In economics, the term Sunk Cost refers to a cost that has been incurred and cannot be recovered.

Businesses of all types, when evaluating the profit and loss statement and evaluating operating expenses, are sensitive to sunk costs for good reason.

Wine sales reps have sunk costs as well.

• The money you spent on a customer for lunches, dinners, and trips but who’s business is going down with you at the same time. Sunk cost.
• The time and money you’ve spent designing and printing the menus for a restaurant as a way to get in there or increase business, but you’re now watching the sales go down or worse, to another wholesaler. That time and money becomes a sunk cost.
• The time (and emotional energy) you spend to see the three or four accounts in your territory that are time sucks, a pain in the butt, negative, and simply not worth the cumulative hours you put into getting business there in the first place. A sunk cost.

At a certain point, if the arrow is pointing down and you’re going the wrong direction with a particular customer you may have to cut the rope, watch the expenses incurred float away, and not look back. In a way it’s firing the customer (which will be the topic of a future post) but most of the time it can be done with more finesse resulting in lower business but still keeping the relationship intact.

The key to sunk costs is that you recognize them and act on them. They only get worse with time.

What are your sunk costs?