What does each measure actually measure?
Lost profits measure a flow of earnings over a period; lost business value measures the worth of the enterprise at a point in time. A lost-profits calculation asks what revenues the business would have earned in the but-for world, subtracts the costs of earning them and what it actually earned, and runs that difference across a damages period. A lost-business-value calculation compares the value of the enterprise as it stands against its value in the but-for world, as of a valuation date.
The Second Circuit set the two side by side in Schonfeld v. Hilliard, 218 F.3d 164 (2d Cir. 2000), a dispute over funding for a venture formed to distribute a British news channel in the United States. The court described lost profits and the value of a lost income-producing asset as “separate and distinct categories of damages,” and said that where the thing lost is the asset itself, “the most accurate and immediate measure of damages is the market value of the asset at the time of breach.” The two measures fail differently: the court found the venture’s projected profits too speculative to satisfy reasonable certainty, and allowed the claim for the market value of the lost asset to proceed.
The Institute writes about what each measure requires, not about what a business is worth under a legal standard of value. Which definition of value a statute, cause of action or agreement has already imposed, fair value against fair market value, belongs to our sibling Business Valuation Institute. The two measures are set out here at Lost profits and Lost business value.
When does lost business value fit rather than lost profits?
When the impairment is permanent rather than temporary, which in most formulations turns on whether the business survived. The Florida Second District Court of Appeal stated the rule as a sequence in Montage Group, Ltd. v. Athle-Tech Computer Systems, Inc., 889 So. 2d 180 (Fla. 2d DCA, opinion filed 15 December 2004): “If a business is completely destroyed, the proper total measure of damages is the market value of the business on the date of the loss,” citing Polyglycoat Corp. v. Hirsch Distributors, Inc., 442 So. 2d 958, 960 (Fla. 4th DCA 1983), and “[i]f the business is not completely destroyed, then it may recover lost profits,” citing Aetna Life & Casualty Co. v. Little, 384 So. 2d 213, 216 (Fla. 4th DCA 1980). That is Florida law as stated by that court, and the availability of either measure under a given cause of action is a legal question for counsel.
Montage also shows what happens when the theory and the evidence point in different directions. The plaintiff tried its case on the destruction of its business, which made the value of that business on the date of destruction the proper measure, and then, the court recorded, “presented no evidence of the value of its business in 1997 or at any other time.” On appeal it argued the award could be sustained as lost profits instead, a theory the court said was “inconsistent with the business destruction theory” declared in the pretrial order. The choice of measure is made early, and decides what evidence must exist by trial.
The awkward matters are in between: a period of depressed trading followed by a permanently lower trajectory. Those require the interim period and the permanent impairment to be separated rather than merged, with the boundary stated, and the valuation date is usually where it sits. How the counterfactual trajectory itself is built is covered at Constructing the counterfactual.
Why does claiming both lost profits and lost business value usually double count?
Because the value of a business is, in large part, the present worth of the profits it was expected to earn, so awarding the profits and the value that embeds them pays for the same stream twice. The Florida Second District Court of Appeal put the rationale on the record in Montage Group, Ltd. v. Athle-Tech Computer Systems, Inc.: “A business may not recover both lost profits and the market value of the business,” and “[t]he prohibition against the recovery of damages for both the value of a business and lost profits is based on the principle that a business’s value reflects its future profits.” The court held that a recovery including both the value of the acquired business and its future earnings “would necessarily be duplicative or overlapping,” and directed that on remand the trial court “must reduce or eliminate the postacquisition proceeds award” against the acquiring defendant to remove the duplicative recovery.
The opinion also records the plaintiff’s own economist making the point before the objection was briefed. Steven Oscher, the plaintiff’s expert on economic loss, testified that adding the post-acquisition proceeds to the net value of the transaction would have been improper, explaining that “[t]o do so would have been double counting . . . . [I]t’s not an additive issue.” An expert who cannot say in one sentence why the two components of a combined claim do not overlap has already lost that part of the argument.
The overlap is not confined to this pairing. It recurs wherever a claim runs an accrual through a period and then adds a lump sum measured at the end of it, and the discipline is the same: fix the date at which one measure stops and the other starts. Where present value enters the claim, the rate and the valuation date interact, which is set out at Discount rates and present value and demonstrated at The rate decides. This Institute calculates no component of either measure.
What have courts said about electing between the two measures?
