What is the Cost Approach to valuing intangible assets?

Full Explanation

The Cost Approach is straightforward: how much would it cost to build this asset again? For an assembled workforce, the cost includes recruitment costs (headhunters, advertising), hiring costs (interviews, onboarding), training costs, and lost productivity during ramp-up. A 50-person engineering team assembled over 5 years might cost £2-3M to rebuild. For proprietary databases, cost includes data acquisition, cleaning, and initial setup — a CRM database with 1M customer records might cost £500K-£1M to recreate. For software, cost is development time: if your IP is custom software built over 2 years with 5 engineers at £100K/year loaded cost, the cost is roughly £1M. Limitations: Cost Approach assumes recreating the asset would yield equivalent value (not always true — market dynamics change, execution risk is high). It also ignores the fact that rebuilding takes time, during which competitors advance. Cost Approach is most relevant for supporting arguments in Relief from Royalty or MPEEM valuations — showing that the market would pay X because it would cost Y to rebuild validates the valuation floor. Opagio uses Cost Approach for workforce and database valuations where appropriate.

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