Page 40 - Calculating Lost Profits

and end date. As such, it is possible that the compound annual growth rate may not be a good predictor
of future growth.

As shown in this simplistic example, there are many factors that need to be considered when using the
before-and-after method. One goal for the practitioner when applying this approach is to understand the
driving factors behind the plaintiff’s revenues and adjust for factors that could overstate or understate
revenues.

The "Yardstick" (or "Benchmark") Method

This method, like the market approach in business valuation, uses a comparable "yardstick" to estimate
what the revenues and profits of the affected business would have been. Examples of possible yardsticks
and information that might be employed in the estimation of but-for revenues include the following:

 The performance of the plaintiff’s same or similar business at a different location

 The defendant’s performance (especially if the defendant is accused of taking sales away from
the plaintiff)

 The experience of a similar business unaffected by the defendant's actions

 Growth or decline in the industry

 General economic trends

 Trends in socioeconomic and population conditions

The "yardstick" chosen is a proxy for how the plaintiff’s business would have performed but for the
wrongful conduct of the defendant or defendants. An important step when using the yardstick method is
to verify that the yardstick chosen is reasonably comparable to the plaintiff’s business at issue in the
matter. Items to consider when selecting a yardstick may include the following:

 Is the yardstick comparison normally used by market participants as a business benchmark, or
was the yardstick created or used solely for litigation settings?

 Is the yardstick in a similar geographic location?

 Does the yardstick have the same or similar history as the plaintiff’s business at issue?

 Would the yardstick be subject to similar economic conditions as the plaintiff’s business at is-
sue?

 Does the yardstick company sell substantially similar products or services (for example, fast food
restaurant vs. a steakhouse)?

 Is the yardstick company a similar size to plaintiff’s business at issue?

 Is the yardstick company part of a larger company?

 Does the yardstick company have a similar market share to plaintiff’s business at issue?

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