What is the Relief from Royalty method?
Short Answer
The Relief from Royalty (RFR) method values an intangible asset by estimating the royalty payments a company avoids by owning the asset rather than licensing it from a third party.
Full Explanation
The Relief from Royalty method is one of the most widely used income approaches for valuing intangible assets, particularly brands, trademarks, patents, and technology. The logic is straightforward: if a company did not own the asset, it would need to license it from a third party and pay a royalty. The present value of those avoided royalty payments represents the asset's fair value. To apply RFR, you need: projected revenue attributable to the asset, an appropriate royalty rate (derived from comparable licence agreements or industry benchmarks), the asset's remaining useful life, and a discount rate reflecting the asset's risk profile. The royalty savings are calculated for each forecast year, tax-effected, and discounted back to present value. RFR is favoured by valuers and auditors because royalty rate data from comparable licences is often publicly available, making the assumptions more defensible. Opagio's AI Valuator applies RFR automatically for brand and technology assets using industry-specific royalty rate databases.
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