It’s a peculiar and completely counterintuitive aspect of doing business, but it is true. You can actually increase your company’s overall revenue by selling products at a loss, or even giving them away for free. In fact, it’s a common practice in some industries. Your local grocery store provides an exceptional example of this phenomenon, as does the printer that sits in your office.
The concept employed is known as a loss leader. The theory is this; by attracting customers to your door with a product or service set at an aggressively low price, lower in fact than it actually costs to deliver, you can increase your overall number of customers. Better yet, you can encourage those customers to come to your place of business with the idea of making a purchase already in their minds.
Admittedly, encouraging customers to buy products and services at rates that cause you to absorb a loss is not what you want to base the majority of your sales on. But if this tool of commerce is used judiciously, it can pay significant dividends.
Using the grocery store model as an example, consider eggs and milk. These staple food items are perishable. They’re in almost everybody’s refrigerator, and they fit into the diet and shopping budget of most Americans. Whether you’re a single young man focused on a quick bowl of cereal in the morning and a simple omelet for dinner, or you’re a hands-on mom who wants to guarantee appropriate levels of vitamins and protein in her family meals, you’re going to be buying milk and eggs. And as long as you’re going to be buying them, why not buy them where they’re inexpensively priced?
That’s the hook of the loss leader. The store can confidently mark down the price of milk and eggs with the comfortable assumption that most consumers who buy milk will also purchase cereal or baking goods. The majority of egg buyers will also grab a package of bacon on the way to the register. In the end, the loss on milk and eggs is more than made up for in additional purchases.
Similarly, if you own an ink jet printer, you may have purchased it specifically because of its low price. That price may well have been a loss leader. When you bought that printer, it became a durable item in your office, but a durable item that requires regular replacement ink cartridges that are not quite so inexpensive. What the manufacturer loses on the sale of the printer, it makes up for on the sale of the ink cartridges. In most cases, the printer is a one-time impulse buy, while the ink cartridge sales go on for years.
Your flight school business is not different, really. You have services to offer that range from flight reviews, to instrument competency checks, to upgrades in certificates and ratings and possibly even type specific training. Yet most flight schools offer simple, straightforward pricing on their full range of services with no exceptions. Why not consider shaking things up, doing things differently, and using the loss leader approach to bring new customers in the door who can make your cash register ring?
For a limited time, consider offering the mandatory one hour of ground instruction for a flight review at no charge. That enticement could bring you a new customer or two, and those customers will complete their flight review with your company, paying the full rate for the air work. Better yet, if they are satisfied with the experience, they may become regular customers who come back to you for flight reviews and additional training in the future. They may even refer a friend.
Suddenly that free hour of ground instruction is looking like a smart investment in your own future. And that’s why loss leaders just may be the key to expanding your business potential by attracting new customers to your door.