# Loss Leaders

> Knowing your product margins should be your first priority to understand your business. This allows you to be intentional about pricing. Businesses have failed because they didn't charge enough to cover the cost of fulfillment. However, some have thrived by purposely making this decision. As long as the volume of this "loss leader" product can be covered by the volume of other profitable products/services. Understand where that coverage tipping point is among your product offerings, and adjust if you ever find yourself on the wrong side.

Published model on Paths: https://getpaths.io/p/loss-leaders
Values below are the base case of the published snapshot.

## Drivers

- Loss Leader Price: $1.50
- Loss Leader COGS: $2.75
- Loss Leader Volume: 1,000,000
- Product 1 Price: $89.99
- Product 1 COGS: $54.50
- Product 1 Volume: 25,000
- Product 2 Price: $19.99
- Product 2 COGS: $7.50
- Product 2 Volume: 40,000

## Formulas

- Loss Leader Profit = ( Loss Leader Price - Loss Leader COGS ) * Loss Leader Volume  -> -$1,250,000.00
- Product 1 Profit = ( Product 1 Price - Product 1 COGS ) * Product 1 Volume  -> $887,250.00
- Product 2 Profit = ( Product 2 Price - Product 2 COGS ) * Product 2 Volume  -> $499,600.00
- Gross Profit = Loss Leader Profit + Product 1 Profit + Product 2 Profit  -> $136,850.00
- Loss Leader Profit Margin = Loss Leader Profit / ( Loss Leader Price * Loss Leader Volume ) -> -83.33%
- Product 1 Profit Margin = Product 1 Profit / ( Product 1 Price * Product 1 Volume )  -> 39.44%
- Product 2 Profit Margin = Product 2 Profit / ( Product 2 Price * Product 2 Volume ) -> 62.48%
- Gross Profit Margin = Gross Profit / (( Loss Leader Price * Loss Leader Volume ) + ( Product 1 Price * Product 1 Volume ) + ( Product 2 Price * Product 2 Volume )) -> 3.01%
- Product 1 Coverage = -( Product 1 Price - Product 1 COGS ) / ( Loss Leader Price - Loss Leader COGS ) -> 28.39
- Product 2 Coverage = -( Product 2 Price - Product 2 COGS ) / ( Loss Leader Price - Loss Leader COGS ) -> 9.99