You don't know what you've got til you realize you never had it.
January 2, 2007 8:47 AM Subscribe
I often hear people describing "lost revenue" when they mean "revenue that we expected to earn, but didn't." To me, this is an important distinction: if you never had something, you can't lose it.
Is there an alternate term to describe what I'm talking about? "Missed revenue," perhaps?
opportunity cost refers to the cost of a choice picked/not picked. Not meeting revenue expectations is something different. Sometimes lost revenues can also meet revenues not earned because of a strategic or tactical business error.
Not really helping here ;-) can't think of another term.
posted by bitdamaged at 9:03 AM on January 2, 2007
Not really helping here ;-) can't think of another term.
posted by bitdamaged at 9:03 AM on January 2, 2007
Lost revenue is the accepted term for revenue we expected to earn, but didn't. There is no other term.
It *is* propagandistic to lump together things like:
--we lost revenue because our product flopped (our fault)
--we lost revenue because of a hurricane (no one's fault)
--we lost revenue because Walmart undercut us (Walmart's/our fault)
The term is designed to put the onus on someone else, anyone else, because the speaker doesn't want to take the blame for what is usually his fault (and occasionally no one's fault).
However, it is the accepted term. No one will know what you're talking about if you say something else.
posted by jellicle at 9:03 AM on January 2, 2007
It *is* propagandistic to lump together things like:
--we lost revenue because our product flopped (our fault)
--we lost revenue because of a hurricane (no one's fault)
--we lost revenue because Walmart undercut us (Walmart's/our fault)
The term is designed to put the onus on someone else, anyone else, because the speaker doesn't want to take the blame for what is usually his fault (and occasionally no one's fault).
However, it is the accepted term. No one will know what you're talking about if you say something else.
posted by jellicle at 9:03 AM on January 2, 2007
"Under performance"?
"poor execution"?
"missed estimates"?
I offer those terms, but Jellicle is correct in that it may not be proper usage in the english language, but in the world of business where everyone is trying to cover their asses, it is perfectly acceptable and understood.
posted by JohnnyGunn at 9:12 AM on January 2, 2007
"poor execution"?
"missed estimates"?
I offer those terms, but Jellicle is correct in that it may not be proper usage in the english language, but in the world of business where everyone is trying to cover their asses, it is perfectly acceptable and understood.
posted by JohnnyGunn at 9:12 AM on January 2, 2007
When a client doesn't pay a bill, and I end up writing it off because it's easier (and probably more cost effective) to forget it than to pursue it, it's lost revenue.
posted by Dave Faris at 9:13 AM on January 2, 2007
posted by Dave Faris at 9:13 AM on January 2, 2007
Revenue sources can lose value, like vacation rental properties in New Orleans or financial securities gone sour.
posted by StarForce5 at 9:18 AM on January 2, 2007
posted by StarForce5 at 9:18 AM on January 2, 2007
If it's the accepted term, it doesn't matter whether you think it's logical or not. Get used to it. Time and mental energy spent trying to think of a "better" one is utterly wasted.
posted by languagehat at 9:20 AM on January 2, 2007
posted by languagehat at 9:20 AM on January 2, 2007
I've heard the term "unrealized gain" used to describe expected income that didn't materialize (and "unrealized loss" for expected losses that didn't happen). These terms seem descriptive, honest and non-finger-pointy; they're what I use (but I'm a scientist, not a businessperson).
posted by Quietgal at 9:47 AM on January 2, 2007
posted by Quietgal at 9:47 AM on January 2, 2007
Response by poster: Quietgal: Unrealized gain is excellent, I may attempt to use that!
Thanks to those who answered. I'm going to expand on the question a bit anyway, in case anyone has anything else to say.
What bothers me about this phrase is not that it's illogical, it's that it's imprecise. A few commenters above talk about people wanting to cover their asses, but as I see it, that's not the issue. Saying that you lost something is not a very good way to cover your ass.
Like using "homophobia" to indicate "people who are afraid of homosexuals" as well as "people who have something against homosexuals, but are not afraid of them," the use of "lost revenue" obfuscates the reality of the situation.
If, as Dave Faris explains above, a client doesn't pay a bill, then it makes sense to consider that revenue to be lost. That's because services were rendered, and the only way for the revenue not to come in, is if the client defaults on the contract and breaks the law.
