There's a joke about a merchant selling an item for $9.95 that cost $12. When asked, "How do you make money?" he replied, "We make it up on the volume!"
This may not be as ridiculous as it sounds for many a seller will price an item, not intended as a loss leader, without calculating the true costs of all selling expense, direct and indirect overhead, administrative burden, amortization of development costs and carrying costs.
To ignore some or all of these calculations is to join the merchant in the joke. Sadly, the joke will be on you.
A loss leader is designed to stimulate sales for other items. Such is the practice of exploiting the frequent demand for fresh bread and milk by displaying them at the rear of a convenience store.
An airline executive was asked why her airline sold in-flight items for about 30% higher than all other airlines. Her reply was, "We make more money!"
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