Oh, what might have been – How appraisers calculate lost profits

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Abstract: When a business suffers what it believes to be wrongful conduct leading to lost profits, an appraiser is often asked to estimate “what might have been.” That is, for the resulting litigation, he or she must typically calculate, not just lost sales, but also the difference between lost sales and avoided costs. The appraiser starts by distinguishing between direct and indirect costs. He or she is then free to use multiple methodologies and compare the results to historical data, independent estimates or industry statistics. A lost profits calculation is a complex endeavor — but it’s often absolutely necessary in certain forms of litigation.