Allo Jeff,

tsuwm is right. A loss leader is an item that is sold at or below cost. They are usually high turnover items (things that people buy nearly every week like bathroom tissue, facial tissue or paper napkins).

For example, here in Québec, Canada, store brand facial tissue will often go on the front page of a circular at 39 cents for a box of 150 two-ply tissues. The retailer pays 59 cents for that same box, so for every box he sells he loses 20 cents. There is usually a maximum allowable purchase on loss leader items.

This may sound crazy if you look at only the facial tissue sales BUT what the retailer is betting on is that the client that comes in to his store to buy facial tissue will also buy many other items and therefore a loss of 20 cents on one item is not that big a deal if the customer spends much more money on the other items.

On average, a drug chain will make 25% to 35% on most of his products (less on things like Aspirin and Tylenol). If he sells on bottle of cough syrup at 10.97$ he makes an average of 3.80$

And believe it or not, these sales attract a tremendous amount of clients. It is amazing how far out of their way people will go for that 20 cents.

(so, I guess it's pretty clear to one-and-all now that I sell to the retail trade. Was this too much info.)