Your patents are incredibly valuable to your business, but it’s essential that you know how valuable. The number will likely have an impact on every aspect of an innovator’s dealings.

Large corporations often trade patent portfolios around for billions of dollars, but even small entities need to know what their intellectual property (IP) is worth. Nearly every step of business for patent-holders hinges on accurate numbers in valuation.

Weighing worth

It can be hard to stick a price tag on a patent, but it’s hard to do business without one. Understanding the value of your IP is important when negotiating sales, determining licensing deals or determining the cost of infringement. There are three common ways to find what your holdings are worth, but it isn’t always easy to know which route to take.

Market

The market approach generally relies on transactional information. Similar patent purchases and licensing terms can help determine the value of your IP in the marketplace. You may have to look at sales histories, past filings and databases to uncover their worth.

Cost

Using the cost approach means you’re looking at what it would cost to recreate a similar process. The formula considers the expenses and risks someone would have to undertake to get up to speed with your patent.

Income

The cash flow around your patent can be another measure, called the income approach. Money it brings in, as well as money it keeps from going out, may enter consideration. Profit and savings projections will often be a part of evaluations.

Finding the value of your IP is no small task, and it can have large repercussions. Undervaluing your IP can leave you lagging far behind your projections. Overvaluing can have competitors passing on potential deals. For the sake of your business, you’ll want to make sure your aim is true when it comes to valuation.