Skagen Branding Company

Create brand growth ™

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Branding Investment Case 2021 (Branding Toolkit)

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Branding Investment

Branding Investment, Year 1, USD 100,000 per year

Branding Investment, Year 2, USD 200,000 per year
Branding Investment, Year 3, USD 400,000 per year
Branding Investment, Year 4, USD 800,000 per year
Branding Investment, Year 5, USD 1,600,000 per year

Revenue Increase, Year 1, USD 1,000,000?

Revenue Increase, Year 1, USD 1,000,000?
Revenue Increase, Year 1, USD 1,000,000?
Revenue Increase, Year 1, USD 1,000,000?
Revenue Increase, Year 1, USD 1,000,000?
Total Revenue, Year 1, USD 10,000,000?
Total Revenue, Year 2, USD 20,000,000?
Total Revenue, Year 3, USD 40,000,000?
Total Revenue, Year 4, USD 80,000,000?
Total Revenue, Year 5, USD 1,6000,000?

ROI, Year 1?
ROI, Year 2?
ROI, Year 3?
ROI, Year 4?
ROI, Year 5?
ROI, Year 1 - 3?
ROI, Year 1 - 5?

I. ROI for a single branding investment? Equivalent to Year 1?

II. ROI for branding investment of Year 1?
III. ROI for branding investment of Year 1 and Year 2?
IV. ROI for branding investment of Year 1, Year 2, and Year 3?
 V. ROI for branding investment of Year 1, Year 2, Year 3, and Year 4?
VI. ROI for branding investment of Year 1, Year 2, Year 3, Year 4, and
Year 5?

Branding Investment

Branding is an investment. It is not a cost. Why invest in branding? When

investing in branding a company can make a good investment in its brand
which will increase the value of the company.

Spending made by a company to establish a brand is an investment and not an

expenditure. Brands create financial value for their owners, and well-managed
and consistently used brands even more than others.

During the last four decades branding has become the top intangible asset that
business owners want to build. It totally depends upon the vision of the
management of the company how they allocate financial resources for
branding and others. However, the only purpose is organic business growth.

According to analysis 30 – 40 years ago, almost the entire value of most

companies was comprised of tangible assets (e.g. chairs, factories, inventory
etc. Today tangible assets accounted for only 30 to 40 percent of a company’s
value. The rest is intangible value, and about half of that intangible portion,
approx. 30% of the total business value, is attributed to brands. Various
conducted branding studies the past 40 years, show that the vast majority of
the value of companies has transformed from tangible to intangible assets i.e.
the intangible assets had gone to 84%.

A company can measure the result of its branding investment by using the ROI
calculation method (Return On Investment). ROI shows if the investment
represents an efficient use of resources.

Branding investment is a capex (capital expenditure) for a company hence it is

very easy to identify the attributable revenue coming from that spending.

Example:

A car manufacturing company decides to introduce a new model with some

unique features. The aim is to establish that model as an identity of the
company. So the entire cost including R&D, the technical machinery, and the
technical workforce will be the branding investment. And the revenue coming
from that model will be regarded as the ROI.

The following ROI calculation in branding will use figures for 5 years.

Year 1:

Branding Investment = $ 100,000

Revenue of the car model in Year 1 = $ 150,000

The ROI will be calculated as follows:

Formula:
(Revenue after making the investment - Last year revenue/ Investment) * 100

($150,000 – $0)/ $100,000 * 100 = ROI 150%

The above calculation shows that the company has earned revenue of $1.5 on
every $1.0 spent for the branding investment.

Year 2:

Based on the data from R&D department, the company decides to invest more
in the brand by introducing new features for the car.

Branding Investment = $200,000

Last year revenue = $150,000
Revenue of the car model Year 2 = $650,000

The ROI will be calculated as follows:

Formula:
(Revenue after making investment – Last year revenue)/Investment * 100

($650,000 – $150,000)/ $200,000 * 100 = ROI 250%

The above calculation shows that the business has earned a revenue of $2.5
on every $1.0 spent for the branding investment.

Year 3:
The company decides to increase the amount of the branding investment by
adding new features and introducing the new technology.

Branding Investment = $400,000

Last year revenue = $650,000
Revenue of the car model Year-3 = $2,100,000

The ROI will be calculated as follows:

Formula:
(Revenue after making investment – Last year revenue/Investment * 100

($2,100,000 – $650,000)/ $400,000 * 100 = ROI 363%

The above calculation shows that the company has earned revenue of $3.63 on
every $1.0 spent for the branding investment.

Year 4:

The company invests now in the brand even more than it did in the last years.

Branding Investment = $600,000

Last year revenue = $2,100,000
Revenue of the car model Year 4 = $6,300,000

The ROI will be calculated as follows:

Formula:
(Revenue after making investment – Last year revenue)/Investment * 100

($6,300,000 – $2,100,000)/$600,000 * 100 = ROI 700%

The above calculation shows that the company has earned revenue of $7.00 on
every $1.0 spent for the branding investment.

Year 5:

The company now invests more but lesser than it did in the last year.
Branding Investment = $400,000
Last year revenue = $6,300,000
Revenue of the car model Year 5 = $9,900,000

The ROI will be calculated as follows:

Formula:
(Revenue after making investment – Last year revenue)/Investment * 100

($9,900,000 – $6,300,000)/ $400,000 x100 = ROI 900% ROI

The above calculation shows that the company has earned revenue of $9.00 on
every $1.0 spent for the branding investment.

The calculation of Year 5 shows that when the branding investment is made in
the brand and the brand gets established, even comparatively lesser spending
can bear high percentages of revenue.

Branding Financing

How does a company allocate financial resources for branding? It is a matter of

prioritization by the board and management. The purpose is to plan for
significant organic business growth. When it is clear that branding is a sound
investment because it leads to higher revenues and profits, then it is easier to
get understanding to allocate higher capital resources for branding investment.