Lumpy skin disease (LSD), an infectious viral disease of cattle, causes considerable financial losses in livestock industry of affected countries. A questionnaire survey with the objectives of determining direct economic losses of LSD (mortality loss, milk loss, draft loss) and treatment costs (medication and labour cost) per affected herd, and assessing the cost effectiveness of vaccination as a means for LSD control was carried out in the central and north-western parts of Ethiopia. From a total of 4430 cattle (in 243 herds) surveyed, 941 animals (in 200 herds) were reported to be infected. The overall morbidity and mortality at animal level were 21.2% and 4.5%, and at herd level these were 82.3% and 24.3%. There was a significant difference in animal level morbidity and mortality between categories of animals. Over 94% of the herd owners ranked LSD as a big or very big problem for cattle production. A large proportion (92.2%) of the herd owners indicated that LSD affects cattle marketing. A median loss of USD 375 (USD 325 in local Zebu and USD 1250 in Holstein-Friesian local Zebu cross cattle) was estimated per dead animal. Median losses per affected lactating cow were USD 141 (USD 63 in local Zebu cows and USD 216 in Holstein-Friesian local Zebu cross cows) and, USD 36 per affected ox. Diagnosis and medication cost per affected animal were estimated at USD 5. The median total economic loss of an LSD outbreak at herd level was USD 1176 (USD 489 in subsistence farm and USD 2735 in commercial farm). At herd level, the largest component of the economic loss was due to mortality (USD 1000) followed by milk loss (USD 120). LSD control costs were the least contributor to herd level losses. The total herd level economic losses in the commercial farm type were significantly higher than in the subsistence farm type. The financial analysis showed a positive net profit of USD 136 (USD 56 for subsistence farm herds and USD 283 for commercial herds) per herd due to LSD vaccine investment. It should be noted that only the noticeable direct costs and treatment costs associated with the disease were considered in the study. Generally, vaccination is economically effective and should be encouraged.