Brands, being the intangible assets, offer greater challenges in forecast brand earnings and determining future returns on the investments. Nevertheless, the branded products have a much higher potential for producing profits than the non-branded ones. Thus, to evaluate the brand profits and to forecast the brand earnings is a matter of necessity for many companies. In the US, most companies do not list their brand values on their balance sheets. Even when their brands are quite able to produce much income and profit for their companies and require a large amount of money invested into them. That is the reason why the intangible brand assets have to be considered and taken into the account in the same way it is done with the tangible ones. Prior to any transaction with the tangible assets, the evaluation of these assets and the amount of the needed expenditures and future profits is usually done. The same thing has to be done with the intangible brand assets. Such assets have to be evaluated, the amount of expenditures calculated together with the amount of future brand profits. Only then, the proper decisions can be made and the brands will produce much profit.
Another reason for evaluating the brands is a necessity to know its present condition and ability to produce brand profits and ROI. There are times, when the brands are able to produce much profit and make great returns on investments and such time and opportunities have to be used to their fullest extant.
One way that is considered to be the most conservative is the cost, based to evaluate the brand, to put its value on your balance sheet and to determine its capacity for ROI. You have to calculate the amount of investment into creating a brand, promoting and advertising it in the media and other brand expenditures. In this way, you will come up with some particular figures and a price you can set on a brand. Such evaluation approach has an advantage of providing you with some sort of a start point with your brand cost; however, it neither reflects the brand's actual present market value, nor its capacity for future brand profits. The investment, made for the creation of a brand, can be very little, compared to the brand's capacity to produce profits, or it can be too great and way above such brand's capacity. A good example of such brand evaluation is Pet.com brand history. In the beginning of this century, Pet.com raised over eighty million, and then it spent some two million for advertising, though at the end of the same year, it was shut down. The company's most precious band asset was its sock puppet and the actual one was sold for twenty thousand dollars on the auction. What was then the actual brand value of this company? Was it two million of their advertising investment or twenty thousand, paid for their sock puppet? It varied all the time during the company's history. At the high time of this brand, its actual market value would definitely be more than two million, but at the end it was probably even less than twenty thousand dollars.
The example of this company gives us some serious reasons for evaluating the intangible brand assets and their abilities to produce brand profits.