Commercial value is the expected value of an object that may be the subject of a commercial transaction. It may result, among other things, from average prices charged by unrelated parties on the market or from valuation by a specialist in the field of sales of specific goods. However, the basic principle is that commercial value is an objective amount shaped by factors which are independent of each other. It is expressed in terms of the value the buyer actually paid for the good or service in question. This is the final confirmation of its value. In opposition to a given slogan, there is no commercial value associated with the free production or transfer of goods, which under normal market conditions would express a certain value in the form of money or equivalent benefit, the so-called barter.
Example of Commercial value
An example of commercial value is the purchase of a car. The benefit of this transaction is the value of the car itself, and the cost is the amount of money the customer pays for the car. The commercial value of this transaction is the difference between these two figures. The customer receives the benefit of the car, and the business receives the cost of the car, resulting in a commercial value for the transaction.
Methods for estimating commercial value
The commercial value of a product, service, or activity can be calculated in a number of ways. One way to calculate commercial value is to use the following formula:
- Commercial Value = Benefit – Cost
In this formula, benefit is the value that the customer receives from the transaction, and cost is the amount of money the customer pays for the transaction. The commercial value is the difference between these two figures. This calculation can help businesses determine the profitability of their products and services, as well as the potential return on investment from a given product or service.
Another way to calculate commercial value is through market research. This involves gathering customer feedback and analyzing the data to determine the level of demand for a product or service. This can help businesses determine the pricing of their products and services, as well as the potential profitability of their offerings.
Finally, economic data can be used to calculate commercial value. This includes data on the costs of production and distribution, as well as data on the demand for a product or service. This data can help businesses determine the most cost-effective way to produce and distribute their products and services, as well as the potential profitability of their offerings.
In summary, commercial value is a measure of the economic benefit that a customer receives from a transaction. It can be calculated in a number of ways, including through the use of formulas, market research, and economic data. This data can be used to help businesses determine the profitability of their products and services, as well as the potential return on investment from a given product or service.
Types of Commercial value
Commercial value can be divided into three main categories: financial, operational, and customer.
- Financial value refers to the economic benefit of a transaction, such as the cost savings associated with a product or service. This can be determined through market analyses, customer feedback, and economic data.
- Operational value refers to the time and quality savings associated with a product or service. This can be measured through customer feedback and economic data.
- Customer value refers to the satisfaction that a customer receives from a transaction. This can be measured through customer surveys, customer feedback, and customer loyalty programs.
Estimating commercial value
Establishing commercial value is a complex process. It consists of several stages such as:
- determination of the type of object to be valued
- the adoption of an appropriate valuation method
- aggregation of market data not distorted by links between actors;
- drawing up an appropriate market analysis.
In view of the above, the person undertaking the valuation of the company should be able to determine their type. This means that the species of things to be evaluated must be identified. Then, while valuing this object, the person performing this activity should orient himself/herself on the most adequate methods used in valuing this type of goods. After selecting and justifying the choice of a given method, it is important to carry out appropriate research. It is during this process that all the necessary data are collected, which enables the creation of an appropriate research sample. Then, the given research sample will be analysed, inter alia, with the use of statistical values. Once the relevant data have been received, a report should be drawn up which will present all possible requests for the subject in question . However, the above process may be undermined. This is because each analysis is based on data that are more or less subjective and not resistant to extreme values. Therefore, it is important to collect as much data as possible on a case-by-case basis from sources that are considered universally reliable.
Importance of commercial value in virtue of tax law
Commercial value is very important from the perspective of tax law. This is due to the fact that setting the value of an object at a non-market level may have negative legal implications. This is due to the fact that the tax authority when carrying out its own analysis, may conclude that the taxpayer has deliberately overestimated or overestimated its tax base. This is particularly common in the case of transactions between related parties . In order to protect themselves against such negative implications, companies are obliged to prepare transfer pricing documentation. They use, inter alia, statistical data, in particular the values of the interquartile ranges. Also in these cases, it is important to determine the relevant value, which can then be related to the true values used by unrelated parties. In view of the above, commercial value determination is a valuable market tool that allows not only tax authorities to counteract tax evasion, but also provides taxpayers with the possibility to verify controlled transactions concluded with related parties .
Advantages of Commercial value
Commercial value can be a powerful tool for businesses to use when making decisions about products and services. Some of the advantages of commercial value include:
- A better understanding of customer demand: Market research can help businesses understand the level of demand for their products and services, enabling them to better adjust pricing and production.
- Improved cost-effectiveness: Economic data can help businesses determine the most cost-effective way to produce and distribute their products and services.
- Increased profitability: Analyzing commercial value can help businesses identify areas of potential profitability and return on investment.
Overall, commercial value can be an important tool for businesses to use in order to understand customer demand and increase profitability. By analyzing commercial value, businesses can better understand the value of their products and services, and make decisions that maximize their return on investment.
Limitations of Commercial value
The commercial value of a product, service, or activity is not always an accurate measure of its worth. There are several limitations to taking into account when using commercial value as a metric. These include:
- The value of a product or service may not always be accurately reflected in its price. This is due to factors such as market dynamics, customer perception, and the availability of substitutes.
- Commercial value does not take into account the cost of quality, which is the cost of ensuring that a product or service meets customer needs and expectations.
- It does not take into account the cost of innovation or the potential of a product or service to generate future profits.
In conclusion, while commercial value is an important metric for assessing the worth of a product or service, it should not be used in isolation. Other factors such as quality and innovation should also be taken into account when determining the true value of a product or service.
In addition to the approaches already discussed, there are other methods used to assess commercial value. These include the use of surveys and focus groups, the analysis of consumer behavior, and the use of predictive analytics. Surveys and focus groups can be used to gain insights into consumer attitudes and preferences, while consumer behavior analysis can be used to identify patterns in consumer purchasing decisions. Predictive analytics can be used to forecast demand for a product or service based on past and current market conditions. All of these approaches can help businesses better understand the commercial value of their products and services.
- Cristea A. D., Nguyen D. X., (2013), Transfer Pricing by Multinational Firms: New Evidence from Foreign Firm Ownerships, "MPRA Paper", No. 61922, p. 3-6
- Matei G., Pirvu D., (2011), Transfer Pricing in the European Union, "Theoretical and Applied Economics Volume 18", No. 4 (557), p. 99-110
- Ruzha O., Voronov V., Tambovceva T., (2013), Econometric models for the estimation of the commercial value of residential real estate objects in Latvia, "Recent Advances in Economics and Business Administration", p.103-110
Author: Karolina Kopecińska