Section 347 of the Restatement (Second) provides that the measure of damages is:

   (a) the loss in the value to him of the other party's performance caused by its failure or deficiency, PLUS

   (b) any other loss, including incidental or consequential loss, caused by the breach, LESS

   (c) any cost or other loss that he has avoided by not having to perform.

The amount in clause (a) of § 347 is the value of the performance which was not given. For example, if Vendor breaches a contract whereby she is to convey property worth $1,000,000 to Purchaser, Purchaser's loss in value is the market value of the property (not necessarily $1,000,000). If Contractor and Homeowner enter into a contract whereby Contractor is to do a remodeling job on Homeowner's house for an agreed price of $10,000 and Contractor fails to do any work at all, Homeowner's loss in value is the market price for having another contractor do the same work. If Contractor does all the work but the last coat of paint, Homeowner's loss in value is the market price for having another contractor do this painting.

Farnsworth has the following to say about incidental and consequential damages (terms used in clause (b) of § 347):

Incidental damages include additional costs incurred after the breach in a reasonable attempt to avoid loss, even if the attempt is unsuccessful. If, for example, the injured party who has not received the promised performance pays a fee to a broker in a reasonable but unsuccessful attempt to obtain a substitute, that expense is recoverable. Consequential damages include such items as injury to person or property caused by the breach. If, for example, services furnished to the injured party are defective and cause damage to his property, that loss is recoverable. The terms used to characterize the loss are not, however, critical, for the general principle is that loss, however characterized, is recoverable.

The "cost avoided" includes such things as payment to the breaching party of the contract price, the cost of doing the work required by the contract, and the value of the property to be transferred under the contract. Naturally, these are included only to the non-breaching party cannot terminate her performance and avoid the loss. For example, in our Contractor-Homeowner hypothetical, if Homeowner refuses to pay because Contractor fails to show up, she has a cost avoided of $10,000. On the other hand, if she had already paid a deposit of $2,000, her cost avoided would only be $8,000.

Here's another example: Developer and Paver enter into a contract under the terms of which Contractor is to pave the roads in a new subdivision that Developer is building at cost of $200,000. After the contract has been signed and before Paver does any work, Developer breaches. At trial, Paver is able to show that if she had completed the paving according to the contract, it would have cost her $180,000. Paver's loss in value (paragraph (a)) is $200,000, her cost avoided (paragraph (c)) is $180,000, and there are no "other losses" (paragraph (b)). Thus Paver is entitled to damages of $20,000. We say that Paver is entitled to "the benefit of the bargain." She made a good deal, and she's entitled to the benefit of it regardless of whether the other party breaches.