INVENTORY & SUPPLY OPERATIONS
Sunk Cost
A sunk cost is a past expenditure that cannot be recovered through the decision now being considered. It differs from future avoidable costs and any recoverable asset value.
SUNK COST IN PRACTICE
- Separate the pastIdentify irrecoverable expenditure.
- Compare future optionsInclude costs and benefits that differ.
- Approve the choiceUse supported forward-looking evidence.
Use the agreed units, actual records and approved procedures for your operation.
A WORKED EXAMPLE
Past spend does not make the next year free.
A business paid $10,000 for an integration that cannot be refunded. Continuing it costs $3,000 next year; a suitable alternative costs $2,000 to implement and operate over the same period. The irrecoverable $10,000 does not itself make continuation better. Compare all relevant future benefits, risks and transition costs.
WHAT THIS MEANS FOR YOUR QUOTE
Agree the requirement before comparing quotes
Use the actual shipment, stock and service requirements. Record the billing unit, included work and responsibility for exceptions.
Put this term to work. Use the 3PL pricing and rates guide for the wider invoice context and the guide to comparing 3PL quotes to compare the same scope, activity profile and billing units.
A LITTLE MORE CONTEXT
Questions about Sunk Cost
Is every past asset purchase completely sunk?
No. A recoverable resale value may remain relevant.
Should sunk costs justify more spending?
Not by themselves. Compare the future effects of the available options.
Are exit costs irrelevant too?
No. Future exit costs can differ between choices and should be assessed.
Source & example notes
Definition and operational example prepared by 3PL Hub. Examples describe hypothetical requirements; verify the actual records and agreed procedures for your operation.
Quantities, costs and scenarios are illustrative, not operating targets, approved handling instructions or guarantees. Source guidance reviewed 23 October 2026.
Last updated: · 3PL Hub
