Articles / Recommended Reading / Relationship / Theory

Valuation of Customer Relationships and Attrition Analysis Methodologies

Image credit: Business Valuation Review

Image credit: Business Valuation Review

Valuation of Customer Relationships: Choice, Application, and Results of Various Attrition Analysis Methodologies
David Smith

Business Valuation Review
Volume 29, Number 2
© 2010, American Society of Appraisers

Introduction
Customer relationships are a key component of the value of many businesses and are identified as one of five categories of intangible assets that must be recognized as separate from goodwill pursuant to Financial Accounting Standards Board Accounting Standards Codification 805 Business Combinations. In the appraisal of customer relationships, appraisers almost exclusively rely on the use of an income approach, whereby the appraiser must identify the future economic benefit capacity of the customer relationships. This relies in large part on a forecast of the future revenue that will be generated from the existing customer relationships.

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