Ignoring Sunk Costs

One of the toughest lessons for me to learn in life is that of ignoring "sunk costs." Sunk costs are costs that have been incurred and which cannot be recovered to any significant degree. As applied to me, sunk costs are money, time, effort, etc. I have spent in the past that can no longer be recouped.

To ignore those sunk costs means to set aside the thought that "I've spent so much money" or "so much time" on acquiring something material or developing a project, because oftentimes those thoughts cause me to hold onto what I have to my own detriment.

For example, I'm a pack-rat. I tend to hold onto all kinds of crap far longer than any normal person would. (Then again, many of you normal people, I'm sure, are pack rats.) Over the years my off-line business has been forced to change because of economic pressures or technological changes, but I tend to hang on to vestiges of the old model because of the sunk costs in those items.

Some time in the early '90s I began outsourcing the production of products my company was remanufacturing in house. It took some time, though, before I got rid of nearly 1000 cores that we kept on hand because we'd paid good money for them, a lot more money than I got by turning them in to my vendors. Imagine, however, the space that was cleared by dumping them!

My wife, too, hangs on to a lot of stuff as a teacher. Many of the things she's got right now and has recently acquired from her mother, a retired teacher, simply weren't available when they started out, so they had to make their own. Recently she began culling the collection and found a lot of stuff that she wouldn't use, yet hated to part with because of the time spent making it. (Sentimentality had something to do with it, too.) But it was time to let it go.

(Don't get me started with the mistakes we make in personal relationships because of sunk costs.)

My point in all this?

As marketers we tend to hang onto old models of doing business long past the time they were effective. "This will turn around," we say. Or we buy into a program and, when it doesn't work out, we think "Let me just try it a little longer."

Sometimes, too, emotional baggage from making bad decisions keeps us from making better decisions. In each case, instead of learning from the past, dumping it, and moving on, we fool ourselves into thinking we'll succeed by holding all of our junk close.

Truth is, your time/money/effort has already been spent. If it's not earning anything for you now, it's time to jettison it and find something else that gives you a return on investment.