Several have held that the measures are alternatives rather than additions, and one state supreme court has refused a lost-value measure outright in a contract case. In Signature Industrial Services, LLC v. International Paper Co., 638 S.W.3d 179 (Tex. 2022), delivered 14 January 2022, the Supreme Court of Texas wrote that the plaintiff, rather than “calculating the profits it would have made from the business it lost due to IP’s breach,” had “pursued a novel damages model premised on a decline in the company’s overall market value as an asset,” and that “[t]he few Texas courts that have addressed the question have not allowed such a recovery. This case will not be the first.”
Two features of that decision are easy to state backward. First, the ground was foreseeability and certainty, not a general prohibition on valuation evidence: the court held that “[a] catastrophic decline in the plaintiff company’s overall market value was not, at the time of contracting, a consequence of breach foreseeable to the defendant,” and that a decline in book value was not “a reasonably certain way to measure its damages.” Second, the court reserved the tort question, noting in footnote 4 that in Sawyer v. Fitts, 630 S.W.2d 872 (Tex. App.—Fort Worth 1982, no writ), loss-of-value damages were allowed in a tort suit where, unlike in the case before it, “the lost value had been realized by a transaction that locked in the plaintiff’s actual losses,” and saying that “[w]hether a decline in a company’s market value could ever be an appropriate measure of damages in a tort suit is a question we do not address.” That is Texas law on a Texas contract claim.
The reading across these decisions is procedural as much as economic. Signature Industrial treated the choice of damages model as a legal question, quoting Allied Vista, Inc. v. Holt, 987 S.W.2d 138, 141 (Tex. App.—Houston [14th Dist.] 1999, pet. denied), that “[t]he proper measure of damages is a question of law,” reviewed de novo. An election made casually at the pleading stage is reviewed as law later.
What evidence does each measure require, and where do they fail?
Lost profits require a defensible counterfactual and a cost side; lost business value requires a valuation that will be scrutinized as litigation evidence rather than as deal work. For lost profits the recurring failure is not the absence of a number but the absence of a basis: the Supreme Court of Texas in Signature Industrial Services, LLC v. International Paper Co. held that consequential damages must be “proved with reasonable certainty,” that “[p]roof need not be exact, but neither can it be speculative,” quoting Phillips v. Carlton Energy Group, LLC, 475 S.W.3d 265, 278 (Tex. 2015), and that parties are called on to provide “objective facts, figures, or data.” Montage failed on the same axis, the court finding the lost-profits evidence “far too uncertain and speculative” where the plaintiff “did not offer any projections or estimates of the sales it might have made.”
For lost business value the burden falls on the valuation itself, and the gap in Montage was total: a destroyed-business theory with no evidence of the business’s value on the date of destruction. Where a valuation is offered, the inputs are conventional and the scrutiny is not, and the discount rate carries more of the answer than any other input because the measure is the present worth of a long stream.
Both measures are also governed by a professional standard that binds the expert rather than the lawyer. AICPA Statement on Standards for Forensic Services No. 1, issued by the AICPA’s Forensic and Valuation Services Executive Committee and effective for engagements accepted on or after 1 January 2020, states at paragraph 2 that it “applies when services provided under VS section 100, Valuation of a Business, Business Ownership Interest, Security, or Intangible Asset, are provided as part of a litigation or investigation engagement,” and carries at paragraph 6 the general standard to “[o]btain sufficient relevant data to afford a reasonable basis for conclusions or recommendations in relation to any professional services performed.”
Does the choice of measure change which expert the matter needs?
Often, yes, and the assumption that one economic damages expert covers both is where firms get caught. Lost-profits work sits comfortably with a forensic accountant or an economist building a but-for revenue and cost trajectory from the company’s records. A contested enterprise valuation is a distinct discipline with its own credentials and standards, and in some matters the answer is both.
Three neighboring questions belong to sibling institutions, and are worth marking before an expert is retained. What a business is worth under a legal standard of value, and who decides which standard applies, is covered by the Business Valuation Institute. Tracing funds and anything touching the ultimate question of fraud goes to the Forensic Accounting & Fraud Institute, and the AICPA standard draws that line itself: paragraph 10 of Statement on Standards for Forensic Services No. 1 provides that “a member performing forensic services is prohibited from opining regarding the ultimate conclusion of fraud,” because “[t]he ultimate decision regarding the occurrence of fraud is determined by a trier of fact.” Whether infringement occurred is a question for the Intellectual Property Institute; what it is worth, once liability is assumed, is measured here.
Nothing on this page states which measure any cause of action permits, and nothing on it produces a number. What is recoverable is law, it varies by claim and jurisdiction, and that question goes to counsel. The number belongs to a retained expert working from the records. The structures are set out at How the models work, and the expert question at Expert architecture.