Don’t let the past dictate the future: Understanding the sunk cost fallacy in marketing
In the fast-paced world of digital marketing, making swift, strategic decisions is key. Yet even the best marketers can fall into psychological traps that skew judgment and lead to poor outcomes. One of the most common and costly of these is the sunk cost fallacy. If you've ever kept pouring money into a campaign that wasn’t performing simply because you'd already invested so much into it, this article is for you.
What Is the sunk cost fallacy?
The sunk cost fallacy is the tendency to continue investing in something just because you've already invested time, money, or effort, even when it's clear that moving on would be more beneficial.
A “sunk cost” is a cost that has already been incurred and cannot be recovered. The fallacy lies in treating those costs as relevant to future decisions. Rationally, only future costs and benefits should matter, but emotionally, it’s hard to let go.
People (and businesses) often stick with unproductive strategies, failing products, or ineffective marketing campaigns simply because they’ve already "come this far."
Everyday examples of the sunk cost fallacy
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Personal life: Finishing a movie you’re not enjoying just because you already watched an hour of it.
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Business: Continuing to develop a software feature no one uses because it already cost six months of development time.
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Marketing: Keeping an underperforming ad campaign running because the creative assets cost thousands to produce.
In each case, the prior investment (the sunk cost) clouds judgment, leading to suboptimal decisions.
The sunk cost fallacy in marketing
In marketing, the sunk cost fallacy can be particularly dangerous due to the high upfront investment in strategy, content, media buying, and testing. Here’s how it often shows up:
1. Sticking with bad campaigns
A company might refuse to pull a PPC campaign that’s draining budget simply because they spent weeks designing it. Even if ROAS (return on ad spend) is poor, the reluctance to “waste” past efforts prevents them from pivoting to more effective tactics.
2. Refusing to kill legacy channels
Marketers may keep investing in outdated channels, like print ads or banner exchanges, because they used to work, and the brand has a long history with them.
3. Product loyalty in branding
Agencies sometimes push legacy messaging or outdated brand stories out of loyalty to previous rebranding efforts. The logic becomes “We spent too much on this to change it now,” even when performance metrics say otherwise.
4. Client retention decisions
On the agency side, teams sometimes hesitate to drop unprofitable clients because “we’ve put so much into building this relationship.” But continuing a bad client relationship can cost more in the long run.
How to avoid the sunk cost trap
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Use data, not emotion – Let performance metrics guide your decisions, not past investments
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Regular reviews – Set specific intervals to evaluate campaign performance and make cuts where needed.
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Encourage a test-and-learn mindset – Make it acceptable to fail fast and pivot quickly.
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Separate investment from value – Just because something was expensive doesn’t mean it’s valuable now.
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Ask: "Would I do this today?" – This question reframes the decision around present value, not past cost.
Final Thoughts
Letting go of past investments is hard, but necessary. The sunk cost fallacy leads to throwing good money after bad, which is the opposite of what smart marketing is about. As a digital marketing agency, helping clients make data-informed, forward-looking decisions is part of our job. That includes calling out when it's time to cut losses and move on.