Loss of profit is the profit that is no longer perceived as a consequence of the breach, action, omission or damage caused by a third party.
Loss of profit refers to profit, that is to say, money, profit, or income that the affected agent ceases to receive as a result of the loss or damage caused by a third party. These are potential gains that would have been made had the damage not occurred. In such a situation, the difference between what could have been obtained and what has actually been obtained is called loss of profit.
Therefore, this can occur at the same time of the damage or also have future consequences. Thus, for example, if there is a fire in a warehouse or warehouse with stocks of finished goods, there is immediate damage due to the destruction of the stored goods since they cannot be sold (we no longer receive the sales margin). Likewise, there is future damage if the warehouse or warehouse is destroyed by fire and cannot be repaired immediately. The lack of warehouse can reduce production capacity and response to demand, causing us to lose sales and their associated profits.
The person responsible for the damage or loss could be obliged to compensate the victim for what they stopped receiving.
Quantification of lost profits
Loss of profit is quantified based on two factors:
- Proof of existence : Generally it is not difficult to prove the existence of lost profits, that is, the relationship between the damage caused and the loss of potential income.
- Quantification : Determining the exact amount of lost profits can be complicated since it involves estimating what would have been earned in a scenario that never happened (the no harm scenario). In order to substantiate the estimate, the interested party may resort to evidence such as accounting, tax returns, an expert’s report, etc. The final amount will be decided by the judge or arbitrator in charge of the case.
Example of lost profits
Suppose a person destroys a taxi driver’s vehicle.
In this case, the taxi driver, as a result of the destruction of his taxi, stopped receiving income since he could not offer his services for a certain time.
Thus, the lost profits will be greater the more time elapses between the destruction of the taxi and the repair of the damage so that it allows you to go out to work again.