Lost Profits
Definition
The net income the claimant would have earned during the damages period but for the defendant's wrongful conduct. It focuses on the victim's loss and typically requires projecting the but-for revenue, deducting avoided costs, and discounting to present value.
- Measures
- Claimant's loss, not defendant's gain
- Basis
- But-for revenue minus avoided costs
- Adjustment
- Discounted to present value
- Contrast
- Unjust enrichment measures the defendant's gain instead
Common questions
How does lost profits differ from an unjust-enrichment damages claim?+
Lost profits asks what the claimant would have earned had the wrongdoing not occurred. Unjust enrichment instead asks what the defendant gained from it. Some legal frameworks let a claimant elect whichever measure produces the larger recoverable amount.
What is usually the most disputed part of a lost-profits calculation?+
The but-for revenue projection is typically the main battleground, since it models a hypothetical scenario that never occurred. Experts commonly disagree over growth assumptions, causation, and the discount rate used to bring future amounts to present value.
Related terms
- Avoided Costs
- The costs the claimant did not incur because the wrongful conduct interrupted operations. In a lost-profits calculation, avoided variable costs are deducted...
- But-for Scenario
- The hypothetical financial position the claimant would have been in had the wrongful conduct not occurred. The damages figure is the difference...
- Diminution in Value
- The reduction in the market value of a business or asset attributable to the defendant's conduct. Used when lost profits are not...
- Discount Rate
- The rate used to convert future projected cash flows to their present value. It reflects the time value of money and the...
- Unjust Enrichment
- A damages measure that focuses on the benefit the defendant gained from the wrongful conduct rather than the loss the claimant suffered....