Industry • Best Practice
Apr.26,2022By Boulevard Staff
The idea of selling a brand you've built from the ground up is exciting. But the reality is...a bit more complicated. Watching once small beauty brands (regardless of luxury level) sell for 5–50 times their sales numbers is wild. But more than the prospect of doing the same for your own brand, it makes you wonder how to achieve this kind of valuation. After all, what set Olaplex apart from other popular brands that it went public to gain a $15 billion USD valuation?
If you’re wondering where to begin calculating the worth of your beauty brand, it all starts with the foundations of solid workflows. If you've got a scalable model for a product or services business and multiple locations that run *swimmingly* without your daily input, you're halfway there.
The formula looks a bit different for retail vs. services brands, but this blog will offer a framework to know your brand's true value and put you on a path to a sale.
Before we get into the how of calculating your brand’s worth, let’s first cover the potential variables that could play a part in the formula:
Service or product niche
Age of the business
Assets such as inventory and real estate
Net revenue vs. operating costs
Sales network (offline and online)
Web traffic and social media followings
Relevant growth trends
Competing brands and companies
It is kind of like revisiting a business plan from the beginning of your brand’s lifecycle but on a bigger scale. Now let’s get into the five core steps in how to value your beauty brand.
There’s a term that gets thrown around in investment known as “unicorn.” These brands are startups that receive $1 billion+ USD valuations. Some beauty brand examples include Pat McGrath Labs, Anastasia Beverly Hills, and more. Though the women behind those two brands started a long time ago, newer names such as Huda Kattan of Huda Beauty is among them, too.
To pursue similar goals, practice what these businesses did: brand authenticity and identity distillation. You can see it in brands like the Black-owned brand Briogeo and even Olaplex, where the CEO started a small business because of their parent or one small inspiration. They pursued their goals, stuck to their ethics and morals, and built a huge brand with hard work and help from the right people.
But you’ve got to have a great elevator pitch, too. Recounting random anecdotes on your “About” page won’t do you any favors. Keep your background short, simple, and to the point without sacrificing the truth of it. Keep your diction on-brand for you and maintain consistency across brand channels and marketing materials. Ticking all of these boxes will drive up your valuation and make you more enticing to potential investors and buyers.
This step combines tangible assets like land values with your brand’s average revenue. Though equipment does depreciate over time, having a fleet of premium salon chairs still factors into the value of your brand. As such, all of it — including product inventory — impacts the value of your business.
Maintaining healthy client relationships also boosts your revenue numbers. Consistently great service in-house counts for a great deal, but so do social interactions and humanizing your brand. In fact, 71% of people who purchase beauty products say that Instagram connected them with those brands or creators. Investing in your clientele in the same way you would a tool for your salon or an ad campaign to drive sales is one more variable in the formula to calculate your brand’s worth.
This is another one of the more intangible assets your beauty brand can have. On top of the “who you know” part of everything, talent retention is a crucial variable in this step. If your business is constantly turning over stylists or other employees, that’s not a sustainable or desirable aspect for someone looking to purchase or buy into a brand.
Managing a team of talented people who love what they do and are committed to your business is paramount when it comes time to sell. Though calculating the value of talent is not straightforward, it definitely plays a key part in the formula.
This step goes beyond just seeing what brands might have similar identities, audiences, or purposes. While knowing that kind of information is important, it won’t be as alchemical in forming your brand’s overall value.
In the same way a student would list their unique features on an application, you need to recognize what sets your brand apart from the rest of the herd. For Olaplex, their bond-multiplying technology shot them into immediate competition with the likes of L’Oreal in terms of innovation. Find the equivalent for your brand, then research which beauty brands might be doing something similar.
Is your skincare brand leveraging a new AHA to target fine lines? Look into the science to see what rivals are doing the same. Perhaps your salons have an exclusive contract with a high-end haircare brand. Consider that and similar advantages when calculating your brand’s value.
Okay…now for the scary part! Set a value on your brand based on the calculations you’ve done of tangible and intangible assets. As an example of how to do so, let’s say that your business brings in around $250,000 USD a year. An investor may come along and offer you about three times your revenue ($750,000 USD) if they feel they can grow the brand’s profits that much.
Back up your valuation and potential growth with documents or plans that lay out this information for potential buyers and investors.
Calculators like this simple one or this more complex one can often be used to “ballpark” or estimate your business’ overall worth. They factor in some of the tangible assets, but often are unable to account for the intangible variables. As such, many brand owners will turn to business brokers to help them value their business, but also to connect buyers and sellers.
Despite the fact that these brokers require fees, they can be well worth their cost if it means correctly evaluating your brand’s worth and maximizing your profits from a sale.
Boulevard was built to help your business achieve profitability at scale without losing an inch of sanity. See for yourself! Get a free demo today.