> A loss leader doesn't need to be sold below cost, only below its minimum profit margin.
I think that's an important point, in that you're saying that it's incorrect to consider only the cost of ingredients, rather than the entire cost of delivery (including cooking, labor, etc.).
On the other hand, as the parent pointed out, they're not a restaurant, so their "minimum profit margin" for this particular activity is zero.
As such, they can afford to do it, at whatever volume, indefinitely.
> Leaving money on the table is effectively losing money.
This is the different thing, since it has to do with what the market will bear and not with what it costs them.
The distinction is important because a business can, by this definition, "effectively lose money" while still making a profit. That's good enough for some people.
It's not "effectively" losing money. It's losing imaginary money.
If you want to see an actual loss leader, go to a grocery story in mid-November. They'll sell you a frozen turkey for (depending on competition) 20 to 50 cents a pound. Wholesale cost will be 80 cents to $1.20 a pound. They take an actual loss on the turkey in order to get you in the store where you will buy three times your usual weekly grocery budget in special holiday foods -- all of which are marked up more than they will be right after Thanksgiving.
If selling at less than the market is willing to pay but more than what covers your total costs is a "loss leader", then every sale to attract customers is a "loss leader" and the term has no useful meaning.
mmt|7 years ago
> A loss leader doesn't need to be sold below cost, only below its minimum profit margin.
I think that's an important point, in that you're saying that it's incorrect to consider only the cost of ingredients, rather than the entire cost of delivery (including cooking, labor, etc.).
On the other hand, as the parent pointed out, they're not a restaurant, so their "minimum profit margin" for this particular activity is zero.
As such, they can afford to do it, at whatever volume, indefinitely.
> Leaving money on the table is effectively losing money.
This is the different thing, since it has to do with what the market will bear and not with what it costs them.
The distinction is important because a business can, by this definition, "effectively lose money" while still making a profit. That's good enough for some people.
dsr_|7 years ago
If you want to see an actual loss leader, go to a grocery story in mid-November. They'll sell you a frozen turkey for (depending on competition) 20 to 50 cents a pound. Wholesale cost will be 80 cents to $1.20 a pound. They take an actual loss on the turkey in order to get you in the store where you will buy three times your usual weekly grocery budget in special holiday foods -- all of which are marked up more than they will be right after Thanksgiving.
If selling at less than the market is willing to pay but more than what covers your total costs is a "loss leader", then every sale to attract customers is a "loss leader" and the term has no useful meaning.