What does an Image Crisis cost?

Image crises can quickly become expensive. Image crisis costs can easily reach seven figures in dollars or euros and, in severe cases involving large companies, even ten figures.

The lion’s share of the damage potential in an image crisis (often mistakenly referred to as a reputation crisis; more on this here)is usually not found in the operational costs of managing it – such as the labor costs of the crisis team, expenses for resolving the incident, etc. – nor even in potential compensation claims.

The actual damage potential lies primarily in the often-overlooked intangible corporate value. On average, brand value, which is largely built on trust in the company, accounts for about one-third to half of a company’s total value.
However, trust is a volatile factor and tends to decline rapidly in the wake of a crisis. This is clearly reflected in changes to the market-to-book value ratio of publicly traded companies.

However, even for companies that are not publicly traded, this relationship still holds true, even if it is less immediately visible. Where brand values have been recorded in accounting or balance sheets, an image crisis may necessitate value adjustments or impairment write-downs.

Image crisis costs reduce corporate value by approximately 6 to 40 percent

From a mathematical perspective, the potential economic damage from minor image crises – which mainly involve public outrage topics – amounts to at least six percent of a company’s total value for businesses with a low brand value share. In contrast, severe image crises affecting companies where brand value represents the upper end of the average range can lead to potential losses of up to forty percent of the corporate value. This illustrates why image crises costs can ultimately escalate into existential business crises, threatening a company’s long-term viability.

The main damage caused by an image crisis: Impeded business operations and a corresponding decline in corporate market value

The damage caused by an image crisis does not manifest immediately during the »hot phase«, nor can it be fully assessed based solely on the costs incurred to resolve the immediate crisis or potential compensation payments.
The main impact of an image crisis is the increased difficulty of doing business due to a possible loss of trust. Acquiring new customers or increasing sales requires greater effort. Hiring new employees becomes more challenging, and banks and suppliers demand greater concessions.
In short: Generating revenue becomes harder, and higher transaction costs shrink profit margins.
As a result, an image crisis also reduces the company’s market value, affecting potential investments or acquisition deals. However, these long-term costs are typically overlooked in discussions about the financial impact of an image crisis on a business.

Calculating the Damage Potential of an Image Crisis for Your Business

The calculator below provides a rough estimate of the potential range that image crisis costs could inflict on a company’s value. Since crises can vary widely in nature and severity, the calculator deliberately presents a broad range of possible financial impacts.
The goal is to raise awareness that crisis-related costs extend beyond accounting expenses recorded in financial statements. Decision-makers should also consider opportunity costs when planning crisis interventions.
In principle, a more precise estimate could be derived by taking into account the specific circumstances of an individual case.

The Calculated Damage Potential of an Image Crisis

Estimation of the damage potential of an image crisis on company value

Please select the currency for the calculation:

Euro (EUR)    US Dollar (US$)

1. Please enter the positive (!) profit (operating cash flow), averaged over the past three to five years of your company, in whole numbers (no decimals).

 EUR

2. Assumed market interest rate
   _{(Base assumption: 4.9% (ECB Fixed Rate of 2.9% plus a risk premium of 2 percentage points). You may enter a different market interest rate for the calculation.}

 %

Calculate Damage Potential

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Image Crisis Costs – Damage Potential vs. Actual Damage

Whether and to what extent the calculated potential image crisis cost translates into an actual decline in value, tangible costs, and medium- to long-term profit losses depends not only on the initial circumstances of the crisis.
The decisive factor is primarily how and whether the company responds to the incident.

In the worst-case scenario, a company’s response can exacerbate the incident or its perception among economically relevant stakeholder groups. In such cases, the actual damage may even exceed the initially estimated maximum image crisis cost from above.

Conversely, if an appropriate response to the issue and effective crisis communication succeed in maintaining or even increasing trust, the company’s value may, in some cases – especially due to the heightened awareness generated by the crisis – end up higher after the image crisis than before.

More information and services on image crisis and crisis communication can be found here:

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editorial image credit: Source rawpixel.com | ID : 1079453, edited
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