But I'm talking about situations in which it's not so clear. For example, when downtown Seattle was evacuated circa 1997 because of a perceived terrorist threat, papers the next day reported that Nordstrom had lost millions of dollars in revenue because of the business they missed out on. Similarly, if a website promises an advertiser a certain amount of ad impressions, and they aren't able to deliver them all, then the revenue that they would have made if they had delivered the difference is considered "lost revenue" within the online publishing world.
posted by bingo at 9:53 AM on January 2, 2007
Thanks to those who answered. I'm going to expand on the question a bit anyway, in case anyone has anything else to say.
What bothers me about this phrase is not that it's illogical, it's that it's imprecise. A few commenters above talk about people wanting to cover their asses, but as I see it, that's not the issue. Saying that you lost something is not a very good way to cover your ass.
Like using "homophobia" to indicate "people who are afraid of homosexuals" as well as "people who have something against homosexuals, but are not afraid of them," the use of "lost revenue" obfuscates the reality of the situation.
If, as Dave Faris explains above, a client doesn't pay a bill, then it makes sense to consider that revenue to be lost. That's because services were rendered, and the only way for the revenue not to come in, is if the client defaults on the contract and breaks the law.
But I'm talking about situations in which it's not so clear. For example, when downtown Seattle was evacuated circa 1997 because of a perceived terrorist threat, papers the next day reported that Nordstrom had lost millions of dollars in revenue because of the business they missed out on. Similarly, if a website promises an advertiser a certain amount of ad impressions, and they aren't able to deliver them all, then the revenue that they would have made if they had delivered the difference is considered "lost revenue" within the online publishing world.
posted by bingo at 9:53 AM on January 2, 2007
Response by poster: languagehat: Whether or not time and energy spent thinking of a better term is a waste of time or not, really depends on what my priorities are, what the context is, and who exactly I'm trying to influence. I may not start a trend that changes the language, but I may be able to change the tone of reports I make in a way that matters to me and the work that I do, and that I think will have an effect on the way that they are understood.
posted by bingo at 9:58 AM on January 2, 2007
posted by bingo at 9:58 AM on January 2, 2007
Unrealized gain and its variants are a more accurate term, particularly in terms of piracy and knockoffs. The core problem is that there's a demand for the product that the firm is not fulfilling. If the firm did X, Y or Z it could realize these gains (in theory). These gains are significant but you're right that they're not "lost revenue." Even this isn't the whole story though; more often than not piracy and knockoffs do add to the company's bottom line but not in terms of cash flow. Some companies will roll this positive valuation into the value of their "brand" while internet geeks like to talk about non-productive marketshare.
For example, when downtown Seattle was evacuated circa 1997 because of a perceived terrorist threat, papers the next day reported that Nordstrom had lost millions of dollars in revenue because of the business they missed out on.
Well now I think you're the confused one. If an unexpected disaster prevents you from doing business then these are real losses. There's a trillion dollar insurance industry that exists just to protect against such losses. "Lost revenues" doesn't really apply here though sloppy journalists may use it.
Similarly, if a website promises an advertiser a certain amount of ad impressions, and they aren't able to deliver them all, then the revenue that they would have made if they had delivered the difference is considered "lost revenue" within the online publishing world.
This is the fundamental problem with valuing any contract held by a firm. If a contract is valued at X million but the firm only makes Y million in the fulfillment of the contract then (X-Y) is indeed lost revenue assuming the initial valuation of the contract was correct. The problem comes down to how to interpret the value of unfulfilled contracts and there's no right answer but in this case "lost revenues" does make sense.
I think you need to be more precise about exactly what you mean. If you're just talking about the case where a firm simply misses its earning projections then, yeah, this isn't "lost revenues" and nobody uses the phrase like that (contrary to what jellicle says). The phrase is usually applied in specific cases where services are delivered but the firm receives no income for the delivery.
posted by nixerman at 10:21 AM on January 2, 2007
For example, when downtown Seattle was evacuated circa 1997 because of a perceived terrorist threat, papers the next day reported that Nordstrom had lost millions of dollars in revenue because of the business they missed out on.
