Lost Profits Calculator
Calculating lost profits is a critical step for business owners facing disruptions, contract breaches, or legal disputes. This calculator helps you estimate the economic damages by comparing projected performance against actual results during the disruption period.
Estimated revenue if disruption hadn't occurred.
Revenue earned during the disruption period.
Costs you didn't have to pay (COGS, etc).
Additional costs caused by the disruption.
How to Use This Calculator
- Enter Projected Revenue: Use historical data or market trends to estimate what your revenue would have been without the disruption.
- Enter Actual Revenue: Record the actual income gathered during the period of damage.
- Saved Variable Expenses: Subtract costs like materials, raw goods, or sales commissions that were not incurred because sales were down.
- Extra Expenses: Add any costs incurred specifically due to the disruption (e.g., temporary rental, emergency legal fees).
- Review Results: The calculator will provide the net economic damage figure.
The Formula for Lost Profits
In forensic accounting, the most common method for calculating lost profits is the "Before and After" method or the "But-For" method. The primary formula is:
Lost Profit = (Projected Revenue - Actual Revenue) - Avoided Expenses + Incremental Expenses
Variables Explained:
- Avoided (Saved) Expenses: These are variable costs. If you sell 100 fewer units, you didn't have to buy the raw materials for them. This saving must be subtracted from the revenue loss.
- Incremental (Extra) Expenses: These are out-of-pocket costs caused by the event, such as moving to a temporary location.
Example Calculation
Consider a bakery that had to close for two weeks due to a neighbor's water leak damaging their shop:
| Item | Value |
|---|---|
| Historical Avg Revenue (2 weeks) | $10,000 |
| Actual Revenue (Shop closed) | $0 |
| Saved Ingredients/Utilities | $3,000 |
| Emergency Clean-up Costs | $1,500 |
| Total Lost Profit Claim | $8,500 |
Tips for Valid Lost Profit Claims
- Keep Meticulous Records: Document every extra cent spent and keep all previous years' tax returns to prove projected revenue.
- Mitigate Damages: Legal standards often require that you try to "mitigate" or reduce losses (e.g., taking online orders while the shop is closed).
- Consult a Forensic Accountant: For large claims (over $50,000), professional verification is highly recommended for legal standing.
Frequently Asked Questions
Is lost profit different from lost revenue?
Yes. Lost revenue is the total amount of money your business failed to bring in. Lost profit is that revenue minus the expenses you didn't have to pay because your operations were halted (saved expenses). Legal damages are calculated based on net profit.
How do I prove projected revenue?
Courts and insurance companies typically look at historical data from the same period in previous years (e.g., comparing June 2026 to the average of June 2023-2025). You can also use industry growth projections if your business is relatively new.
Can I claim lost profits for a brand new business?
It is more challenging but possible. This is often called the "New Business Rule." You must provide "reasonable certainty" using market analysis, performance of similar businesses in the same area, or experience of the owners in previous ventures.
What are "Saved Expenses" in this context?
These are variable costs that you didn't incur because of the disruption. Examples include raw materials, shipping costs, credit card processing fees, and hourly labor that wasn't scheduled. Fixed costs like rent generally cannot be subtracted.