# How to Calculate Sank Costs ## You should never invest more time or money into an idea if there is no chance of success.

The sunk cost fallacy occurs when people continue investing in a project that has already been completed even though they realize it will fail. This article explains how to calculate sunk costs so you can avoid making costly mistakes.

##### But how do you know when it's worth investing? Here's a formula to help you calculate sunk costs.

If you've invested \$1,000 in a business idea, then you should expect to lose at least \$1,000 before you see any profit. That means you need to subtract the expected loss from the total investment to determine whether the project makes sense.

##### Determine the Cost of Failure.

To calculate sunk costs, you must first identify what those costs are. In other words, you need to figure out how much you spent on the idea so far. Then you need to subtract that number from the total cost of the project. This will give you the amount of money you would have lost had you not started the project.

##### Estimate the Value of the Idea.

Once you have calculated the value of the idea, you can make a decision whether or not to continue with the project. If the value of the idea is less than the total cost of the idea, then you should stop investing in the idea.

##### Compare the Two Numbers.

To calculate sunk costs, subtract the estimated value of the idea from the total cost of the project. This will give you the difference between the two numbers. If the difference is positive, then you should stop spending money on the idea because it has lost its value.

##### Decide Whether to Invest More Time or Money.

It’s easy to spend too much time or money on an idea without knowing whether it will succeed. In fact, some people waste so much time and money pursuing ideas that they end up losing everything.