Sunk Cost

A sunk cost is money that you’ve already spent that you can’t get back no matter what. Many people will continue spending money on something or moving forward with a project or idea simply because they’ve already put so much money, time, and effort into it.

The reality is that the sunk cost is done, it’s over, and should have no weight on what’s for you from today forward.

The best example I’ve seen is the couple I worked for who tried to run a restaurant. They spent hundreds of thousands of dollars on it (keep in mind, it was already up, running, and fully equipped when they took it over). But they had no experience running a restaurant. They were absent but at the same time wanted to micromanage every single thing in the restaurant. This included things such as every Instagram post (even though neither had ever used Instagram), the menu (I walked in one day with new menus and had to tell the staff that’s what we’re serving tonight, it didn’t matter that they hadn’t tested and tasted the recipes or even stocked the right ingredients yet!), and the list goes on. But even after losing so much money and still making no improvements, they kept sticking with it. I told them they could have paid off my mortgage multiple times and still saved money if they had just cut their losses earlier, but they were definitely hooked on the sunk cost fallacy, that they had to keep with it because they had already put so much time and money into it.

When faced with a choice, it can be hard, but it’s an important decision to make. Continuing to make the same mistake won’t help your business or even cut your losses. Sometimes you have to do serious damage control and just stop it entirely and move on. Beginning today, if you save money by forgetting the whole thing and moving on, do that. Sometimes business is about psychology and it’s more of an art. Other times though, you need to push aside the emotions and look at it purely mathematically. If you’re better off not spending another penny on that project, then don’t. If there are things you can sell that were related to that project, do so and move on. Even if there’s nothing you can salvage from it other than experience and a lesson learned, do so and move forward.