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.