A charity's most valuable asset is often its brand. A brand is an asset that does not physically exist, and its value cannot be determined unless it is bought or sold. UK accounting regulations allow brands to go on the balance sheet only if they have been purchased. Charities rarely buy and sell brands, so they will never know their brand's exact value.
A charity's brand value includes the value of its charitable work, the quality of its governance and its fundraising potential. Using simplified valuation methods, a charity with income and expenditure of £50m could have a brand worth between £330m and £1,000m, which is seven to 20 times its annual income.
There are two types of brand valuation method. The historic cost value of a brand is the total expenditure on activities - charitable service, fundraising and governance - in, say, the past 10 years. If a charity spent £50m annually, then its value could be £500m.
A yield brand value can be likened to assets such as property providing rental income or shares giving dividend income. If the brand was like UK shares and had a price-earning ratio of 15 per cent, then a brand earning £30m would be worth £330m. If the brand earned rental income of five per cent, the brand would be worth £1bn.
These sums appear large, but are similar to valuations of US charities.
Interbrand valued Habitat for Humanity (income £41m) at $1.8bn, which is 44 times earnings. In 2005, Intangible Business valued Cancer Research UK at £202m and the British Heart Foundation at £80m - well below both charities' annual income.
Greater brand values increase fundraising potential. Many charities license their brands to commercial companies to generate income through sponsorship and cause-related marketing. Knowing the value of your brand and its rental potential is a good starting point for commercial negotiations.
Other considerations are the commercial value of PR by communications staff, notional appearance fees of celebrities, the value added by the relationship, such as increased sales or footfall, and increased awareness of the charity's message.
Whereas some companies work with charities through corporate social respon-sibility, others do so for purely commercial opportunities.
Charities must get better at obtaining the full value from their brands and stop under-pricing themselves, thereby reducing what the market is prepared to pay. Commercially aware charities that invest in their brands will grow, while others will struggle to maintain income levels.
As the future success of charities depends increasingly on brands, charities will need to improve their understanding of brand valuation.
- A charity's most valuable asset is often its brand
- There are two types of brand valuation methods: Historic Cost and Yield
- Many charities license their brands, for a fee, to commercial companies.