number, the larger the %. The results of the calculation (AGR x PSF) will yield a baseline estimated cost for professional services. That is the IBI (Initial Brand Investment). That baseline number can then be used to adjust upwards or downwards depending on the breadth and depth of the scope. Keep in mind, the PSF does not include transformation hard costs.
- To amortize your investment, divide the IBI (Initial Brand Investment) by the expected brand lifespan (in years). Brand lifespan is based on the projected amount of time before any significant adjustment is needed to the brand. The average lifespan of a typical brand is about 10 years before an adjustment might be warranted (whether that be a tune-up or a rebuild). That means the cost of the IBI can be amortized over that 10 year period.
- At the same time, we assume that the brand value will increase somewhere between 5% and 10% based on historical multi-industry trends. An actual brand value calculation is complicated and requires data that may not be available so, for our purposes, we assume that it will be at least more than revenue. It is a simple way to compare the increase in value against the IBI.
|ANNUAL GROSS REVENUE (AGR)||PROFESSIONAL SERVICES FACTOR (PSF)||INITIAL BRAND INVESTMENT (IBI)|
|$1MM to $5MM||x||2%||=||$20K to $100K|
|$6MM to $25MM||x||1.5%||=||$90K to $375K|
|$26MM to $75MM||x||1%||=||$260K to $750K|
|$76MM to $125MM||x||0.75%||=||$570K to $937K|
|$126MM to $200MM+||x||0.5%||=||$630K to $1MM|
The IBI for a company that has a gross annual revenue of $25 million dollars would be 1.5% of $25,000,000 = $375,000. The amortization over 10 years would be $37,500/yr or $3125/month. At the same time, the brand value (for the purposes of this example, we’ll use gross revenue) is expected to increase at a conservative rate of 5% equal to roughly $26,250,000. Therefore, the $375,000 Initial Brand Investment has conservatively increased the brand value by $1,250,000. Note this does not take into account any increases in revenue that should be appreciated by investing in the brand. That would be about a 30% return on investment over the 10 year period.
How does the brand cost investment compare to the other costs of marketing?
According to the Small Business Administration2 the average marketing and advertising spend should be around 7% to 8%. For our example above, that is around $1,750,000. A one time brand investment of $312,000 would be just 18% of a typical annual marketing spend.
WHERE DOES ALL THAT MONEY GO?
In our example above, how is that money used? In a typical branding project a fairly common % allocation by phase would be:
Remember this is a starting point of reference only. Your budget may be significantly less or a little more. Working with a branding professional will help you get to a budget that you can afford while being sufficient to achieve your objectives.
BUDGETING BY PHASES
A better way to arrive at a budget, that is a more accurate reflection of the work, is to look at the project by Phases. Although it is still going to be an estimate, it will be based on a higher level of detail than through the formula approach above. Consider how to build a branding budget with detail closer to reality.
IT’S WORTH THE EFFORT TO MAKE SURE YOUR INVESTMENT IN BRANDING MATCHES WITH THE VALUE YOU ATTRIBUTE TO YOUR BRAND.