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3 Times It Makes Sense to Lose Money

Today’s loss can be tomorrow’s gain.

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BY Levi King - 23 Jul 2018

3 Times It Makes Sense to Lose Money

PHOTO CREDIT: Getty Images

Believe it or not, but there are times when it's sensible for business owners to lose money. There are scenarios in which intentional unprofitability is perfectly rational, a strategic choice.

It flies in the face of conventional wisdom, and takes courage and brains to accomplish, but entrepreneurs have been successfully making these moves since the dawn of entrepreneurship. You can, too.

Here are three occasions when a penny spent is a penny earned:

1. You're turning up the volume.

Let's say you're a manufacturer. You've got an item that's expensive to produce, but you're convinced it'll prove wildly popular when all's said and done. If you unload a thousand of them, you'll lose $10 dollars a sale. But if you unload ten thousand of them, you'll profit $40 dollars a sale.

You're unprofitable at a low volume but profitable at a high one. It may take you a while to turn up the volume to the point where you hear the sweet sound of money rolling in, but your patience could very well pay off.

2. You're courting a customer.

A friend of mine once told me about a kid in his neighborhood who started a lawn mowing business. He began with a basic setup--a cranky old mower and a weed whacker barely worthy of the name.

He went door to door advertising his services, picked up a few clients, saved some money. His big break came when the richest person in his neighborhood asked him to beautify her expansive grounds for an outdoor party. He immediately invested all his savings (plus a loan from his parents) in better equipment, did a killer job, and gained a loyal client who more than repaid his investment.

Losing money on a job in order to win a stable, profitable customer is like sacrificing a knight and a bishop now for a guaranteed checkmate later. In other words, it isn't really a sacrifice at all.

3. You're building your empire.

If you own a retail business, the dream is to expand it. Two lucrative locations is better than one, three is better than two. Growth entails geography--which could mean a mile down the street or the next state over.

Years ago, there was a restaurant in Utah that I patronized on a regular basis. It was one of my favorites, and owned by a cool couple who had opened two or three successful places before.

This one, however, seemed to be struggling. It was always kind of empty, and I developed a deep, selfish worry that it would fail. Consequently, I pulled one of the owners aside and asked her if I could spearhead a Facebook campaign or something to help.

She assured me that all was going according to schedule--better, in fact--and that I shouldn't lose any sleep. "When we started this business, we knew we'd lose money for the first year or so, and planned accordingly," she said.

She was correct--I just googled the restaurant and it's still going strong. Two lucrative locations is better than one, but don't assume that the popularity of your firstborn will transfer to its siblings right away.

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