The starting point for most business interruption claims is determining lost sales. The lost sales calculation establishes the foundation for deriving the cost of sales and the 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
- Seasonality
- Product obsolescence
- Supply chain
- Customer loyalty
Each of these factors should be considered and analyzed with respect to their impact on the sales projections.
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