Well now I think you're the confused one. If an unexpected disaster prevents you from doing business then these are real losses. There's a trillion dollar insurance industry that exists just to protect against such losses. "Lost revenues" doesn't really apply here though sloppy journalists may use it.
Similarly, if a website promises an advertiser a certain amount of ad impressions, and they aren't able to deliver them all, then the revenue that they would have made if they had delivered the difference is considered "lost revenue" within the online publishing world.
This is the fundamental problem with valuing any contract held by a firm. If a contract is valued at X million but the firm only makes Y million in the fulfillment of the contract then (X-Y) is indeed lost revenue assuming the initial valuation of the contract was correct. The problem comes down to how to interpret the value of unfulfilled contracts and there's no right answer but in this case "lost revenues" does make sense.
I think you need to be more precise about exactly what you mean. If you're just talking about the case where a firm simply misses its earning projections then, yeah, this isn't "lost revenues" and nobody uses the phrase like that (contrary to what jellicle says). The phrase is usually applied in specific cases where services are delivered but the firm receives no income for the delivery.
posted by nixerman at 10:21 AM on January 2, 2007
There's a slight distinction here. As jellicle pointed out there are several identifiable causes to "losing" revenue. If these revenues can fairly clearly be forecast (we had insufficient inventory so just couldn't sell enough) then I think "lost revenues" is the correct term.
If the forecast is more hazy or goal oriented such as you see in annual reports. I think unrealized or unmet revenue expectations meets the bill.
posted by bitdamaged at 10:22 AM on January 2, 2007
If the forecast is more hazy or goal oriented such as you see in annual reports. I think unrealized or unmet revenue expectations meets the bill.
posted by bitdamaged at 10:22 AM on January 2, 2007
Hmm. "Unrealized gain" might be better, but it might also introduce ambiguity of its own. Say you bought stock last year worth $100, and this year the stock has increased in value to $150. That means you currently have $50 of unrealized gain. I think this is an accounting/tax law concept also called unrealized profits or paper profits.
But this is different from what you want to describe. You're talking (I think) about profits or revenues that definitely have failed to emerge, whereas in this concept, the point is that the profits are still only potential but they could, in fact, be realized in the future.
posted by chinston at 10:31 AM on January 2, 2007
But this is different from what you want to describe. You're talking (I think) about profits or revenues that definitely have failed to emerge, whereas in this concept, the point is that the profits are still only potential but they could, in fact, be realized in the future.
posted by chinston at 10:31 AM on January 2, 2007
chinston makes a good point. "Unrealised gain" is a specific term that describes a different phenomenon than the one you're describing. Using it in the scenario you describe will definitely be confusing. "Unrealised gains/losses" are, as chinston said, those which exist on a balance sheet only and result from owning an asset of some sort. If you buy an asset for $100 then as long as you still hold it it can be worth more or less than $100. The difference between its price on any day and $100 is the "unrealised gain/loss". It's when you sell the asset that you actually incur the loss or make the profit, and it becomes "realised". You can't correctly use this term to describe the non-appearance of revenues.
posted by patricio at 10:42 AM on January 2, 2007
posted by patricio at 10:42 AM on January 2, 2007
When I hear lost revenue it is usually used in terms of the revenue being lost to various exogenous causes. Say I was selling a product "x" and had contracts with suppliers (legally enforceable, so one would assume it is as certain as one can get), but due to a law/strike or something not caused by the consumers, the companies or those directly involved with the transaction. You wouldn't say "lost revenue" because your ad campaign was bad.
Say a new environmental law was enacted that made product x illegal and the company was expecting a set amount of revenue from this product. The consumer need is there, the product is available for it at that price but the law prevents the product from being used.
Courts are very, very hesitant to enforce lost revenue on a contract for obvious reasons. Say I was making a product and a supplier failed to deliver. I generally cannot sit around and then ask the supplier to pay for lost revenues. Instead courts will ask the supplier for to cover the costs incurred in finding another supplier and any premiums that supplier charged.
Outside of the legal realm we can use the term "lost revenues" to quickly convey the image that something went wrong somewhere and it is not caused by lack of market demand for the product. Generally.
