Surreal illustration of lost revenue symbolized by a broken hourglass.

Lost Profits Forecasts: How to Project Revenue with Accuracy

Reese Marlowe in Business & Economy August 2025 • 3 min read.

"Navigate the complexities of projecting lost revenue with proven methods and expert insights. Ensure your forecasts are reliable and defensible."

When a business suffers an interruption, accurately measuring the resulting lost profits is crucial. This process begins with projecting the revenue that the business would have earned had the interruption not occurred—the "but for" revenue. This projection then serves as the basis for calculating the overall financial damage.

Projecting lost revenue involves a variety of techniques, ranging from simple extrapolation of historical data to sophisticated statistical modeling. The choice of method depends on the availability of data, the complexity of the business, and the need for accuracy and defensibility.

This article explores the key methods for projecting lost revenue, highlighting their strengths and weaknesses. Whether you're an attorney, forensic accountant, or business owner, understanding these techniques is essential for navigating business interruption claims.

Why Is Selecting the Right Revenue Base So Critical?

Surreal illustration of lost revenue symbolized by a broken hourglass.

Before diving into forecasting techniques, it’s essential to define the relevant revenue base. This involves identifying the specific products, services, or geographic markets directly affected by the interruption. Using total sales figures without considering these nuances can lead to inaccurate projections.

For example, if a business has multiple product lines and only one was affected by the interruption, the revenue projection should focus solely on that product line. Similarly, if the business operates in multiple geographic markets, the projection should focus on the affected regions.

Product Line Specifics: Focus on the revenue streams directly impacted.
Geographic Precision: Account for regional variations and impacts.
Expert Insight: Ensure alignment with economic factors and industry standards.

Furthermore, some situations might warrant considering the "spillover" effects, where the disruption of one product line impacts others. In such cases, the expert must convincingly demonstrate the link between the different product lines to justify including them in the revenue projection.

Ensuring Accuracy and Reliability in Revenue Projections

Projecting lost revenue is a complex undertaking that requires careful consideration of various factors. By understanding the available techniques, selecting the appropriate revenue base, and accounting for potential pitfalls, you can create reliable and defensible financial forecasts. Whether for litigation or internal business planning, accurate revenue projections are essential for making informed decisions.

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Everything You Need To Know

Why is it so important to project lost revenue accurately after a business interruption?

Projecting lost revenue is important because it serves as the foundation for calculating overall financial damages when a business experiences an interruption. This projection, often referred to as the "but for" revenue, estimates what the business would have earned if the interruption hadn't occurred. It's crucial for both litigation and internal business planning, enabling informed decision-making.

Why is it so vital to select the right revenue base when projecting lost profits?

Selecting the right revenue base is critical because it ensures that the lost revenue projection accurately reflects the financial impact of the interruption. Focusing on product line specifics, geographic precision, and expert insight ensures that the projection considers only the revenue streams directly impacted and accounts for regional variations. Failure to do so can lead to inaccurate and unreliable projections.

What methods can businesses use to project lost revenue, and how do they choose the most appropriate one?

Businesses can project lost revenue using methods that range from simple extrapolation of historical data to complex statistical modeling. The appropriate method depends on factors such as data availability, the complexity of the business, and the required level of accuracy and defensibility. A forensic accountant or financial expert typically guides this choice, considering the specific circumstances of the business interruption.

What is the 'spillover' effect in the context of lost revenue, and how does one account for it in projections?

The 'spillover' effect refers to the situation where a disruption to one product line indirectly impacts other product lines within a business. To include these spillover effects in a lost revenue projection, an expert must convincingly demonstrate a clear and justifiable link between the disrupted product line and the other affected lines. This justification is vital for ensuring the accuracy and defensibility of the financial forecast.

What are the key steps to ensure accuracy and reliability when creating lost revenue projections for a business?

Ensuring accuracy and reliability in lost revenue projections involves several key steps. First, it's essential to select the appropriate revenue base by focusing on impacted product lines and geographic regions. Then, apply suitable projection techniques, ranging from simple extrapolation to sophisticated statistical modeling. Finally, account for potential pitfalls and consider spillover effects when relevant. All these steps, guided by expert insight, enhance the credibility and defensibility of the financial forecasts, especially in litigation scenarios.