Has Your Business Reputation Damaged By Someone? How To Calculate Loss

When your business reputation is damaged by someone's actions or negligence, compensatory damages for that loss are vital to survive. But how can you quantify the monetary loss suffered by something as vague as a reputation hit? The answer varies depending on the circumstances, but there are a few common methods you might use. Here's a short guide to four of the most likely.

1. Profit Comparisons

Lost sales and profits from the incident can sometimes be determined by comparing profits with the injury and without it. This may be accomplished by comparing profits for the company or unit shortly beforehand (the 'benchmark' sales numbers) with those a short time afterward.

If only one aspect of the business — such as one specific product line — is affected rather than the company as a whole, though, you might opt to compare its current conditions to those of a comparable unit within the company. 

2. Value of the Business

A reputation loss for some businesses is reflected in their overall financial value. For instance, if a major component of your business' value is in the form of goodwill rather than hard assets, loss of that goodwill has a serious impact on the company's books. In this case, revaluing the business itself and comparing it to the pre-incident valuation could reveal how much the company has lost from the injury. 

Valuation of the business is most useful as a tool when the reputation damage could take years to recover from. This is because business value fluctuates from cycle to cycle, so long-term patterns are more important to pay attention to.  

3. IP Value

Was the damage done to the value of the intellectual property (IP)? A playwright, for instance, whose play has a damaged reputation may be able to easily measure the loss of that particular intellectual property's value because it's already on the books. The owner of the IP would soon be able to compare the current profitability of the property versus earlier usage or by comparing similar intellectual property items on the market. 

4. Stock Prices

A company that has issued stock — particularly if the company is publicly traded — could calculate the loss of stock value and use this to extrapolate how much the company has been diminished. The analysis may be needed, though, to weed out normal fluctuations in the price of a stock if the time frame is short. 

Which method might your company use to calculate how much you should seek in damages for a reputation injury? No matter which you think may be best, your first call should be to an expert in economic damages. By getting professional assistance from a damages expert, you'll be more confident that what you claim is what you need to recover, rebuild, and move forward. 

Share