Sometimes, the value of a product has very little to do with how much money it makes on its own.
Imagine reviewing your company's sales report and finding a product that consistently generates very little profit. Your first instinct might be to increase its price, reduce its costs, or eliminate it altogether.
That seems reasonable. After all, businesses need to make money.
But what if that product is one of the reasons customers choose your business in the first place?
What if removing it saves a few dollars in direct costs but costs you hundreds in other sales?
This is where evaluating individual product profitability becomes more complicated. Some products contribute to a business in ways that never appear on their own profit reports.
They attract customers, build trust, encourage repeat visits, and make other products more valuable.
The challenge is understanding which products genuinely serve a larger purpose and which are simply underperforming.
Costco's $1.50 Hot Dog: More Than an Inexpensive Lunch
One of the best-known examples comes from Costco.
Since the 1980s, Costco has maintained the price of its hot dog and soda combination at $1.50 in the United States.
Think about how much has changed since then. Labor costs, food prices, transportation, and operating expenses have all increased significantly. Yet the price remains the same.
Costco even brought hot dog production in-house to help maintain its pricing.
Why would a successful retailer go to such lengths to protect the price of something as ordinary as a hot dog?
Because the hot dog represents something much bigger.
Costco's business model depends on convincing customers that membership provides exceptional value. The $1.50 combination makes that promise visible.
Customers don't have to study a pricing strategy or compare hundreds of products to understand it. They can experience it during an ordinary shopping trip.
The hot dog also creates a familiar part of the Costco experience. It is inexpensive, recognizable, and remarkably consistent.
That consistency helps reinforce the company's identity.
There is a popular claim that Costco loses money on every hot dog sold. However, the available evidence does not establish that consistently, especially considering the company's manufacturing operations.
But whether the combination earns a small profit, breaks even, or operates at a loss is not the most interesting question.
The more important question is what that $1.50 purchase contributes to the entire customer relationship.
Costco does not need its food court to be the most profitable part of its business for it to have strategic value.
IKEA: Sometimes the Best Product Keeps Customers in the Store
Anyone who has spent several hours walking through IKEA knows that shopping for furniture can become an unexpectedly long activity.
You might arrive looking for a bookshelf and find yourself comparing kitchen cabinets, testing sofas, and wondering whether you suddenly need an entirely new dining room.
Eventually, you get hungry.
At that point, you have two choices: leave to find something to eat or stay.
IKEA makes staying easier.
Its restaurants are not simply an unrelated food business operating inside a furniture store. They are part of the shopping experience.
In 2025, IKEA's retail operator Ingka Group introduced initiatives to make its food offerings more affordable. In France, one promotion even connected restaurant spending with a voucher for an in-store purchase.
The relationship between food and furniture was intentional.
A convenient, affordable meal can make a long shopping trip more comfortable. It can reduce the pressure to leave and give customers another reason to enjoy visiting the store.
Does that mean IKEA restaurants operate at a loss? Not necessarily.
It means that measuring their success only through restaurant profit would overlook part of their contribution.
A restaurant that helps customers remain engaged with a much larger retail business may be valuable for reasons that extend beyond the price of meatballs.
Michelin: Create Demand for the Market, Not Just Your Product
Not every strategic product needs to be inexpensive, and not every example involves encouraging customers to purchase something during the same visit.
Sometimes, the opportunity is much bigger.
In 1900, the Michelin brothers introduced a free guide for motorists.
Today, the Michelin Guide is internationally recognized for its restaurant ratings. But its original purpose was very different.
At the time, automobiles were still relatively uncommon, and traveling by car was far less convenient than it is today.
The guide provided useful information about roads, repairs, accommodation, and places to eat.
What does any of this have to do with selling tires?
Quite a lot.
Michelin understood that the more people traveled by car, the greater the potential demand for tires.
Instead of focusing exclusively on convincing existing drivers to buy Michelin products, the company helped make driving itself more practical and appealing.
The guide supported the development of the market on which Michelin's core business depended.
This is an important distinction.
Sometimes the smartest way to increase demand for your product is to make the activity surrounding it more valuable.
That principle can apply to businesses of almost any size.
A company selling gardening equipment might offer free planting guides. A financial services business might provide practical calculators. A software company might publish useful educational resources.
These offerings may not generate immediate revenue, but they can help customers solve problems, develop trust, and eventually recognize the value of the company's paid products or services.
HubSpot: Give Customers a Reason to Start
HubSpot demonstrates another version of the same principle.
The company offers free customer relationship management tools, with additional features and capabilities available through paid plans.
The free product is not simply a temporary discount.
It allows customers to begin using the platform without immediately committing to a paid subscription.
For a small business, that removes an important barrier.