It is somewhat illogical and I would only use it in a very, very specific instance as the ability for it to be misused (and for self-serving purposes) is high.
posted by geoff. at 10:45 AM on January 2, 2007
Say a new environmental law was enacted that made product x illegal and the company was expecting a set amount of revenue from this product. The consumer need is there, the product is available for it at that price but the law prevents the product from being used.
Courts are very, very hesitant to enforce lost revenue on a contract for obvious reasons. Say I was making a product and a supplier failed to deliver. I generally cannot sit around and then ask the supplier to pay for lost revenues. Instead courts will ask the supplier for to cover the costs incurred in finding another supplier and any premiums that supplier charged.
Outside of the legal realm we can use the term "lost revenues" to quickly convey the image that something went wrong somewhere and it is not caused by lack of market demand for the product. Generally.
It is somewhat illogical and I would only use it in a very, very specific instance as the ability for it to be misused (and for self-serving purposes) is high.
posted by geoff. at 10:45 AM on January 2, 2007
Response by poster: Maybe this is really a problem that I have with the use of the word "lost" in this context. To me, to lose something you first must have it. And to imply that a corporation "had" some money, but "lost" it, when in fact what happened is that they never had it at all, but merely expected it...well, it implies a sort of entitlement that doesn't make sense to me.
nixerman says: If an unexpected disaster prevents you from doing business then these are real losses. There's a trillion dollar insurance industry that exists just to protect against such losses.
The fact that there's an insurance industry to protect against such events doesn't mean that they're losses. And calling them "real losses" seems very presumptuous to me. The money in question is still in the pockets of the people who were expected to spend it. It's their money. It will remain their money until they spend it somewhere else. More importantly, Nordstrom may expect to earn X dollars tomorrow between 3 and 5pm, but that expectation entitles them to nothing. The money that they expect to earn isn't theirs; it belongs to the people who are expected to spend it. If those people all decide at the same time not to shop at Nordstom that day, then Nordstrom has not lost anything. Of course, if an insurer wants to let Nordstrom take out insurance against this happening, that's their business, but it still doesn't mean that the money not earned belonged to Nordstrom.
posted by bingo at 11:08 AM on January 2, 2007
nixerman says: If an unexpected disaster prevents you from doing business then these are real losses. There's a trillion dollar insurance industry that exists just to protect against such losses.
The fact that there's an insurance industry to protect against such events doesn't mean that they're losses. And calling them "real losses" seems very presumptuous to me. The money in question is still in the pockets of the people who were expected to spend it. It's their money. It will remain their money until they spend it somewhere else. More importantly, Nordstrom may expect to earn X dollars tomorrow between 3 and 5pm, but that expectation entitles them to nothing. The money that they expect to earn isn't theirs; it belongs to the people who are expected to spend it. If those people all decide at the same time not to shop at Nordstom that day, then Nordstrom has not lost anything. Of course, if an insurer wants to let Nordstrom take out insurance against this happening, that's their business, but it still doesn't mean that the money not earned belonged to Nordstrom.
posted by bingo at 11:08 AM on January 2, 2007
I think you are right to try to use a more specific term here. If, for example, a pharma company loses a patent on a medication, it is clear that the company will lose revenue from the sales of that drug. No question there. It sounds to me that you are indeed talking about missing sales/revenue goals or projections, which can be quite different.
posted by Mister_A at 11:13 AM on January 2, 2007
posted by Mister_A at 11:13 AM on January 2, 2007
Foregone Revenue is the term I use for this, if the situation is right.
To use your Nordstrom example, if they were doing a cost/benefit analysis to decide whether or not to close the store for an all-employee meeting, one item they'd consider is foregone revenue - the $ they would expect to make if they were open.
However, I'm not sure this term is really right if it wasn't their decision that caused the less-than-expected revenue. But, depending on the scenario, it may be useful.
Otherwise, maybe it's a revenue shortfall, because earnings "fell short" of expectations.
posted by altcountryman at 11:37 AM on January 2, 2007
To use your Nordstrom example, if they were doing a cost/benefit analysis to decide whether or not to close the store for an all-employee meeting, one item they'd consider is foregone revenue - the $ they would expect to make if they were open.
However, I'm not sure this term is really right if it wasn't their decision that caused the less-than-expected revenue. But, depending on the scenario, it may be useful.
