Calculating the ROI on a Brand Center
April 27, 2022 By BEAM
Well, it happened. The first time ever. Unbelievable occurrence. I put a question into Google and I did not get an answer. The question was “How to make a case for a brand center?”, and the closest I could get was a few principles to consider but no math was attached. So, to that end, I have put together a working valuation model.
How brands and brand centers create value
At the core of the business model is a conceptual framework on how brands create value. There are numerous methods for calculating the value of the brand (check out this book to see all of them) with most sharing a common framework that measures value creation in four ways:
- Efficiency of brand governance: Producing marketing ads and collateral has a material cost. Lowering the expenses tied to the process contributes to value through reduction in general and administrative expenses. Automating brand governance through a Brand Center will lower the costs to administrate a brand.
- Consistency for a premium: Given the manifold ways brand are expressed, consistent presentation of the brand creates an advantage. Brand centers change the speed with which a brand builds this advantage with a consistent brand presence. Advantage leads to a brand premium.
- Touchpoint impact: In addition to creating touchpoints, brand managers seek to increase the impact a touchpoint has on the customer. Impact equals revenue. Brand centers raise the effectiveness of marketing impact.
- Risk to brand failure: Corporations pay higher interest rates if their revenue stream is deemed risky. Poorly managed brands lose share price and borrowing costs rise. Brand centers assist in governing the brand to mitigate the risk to brand reputation and future revenue streams.
Learn More: Better, faster, stronger brand management
Modeling Brand Center Impact
1. Identify the revenue base. For any division considering a brand center, total top line revenue is required. In our example, we are modeling the ROI for a $1B division of a B2B conglomerate with offices predominately in NYC and SF, and an employee cost of $150K.
2. Capture operating profit. A margin number for the division is needed. If your finance team is unable to share that number, a general estimate is available through secondary research. Finance may adjust it later if it is material to the analysis. For our model, we are using the operating margin for a Fortune 500 company of 9.35%
3. Determine the number of employees. Savings from the brand center will affect productivity of a select number of employees. For our example we are using employees 5300 employees. Assuming a 20% profit margin and an average of $150K per employee cost (1B*.8 = 800M, 800M/150K =5300). We assume 1500 hours of working time per employee.
4. Identify time savings for marketing staff. Three percentages are needed here. The first is what % of the employees are involved in marketing and sales activities that the brand center will reach. The other is what percentage of those people will use the brand center. The last percentage is how much time will they save. We are using percentages from a study from Pure 360, TFM, and IDM: 10% of staff, 50% will use it, 30% time savings.
5. Estimate the change in effectiveness. While making the case for a brand center, brand managers will need to connect the results of the brand center to the market. Most commonly, the measure of effectiveness will be tied to purchase intent increases or net promoter scores. Changes in the scores are assumed to make an impact on marketing spend. So, increases in effectiveness may lead to a smaller budget that delivers the same revenue or the same budget that gets better results. In our model, we are assuming smaller budget equals same results. Our starting point is 3.5% for B2B marketing with 30% of the budget tied to the administration of the budget
6. Calculate the one-year impact of the Brand Center. We estimate a first year $4.5M savings and earnings increase of 4.81% for the company.
7. Consider the risk rate. All companies have an aggregate estimate of their risk through the cost of capital they get for loans, leases, and other credit instruments. I will discuss this notion in my next blog. The understanding of how brand plays into this Weighted Average Cost of Capital (WACC) is critical to Brand Center success after Year One as the Brand Center protects future revenue streams.
If you would like to discuss a business case for your brand center, please reach out to us here.