What is an 'Intangible Cost'

An intangible cost is an unquantifiable cost relating to an identifiable source. Intangible costs represent a variety of expenses such as losses in productivity, customer goodwill, drops in employee morale, loss of brand value or damage to corporate reputation. While these costs do not have a concrete value, managers often attempt to estimate the impact of the intangibles as they can have a very real effect on productivity, costs and the company's bottom line.

BREAKING DOWN 'Intangible Cost'

Ignoring intangible costs can have a significant effect on a company's performance. For example, let's examine a potential decision for a widget company to cut back on employee benefits. To improve profits, the firm wants to cut back $100,000 in employee benefits. When news reaches the employees of the cut-back, worker morale will likely drop. The widget production will likely be diminished, as employees focus on losing benefits instead of making products. The loss in production represents an intangible cost, which may be great enough to offset the gain in profits created by reducing employee benefits.

As another example, if a toy company produces a toy that ends up injuring a portion of the children that play with it, that company will likely have damage to their reputation. This damage may lead to tangible costs, such as the expense associated with a recall and money paid to settle lawsuits. The reputational damage itself, however, is considered an intangible cost.

RELATED TERMS
  1. Calculated Intangible Value - CIV

    Calculated intangible value is a method of valuing a company's ...
  2. Intangible Personal Property

    Intangible personal property is something of individual value ...
  3. Incorporeal Rights

    Rights that can't be seen or touched, but are still enforceable ...
  4. Goodwill

    Goodwill is an intangible asset that arises as a result of the ...
  5. Carrying Value

    An accounting measure of value, where the value of an asset or ...
  6. Weightless Economy

    A portion of the economy which exchanges intangible services ...
Related Articles
  1. Investing

    Intangible Assets Provide Real Value To Stocks

    Intangible assets don't appear on balance sheets, but they're crucial to judging a company's value.
  2. Managing Wealth

    How to Calculate Your Tangible Net Worth

    You can calculate your tangible net worth with a simple equation.
  3. Managing Wealth

    Comparing Tangible and Intangible Assets

    Tangible assets are physical assets such as land, vehicles or equipment.
  4. Investing

    How Does Goodwill Affect Stock Prices?

    Intangibles like goodwill have a role in stock prices, but just how much really?
  5. Financial Advisor

    Life Insurance Plans to Help Your Small Business Retain Employees

    How to use and design cash value life insurance plans as an incentive to help attract and retain key employees.
  6. Small Business

    Qualitative Analysis: What Makes A Company Great?

    To understand the qualities that make a great company, investors must dig deep into "soft" metrics.
  7. Investing

    Writing Down Goodwill

    An ill-fated acquisition of Hewlett-Packard's demonstrates what can happen when goodwill goes bad.
  8. Managing Wealth

    5 Low-Cost Perks for Small Business Employees

    Money isn’t the only way to motivate employees. Here are some savvy strategies even the smallest business can use.
  9. Financial Advisor

    Why Do Businesses Benefit From Life Insurance on Employees?

    Companies can buy life insurance on their employees and collect the benefit proceeds. Find out why companies want to benefit from the death of their employees.
RELATED FAQS
  1. What kinds of events or circumstances will increase or decrease the proportion of ...

    Learn the variety of events and circumstances which can significantly increase or decrease the proportion of intangible assets ... Read Answer >>
  2. How do intangible assets appear on a balance sheet?

    Understand how various types of intangible assets are handled in a company's accounting and which of them you can find on ... Read Answer >>
  3. How Do Tangible And Intangible Assets Differ?

    Tangible assets are physical assets that are used in a company's operations. Intangible assets are nonphysical, long-term ... Read Answer >>
  4. Can you realize capital gains on intangible property?

    Learn more about capital gains and losses and how they may apply to intangible assets. Find examples of intangible assets ... Read Answer >>
Hot Definitions
  1. Treasury Yield

    Treasury yield is the return on investment, expressed as a percentage, on the U.S. government's debt obligations.
  2. Return on Assets - ROA

    Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.
  3. Fibonacci Retracement

    A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going ...
  4. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  5. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  6. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
Trading Center