Otherwise, maybe it's a revenue shortfall, because earnings "fell short" of expectations.
posted by altcountryman at 11:37 AM on January 2, 2007
it implies a sort of entitlement that doesn't make sense to me
As languagehat said, tough. It's not like this is the only euphemism in the English language. It's the term that's widely used to describe a common situation, where someone expected to make some money but didn't.
Besides, "lost" has the following (among many other) definitions:
If I was to play some one-on-one with Shaq and he beat me, I'd still say I lost, in spite of the fact that I never stood any chance of winning.
posted by GuyZero at 11:47 AM on January 2, 2007
As languagehat said, tough. It's not like this is the only euphemism in the English language. It's the term that's widely used to describe a common situation, where someone expected to make some money but didn't.
Besides, "lost" has the following (among many other) definitions:
- to fail to win (a prize, stake, etc.): to lose a bet.
- to fail to have, get, catch, etc.; miss: to lose a bargain.
If I was to play some one-on-one with Shaq and he beat me, I'd still say I lost, in spite of the fact that I never stood any chance of winning.
posted by GuyZero at 11:47 AM on January 2, 2007
Response by poster: Shortfall sounds like a good one.
The context I'm most concerned about is the online advertising industry. Let's say that cnn.com tells Kraft that their velveeta advertisement will be seen in one million pageviews over the course of December. This seems reasonable, because in November, cnn.com received five million hits. Well, December goes by, and it turns out that cnn.com just wasn't very popular that month; it only gets half a million hits. There are lots of people speculating as to why...maybe a competitor got the traffic, maybe the users were all on vacation, maybe people were disgusted with politics and didn't want to watch the news, and maybe one of the cnn.com servers wasn't responding to requests properly. The guy tabulating the money situation doesn't know, and neither does anyone else. Meanwhile, cnn.com hasn't held up their contract to serve the velveeta ad one million times. They aren't in breach, because that's the nature of the industry; sometimes you don't get all the impressions you want. It's written in the contract that if they don't deliver in full, then the client simply doesn't have to pay the difference. So, cnn.com only gets paid for half a million impressions. What do they call the money for the 4.5 million impressions that they never earned? Surely (says I) it isn't lost revenue...they never had the money, and, for that matter, they never had the inventory that would have earned that money.
On preview: GuyZero's explanation of "lose" in terms of "losing a game," is good, and I hadn't thought of it that way before. Of course, the game is not a thing that you can take home with you after you win it, and revenue is.
posted by bingo at 11:52 AM on January 2, 2007
The context I'm most concerned about is the online advertising industry. Let's say that cnn.com tells Kraft that their velveeta advertisement will be seen in one million pageviews over the course of December. This seems reasonable, because in November, cnn.com received five million hits. Well, December goes by, and it turns out that cnn.com just wasn't very popular that month; it only gets half a million hits. There are lots of people speculating as to why...maybe a competitor got the traffic, maybe the users were all on vacation, maybe people were disgusted with politics and didn't want to watch the news, and maybe one of the cnn.com servers wasn't responding to requests properly. The guy tabulating the money situation doesn't know, and neither does anyone else. Meanwhile, cnn.com hasn't held up their contract to serve the velveeta ad one million times. They aren't in breach, because that's the nature of the industry; sometimes you don't get all the impressions you want. It's written in the contract that if they don't deliver in full, then the client simply doesn't have to pay the difference. So, cnn.com only gets paid for half a million impressions. What do they call the money for the 4.5 million impressions that they never earned? Surely (says I) it isn't lost revenue...they never had the money, and, for that matter, they never had the inventory that would have earned that money.
On preview: GuyZero's explanation of "lose" in terms of "losing a game," is good, and I hadn't thought of it that way before. Of course, the game is not a thing that you can take home with you after you win it, and revenue is.
posted by bingo at 11:52 AM on January 2, 2007
I don't like the Nordstrom example. That's reducing revenue now for greater revenue in the long-term. You could run different models which show that with meetings revenues over a given time frame increase some percent. If you are making the time frame over the course of a day, it does not make sense to do the meeting. Few shareholders would see their value increased if we treat every day of sales as a mutually exclusive event. I would not say lost revenue in that case.