A business owner who is uncertain about investing in CRM software can start organizing contacts and managing customer relationships before deciding whether more advanced tools are necessary.
As the business grows, its needs may become more complex.
At that point, upgrading can make sense.
The free product creates an opportunity for a longer customer relationship.
Of course, not every free user will become a paying customer. Some may never upgrade.
That is why the strategy needs to be evaluated through customer acquisition costs, conversion rates, retention, and the long-term value of paying customers.
The free product is not automatically successful because people use it.
It is successful when the broader business benefits justify the cost of providing it.
What These Businesses Understand
Costco, IKEA, Michelin, and HubSpot operate in very different industries, but they share an important approach to business strategy.
They recognize that the value of one offering may depend on what happens elsewhere in the business.
The mechanisms are different:
Costco reinforces its promise of exceptional value.
IKEA makes the shopping experience more convenient and enjoyable.
Michelin helps create demand for the activity that supports its core business.
HubSpot reduces the barrier to entry and creates opportunities for future paid relationships.
These strategies are sometimes grouped under the term loss leader, but that description is too narrow.
A loss leader is generally a product sold at a loss to encourage other profitable purchases.
A strategic product does not necessarily lose money. It may simply generate more value through its indirect contribution than through its direct profit.
And that distinction matters when making business decisions.
What Does This Mean for a Small Business?
You don't need Costco's purchasing power or HubSpot's technology to apply the same thinking.
Consider a neighborhood coffee shop.
Suppose the owner sells a breakfast sandwich for $5.
After accounting for ingredients, packaging, and other directly attributable costs, the sandwich contributes only $1 toward covering the business's remaining expenses and profit.
The owner might decide that the margin is too low and consider removing it from the menu.
But imagine that many customers who purchase the sandwich also buy a coffee that contributes another $3.
Now the combined transaction contributes $4.
And perhaps some of those customers originally started visiting because they liked the breakfast sandwich.
Removing the sandwich could mean losing not only its $1 contribution but also some of those profitable coffee purchases.
Of course, the opposite is also possible.
Maybe customers buy the sandwich without purchasing anything else. Perhaps preparing it slows down service during the busiest morning hours, creating longer lines and discouraging other customers.
In that case, the product might be costing the business more than its sales report suggests.
The lesson is not to keep every low-margin product.
It is to understand what changes elsewhere in the business when that product is offered, promoted, repriced, or removed.
How to Tell a Strategic Product From a Bad One
There is a danger in this approach.
Once business owners begin looking for indirect benefits, almost any underperforming product can be justified as strategically important.
A product loses money? It builds awareness.
Customers rarely buy it? It improves the selection.
It requires too much work? It creates loyalty.
Those explanations might be true. But without evidence, they are simply assumptions.
A useful way to evaluate a product is to ask five questions.
1. What specific purpose does this product serve?
Is it supposed to attract new customers, increase average transaction value, improve retention, or support another product?
If you cannot identify its purpose, measuring its strategic contribution becomes difficult.
2. What happens when customers purchase it?
Look at the entire transaction rather than the individual item.
Do customers regularly purchase other products alongside it? Are those purchases profitable? Does the product encourage additional visits?
3. Does it bring in customers who would not otherwise visit?
A popular product is not necessarily a customer acquisition tool.
Customers may buy it simply because they are already there.
Understanding the difference can prevent a business from overestimating its value.
4. What does it actually cost to maintain?
Direct product costs are only part of the picture.
Consider employee time, storage, equipment, waste, service delays, and the opportunity cost of using resources that could support more profitable activities.
5. What would happen if you changed or removed it?
This may be the most useful question.
Rather than making a permanent decision based on assumptions, test a small change when practical.
Adjust the price, modify the offering, or compare results across different periods or locations.
Monitor not only the product's sales but also total transaction value, customer behavior, and overall profitability.
The goal is not to prove that the product deserves to stay.
The goal is to find out whether the business performs better with it.
Look Beyond the Profit of a Single Product
Businesses need financial discipline. A product that consistently consumes resources without producing sufficient value cannot survive indefinitely on the promise of strategic importance.
But financial discipline also requires understanding how different parts of a business work together.
A low-margin product may support a profitable customer relationship. A free service may reduce customer acquisition costs. A convenient offering may increase the value of an entire shopping experience.
None of these benefits should be assumed, and not all of them can be measured perfectly.
Still, ignoring them because they do not appear directly on a product's profit report can lead to equally poor decisions.
Sometimes removing an unprofitable product improves the business.
Other times, it removes one of the reasons the business is profitable in the first place.
A product should not be judged solely by what it earns, but neither should its strategic importance become an excuse for poor performance.
The question is not simply whether the product makes money.
It is whether the business would be better or worse without it.