Pricing a product based on the cost of its development.
An advantage is the possibility to collect and process required data.
Also applicable with partially completed IP.
Typically determines a 'minimum value'.
The main disadvantage is the inability to include the future revenue potential of assets.
Components of Cost Value Assessment (Materials, Labor, Overhead, Taxes, etc.)
REPLACEMENT COST METHOD
The replacement cost method makes an estimation of the current costs that would have been incurred by obtaining an equivalent IP asset with similar use or function as the original IP asset under valuation.
This similar IP asset could be developed in a different way or with different components as long as it recreates the full utility of the subject IP.
REPRODUCTION COST METHOD
The reproduction cost method is based on a compilation of all costs related to the purchase or creation of an exact replica of the IP asset under valuation.
The method makes the estimation by following an identical process of development and by using the same components as the original IP asset.