I will revert back to saying that lost revenues are used in terms of incredibly improbable or unforeseen events (eschewing the fallacy that one should in reality, expect such extraneous events to happen, as they happen enough to not be improbable).
That said, I would not take anyone seriously if they used the term "lost revenue" repeatedly and it wasn't short hand for a more complex system already established. It is a very, very casual phrase. It lends itself too delving into middle-manager speak. I don't think I've seen it in any rigorous peer-review journal.
The problem here is that "revenue" is a very specific, technical term. When used outside of that setting, it takes on a different meaning. "Lost revenue" is simply slang, it would not be prudent to appropriate another phrase (e.g., unrealized gains) and corrupt something else to apply to a specific instance.
posted by geoff. at 12:01 PM on January 2, 2007
I will revert back to saying that lost revenues are used in terms of incredibly improbable or unforeseen events (eschewing the fallacy that one should in reality, expect such extraneous events to happen, as they happen enough to not be improbable).
That said, I would not take anyone seriously if they used the term "lost revenue" repeatedly and it wasn't short hand for a more complex system already established. It is a very, very casual phrase. It lends itself too delving into middle-manager speak. I don't think I've seen it in any rigorous peer-review journal.
The problem here is that "revenue" is a very specific, technical term. When used outside of that setting, it takes on a different meaning. "Lost revenue" is simply slang, it would not be prudent to appropriate another phrase (e.g., unrealized gains) and corrupt something else to apply to a specific instance.
posted by geoff. at 12:01 PM on January 2, 2007
bingo, I think the term is "falling short of revenue predictions." Or "Hume's Problem of Induction." Even so it was written into the contract what would happen on given conditions, they just fell short of internal expectations.
posted by geoff. at 12:10 PM on January 2, 2007
posted by geoff. at 12:10 PM on January 2, 2007
The money in question is still in the pockets of the people who were expected to spend it. It's their money. It will remain their money until they spend it somewhere else.
You would make a terrible businessman, letting customers walk around with your money in their pockets like that.
More seriously, the word "lost" does not mean what you think it means in this context. It doesn't imply that you had it the money and then lost it; it means you lost the opportunity to earn what you ordinarily earn. If you had an accident and couldn't work for six months, you'd call the money you didn't make during that time "lost wages" even though you never did the work that would have earned them for you. Reserving the term "lost wages" for instances in which your employer stiffed you on wages you'd earned, and that you decided not to go after, is just a topsy-turvy way of thinking about things.
posted by kindall at 1:07 PM on January 2, 2007
You would make a terrible businessman, letting customers walk around with your money in their pockets like that.
More seriously, the word "lost" does not mean what you think it means in this context. It doesn't imply that you had it the money and then lost it; it means you lost the opportunity to earn what you ordinarily earn. If you had an accident and couldn't work for six months, you'd call the money you didn't make during that time "lost wages" even though you never did the work that would have earned them for you. Reserving the term "lost wages" for instances in which your employer stiffed you on wages you'd earned, and that you decided not to go after, is just a topsy-turvy way of thinking about things.
posted by kindall at 1:07 PM on January 2, 2007
I may be able to change the tone of reports I make in a way that matters to me and the work that I do, and that I think will have an effect on the way that they are understood.
It certainly will—it will make them less likely to be understood. I'm really not trying to be a dick or put you down, but trying to change a commonly used term (even if just in your own usage) is not only fruitless but counterproductive. It's as if I, having decided television is a badly constructed word because it's half Latin and half Greek, started using teleorasis instead. It might satisfy me, but people would not understand what I meant. Seriously, get used to the term that's actually used and try to get over your qualms.
posted by languagehat at 3:37 PM on January 2, 2007
It certainly will—it will make them less likely to be understood. I'm really not trying to be a dick or put you down, but trying to change a commonly used term (even if just in your own usage) is not only fruitless but counterproductive. It's as if I, having decided television is a badly constructed word because it's half Latin and half Greek, started using teleorasis instead. It might satisfy me, but people would not understand what I meant. Seriously, get used to the term that's actually used and try to get over your qualms.
posted by languagehat at 3:37 PM on January 2, 2007
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posted by biffa at 8:55 AM on January 2, 2007