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How Much Are Your Customer Relationships Worth?

By: Bill Bleuel

 

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There’s always a lot of argument about the way companies value their customer relationships as a percent of the value of the company. The value of customer relationships falls into the category of an intangible asset when looking at the balance sheet of a Corporation. Brands and trademarks are included in the valuation of the company along with the value of customer relationships as the two major intangibles.

 
MARKABLES is a cross-border venture of experienced trademark experts who deal with the challenges of trademark valuation from different perspectives. It is owned and operated by a privately held company located in Switzerland and specializes in company evaluations for M&A. 
 
There really is no accounting data that can be used for evaluation of trademarks and customer relationships. The general methodology used to value intangible data is highly dependent on comparative data. One of the best ways of valuing customer relationships occurs when a company unit being bought or sold since it’s value must stand up to the scrutiny of auditors. The process used for estimating the selling price of a company requires valuing the different assets of the company which also includes the intangible assets of the brand or trademarks owned by the company and the customer relationships of the company.
 
 
A study of 6000 mergers and acquisitions (M&A) worldwide between 2003 and 2013 revealed some interesting characteristics of the value of customer relationships and brands and trademarks. Since evaluations were done by experts and documented, the data which were accrued from the evaluations can be used to indicate how experts are valuing the two intangibles of brands and customer relationships.
 
The outcome of this analysis shows that the value of brands and trademarks has dropped as a percent of the overall value the company from approximately 18% in 2003 to about 10% in this 11 year period. On the other hand, the value given to customer relationships has increased from about 9% in 2003 to 18% in the same time frame. Thus while brands and trademarks seem to be declining at a rate of approximately 0.8% per year in terms of asset value of the company, customer relationships value and as a percent of the company seem to be growing at approximately 0.9% per year.
 
The bottom line is that companies are seeing greater and greater value being given to customer relationships at the same time they are giving less value to brands and trademarks as a percentage of the value of the business. This does not mean the customer relationships will ultimately replace brands and trademarks in the valuation of the companies. It does reveal that more value appears to be given to customer relationships. These two intangibles, brands and customer relationships, are definitely connected. Continued success will be measured by how well the two intangible variables are integrated and managed. The challenge for every company will be to build a strategy that integrates these two variables so they complement each other with the proper emphasis on each.  
 
This article was originally published by The Customer Institute
Published: June 17, 2015
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Bill Bleuel

Dr. Bill Bleuel is an award-winning Professor of Decision Sciences at Pepperdine University’s Graziadio School of Business and Management. Dr. Bleuel’s expertise lies in the quantitative aspects of business. He specializes in the measurement and analysis of operations, customer satisfaction, customer loyalty and customer retention. He has held senior positions in engineering, marketing and service management at Xerox, Taylor Instrument Company and Barber Colman Company. Dr. Bleuel has also experience as general manager in two start-up companies that he co-founded.

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