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 the royalty rate can be evidenced from comparable licence agreements, making the assumptions more defensible. In Opagio Intangibles, the Asset Valuator runs RFR on the royalty rate you set, with sensitivity analysis and a tax amortisation benefit toggle.
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Further Reading
Patent Valuation: Methods, a Worked Example and What a Patent Is Worth
Patent valuation in practice: what drives how much a patent is worth, the four methods valuers use under IVS 210, and a relief-from-royalty calculation that reconciles line by line over a UK patent's remaining legal life, with no terminal value after expiry.
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