Today's blog will be very super simple.
I want to talk about sunk costs
This is a really annoying topic, so here, have a puppy with a puppy first:
I literally JUST re-did my main service website. That's because it was super duper confusing and overwhelming.
I had redone it about 1.5 years ago.
It was new-ish.
But it wasn't working.
It was very hard for people to get the answers to the big three questions that my web people ask:
1. Who are you?
2. What do you sell?
3. How can I get it?
So I quit it.
What is a Sunk Cost?
I am not an economist, but the basic gist of a sunk cost is an expense that cannot be recovered.
I paid for my website. Because of a variety of factors, a few being:
- The speed at which the internet moves
- What I decided I really liked and was good at doing in order to make money
- Things I needed to take care of re: the internet (like secure sites/ mobile optimization, etc)
I had to say goodbye to the website. There was no getting the money back. There was only moving forward.
I could have CONTINUED to try to fix my website, but I was presented with an offer I couldn't refuse to just get a new one. I could have spent a ton of money on trying to fix the old one or I could have started over.
Another example (which I came up with on my own and really like!)
- Non-refundable deposits on a wedding venue, photographer, caterer, dress when you call off the wedding.
Would you GET MARRIED when you know it isn't the right thing to do JUST BECAUSE YOU HAVE TO FORFEIT A NON REFUNDABLE DEPOSIT TO THE PHOTOGRAPHER?
You would not.
At least I SURE HOPE YOU WOULD NOT. If you would, you're on the wrong website. You have other things to sort out.
A website, or new branding, or a house paint color are not as extreme as the wedding example, but they are all example of things that can turn into sunk costs.
Why are Sunk Costs Dangerous?
When you make decisions based on sunk costs you can sabotage your future. You are afraid of having been wasteful. Having wasted your money. Wasted your time. (I REALLY feel like that sometimes about a business I was heavily involved in a few years ago. I have to remind myself that I learned things, that it wasn't wasted time.)
HOWEVER, doubling down on working on that business SIMPLY because I had invested so much time (and, to some extent, money) in it would have been A DISASTER. I would have completely destroyed my future. Looking back, I can see that. In the time, it was hard to make the decision.
I had poured SO MUCH time and money into it but I had to walk away for the sake of my future.
This is a great article about sunk costs on Psychology Today. It says that, essentially, making decisions based on sunk costs is making backward-facing decisions.
We, as a human population, again, are SO FEARFUL OF BEING WASTEFUL. We make decisions about waste, when we can't get back the money (or the time). In doing so we sabotage our future. We decide not to make changes because "I already spent so much money," when not making that change is going to result in us not being able to make more money.
I can do my best to not be wasteful and make decisions that I think are good for my business. And then, because my business revolves a lot around the internet, those decisions can turn into sunk costs relatively rapidly. The software, the plugin, the website, the email marketing tool goes out of date. Because of something I had nothing to do with.
A social media platform I spent lots of time on gets eclipsed by something else. I can double down on that platform or I can move on.
New opportunities arise.
My new opportunity was to get my website redone for a REALLY LOW COST. And it would do everything I needed. That opportunity just appeared, out of the blue, rendering my old website useless.
What's your sunk cost?
What type of program do you need to stop offering because it takes too much time and doesn't net you money?
What part of your brand collateral do you need to re-do because it isn't performing?
What trip do you not need to take because you don't have time/money/aren't feeling it?
What project do you need to pivot because it no longer makes sense for you?
Tell me: email@example.com