The Relief-from-Royalty (RfR) method is an Income Approach technique for valuing intangible assets such as trademarks, brands, patents, technology and software. It is based on a simple idea: because the owner holds the asset, it is "relieved" from paying a royalty to license it from someone else. The asset's value equals the present value of those after-tax royalty savings over its remaining useful life.
When to Use the Relief-from-Royalty Method
- Purchase price allocation (PPA) under IFRS 3 / HKFRS 3, typically for acquired trademarks and technology
- Impairment testing of indefinite-lived brands under IAS 36
- Brand valuation under ISO 10668
- Licensing, transfer pricing and IP migration: supporting arm's-length royalty rates and IP transfer values
- Litigation and damages: reasonable royalty assessments in IP disputes
How the Method Works
- Forecast the revenue attributable to the asset over its remaining useful life, which may be indefinite for strong brands.
- Select a royalty rate from comparable licence agreements and royalty databases, and cross-check it using profit-split analysis, such as the "25% rule of thumb" as a reasonableness test, and the asset's contribution to margins.
- Calculate the royalty savings: revenue × royalty rate, less any maintenance costs the licensee would otherwise bear.
- Deduct tax to get the after-tax royalty savings.
- Discount at a rate reflecting the asset's risk, usually at or slightly above the WACC.
- Add the tax amortisation benefit (TAB) where appropriate, and test sensitivity to the royalty rate, growth and useful life.
Strengths and Limitations
Strengths: the method is market-based, transparent and widely accepted by auditors and tax authorities. It requires fewer assumptions than the excess earnings method. Limitations: truly comparable licences can be hard to find, and the royalty rate must be adjusted for differences in exclusivity, territory, term and profitability.
Related Methods
The Multi-Period Excess Earnings Method (MPEEM) is typically used for the primary intangible asset, such as customer relationships. The With-and-Without Method suits assets like non-compete agreements. Relief-from-royalty is usually preferred for brands and technology that are commonly licensed in the market.
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- Proven with listed and multinational clients: experience supporting publicly listed groups, US-listed firms, Fortune 500 companies and international retail brands.
- International reach, local expertise: offices in Hong Kong and Singapore serving clients across Asia, the Middle East and the United States.
- Intangible asset specialists: royalty rate benchmarking and ISO 10668-aligned brand valuation.
- Multi-disciplinary qualified team: accounting, finance, risk management, surveying and business valuation professionals on every engagement.
Professional Credentials of Valtech's Team
- PhD holders
- Certified Public Accountants – CPA (HKICPA)
- Chartered Financial Analysts – CFA
- Financial Risk Managers – FRM (GARP)
- Chartered Valuation Surveyors – MRICS (Royal Institution of Chartered Surveyors)
- Accredited in Business Valuation – ABV (AICPA)
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