The most important element of a business interruption claim is determining lost sales. The lost sales calculation establishes the foundation for determining cost of sales and lost profits. Lost sales caused by business interruption is the difference between the sales that should have been achieved had the interruption not occurred and the actual sales that were achieved.
The damage expert will start by preparing a But-For sales projection by reviewing the historical sales trend prior to the event and extrapolating this trend into the future. This can be performed using sales dollars as the unit being trended, or by trending each of the two variables that make up sales dollars (i.e., units sold and price per unit), and then taking the product of units sold and the price per unit to derive the sales dollars.
The damage expert will have to look at specific business factors that will impact the sales projection. These factors generally include:
- Demographic trends
- Manufacturing capacity
- Trends in technology
- Changes in the competitive landscape
- Economic trends
- Product obsolescence
- Customer loyalty to purchase experience
Each of these, and other factors, will have to be considered and analyzed, and its impact on the sales projection quantified.