The law of diminishing returns is a concept that I learned in Economics and I find it very applicable to personal growth. Here’s what it says:
The law of diminishing returns states that in productive processes, increasing a factor of production by one, while holding all others constant (“ceteris paribus“), will at some point return lower output per incremental input unit.
For example, let’s say you have a corn field and you are trying to increase the yield with fertilizer. The field has never been fertilized.
While adding fertilizer initially will lead to a sharp increase in yield, this increase tapers off when an optimal amount of fertilizer has been added. The point when it starts to taper off is called the point of diminishing returns, and every unit of fertilizer from this point on will give you a smaller increase in corn yield per additional unit of fertilizer, i.e. diminishing returns.
If you keep adding more fertilizer beyond this point, you will eventually get negative returns — where your total yield decreases because the field is over-fertilized! This means adding more fertilizer will actually decrease, not increase, your total corn yield!
Here’s a graph to illustrate the concept:
Diminishing Returns in Our Life
The law of diminishing returns can be seen in different areas of our life:
- Work. While working non-stop from 9am to 11pm, for seven days a week, sounds like a great idea in order to get ahead in your professional life, the reality is that you get diminishing returns after a long day (much less many days) of work.
- Recreation. While using Facebook can be relaxing as you catch up on the news feed and see what everyone is up to, when you do it for many hours straight, the enjoyment value decreases. That’s the law of diminishing returns at work. (When you do it excessively, you start to feel drained instead. That’s negative returns, where the activity drains rather than uplifts you.)
- Learning. The first book we read on a particular topic is usually the most helpful as we learn the basics and fundamental concepts on the topic. Reading 10 books on the same topic may be even more helpful. But read 20, 30, or 50 books on the exact same thing (as opposed to a different topic)? You will find the gains minimal as the authors talk about the same concepts but in different ways. (The exception is if the book is exceptionally written with its unique value-add.)
- Meetings. The first hour of a work meeting is usually the most productive, while the subsequent second or third hour, not so much. When a meeting drags on endlessly, it starts to be a time suck for everyone involved. The same can be observed when there are excessive meetings with the same people each week.
As a writer, there are points in my writing process when I can see that I’ve reached a roadblock, and spending more time writing doesn’t net me productive gains. This can be after one, three, or five hours of writing, depending on what I’m writing. That’s my point of diminishing returns.
Likewise, when doing podcast editing, there is a point in my editing when spending more time listening to the podcast, splicing the audio track, and cutting out the “uhm’s” and “ahh’s” don’t lead to very productive gains. Doing it the first time helps create a neater listening experience for listeners, but to do it a second, third, or fourth time is not so productive. To do this for multiple rounds would lead to diminishing, perhaps even negative returns as the podcast gets over-edited.
Understanding the concept of diminishing returns is very important because it helps us learn when to stop, and when to press on.
- In the context of overall productivity for work, instead of working relentlessly at our desk when we hit minimal or negative gains, we should actually stop, take a breather, and come back later with a more energized mind.
- In the context of a work task, instead of trying to perfect every little action and to rework and revise something to the point of oblivion, we should consider if we are creating real value this way or if we can add better value elsewhere, such as by channeling our time into other new projects or tasks.
- In the context of personal wellness, instead of working non-stop without rest every day and week, we should take time out for our family, relationships, social life, and well-being, especially when we feel tired or burnt out. When we have spent 100 hours on work, the 101th hour is not going to be as rewarding if we continue to spend it on work, vs. if we spend it with our family and loved ones.
Diminishing Returns – Context Matters
In terms of the second scenario (a work task), there is an exception where achieving the maximum, best outcome for a specific task should be strived for, despite diminishing returns. That’s when the benefits of achieving maximum output outweighs the costs of getting there.
For example, a writer may want to revise a book over and over until it is perfect — even when the 20th revision leads to diminishing returns. That’s because his goal is to write the best book, and the final gain of writing the best book on the topic far outweighs the work needed to get there. As award-winning writer Danny Strong, who won two Emmys and two Writers Guild of America Awards, says, “I’ve never done a project that I haven’t rewritten at least 20 times, if not more.”
So here, it’s important to consider the bigger picture. While it seems that you’re getting diminishing returns in the context of a work task, e.g. perfecting a book or software, the act of achieving the maximum output has significant gains because it sets you apart from all other people in the field. This ultimately depends on what you’re working on and your final goal.
You also have to consider your goal in the bigger picture of your life — because while you may be getting good gains at work, you may be getting diminishing gains in terms of the value-add in your life. This is why some actors start to reject work when they’re at the peak of their career, in favor of family time — that’s because the gains from working further, even if they are extremely well-paying, are diminishing to them, while family time, that’s much more rewarding. Here, the larger context is what the person wants for his/her life, and what he sees as his end objective. You have to ask yourself if the gains from switching to focus on a particular category (e.g. health, family, relationships) will be more rewarding than focusing on the same thing (e.g. work) for you.
How To Know When Diminishing Returns is Happening
How do you know when diminishing or negative returns kick in? The best way is to track and measure.
Within the context of work,
- To know how well your traffic building techniques are working, track your traffic referrers.
- To know how well your newsletter opt-in strategies are working, track your conversion numbers.
- To know how well your sales strategies are working, track your sales figures over time.
You know you’ve hit diminishing returns when each additional input becomes less effective in increasing your output.
Let’s say you want to grow your blog traffic using guest posts. You decide to guest post on site X. While your 1st, 2nd, and 3rd guest posts generate 300-400 new visitors each, your 4th guest post only generates 100 new visitors. Assuming all things constant (such as your topic choice, the traffic of site X), your 4th post has led to diminishing gains. If your 5th post at site X generates similar to lower results vs. your 4th post, it’s probably time to pick a different site to guest post.
Yet, it gets tricky when the output is not measurable. For example, it’s tough to know when to stop when it comes to creative work like video editing. How do you know what is “good enough”? Perhaps you feel that adding little special effects will not make a big difference, but maybe they will make a big impact on your audience. And vice versa. Maybe you have a much higher standard than the regular Joe, and this standard is there for good reason. Maybe it’s precisely because of your high standard that you can be so successful in your work.
My advice is to (1) look at what others are doing and (2) use your gut.
- Look at what the best folks are doing for ideas and reference. Sometimes we may have a precise vision in our mind, but this could be just a target that makes little difference to people. Neurotic perfectionists are guilty of this.
- What is the marginal benefit you will get from this additional investment of time? For example, what change can you make from spending an additional hour on this task?
- Is this marginal benefit worth the marginal cost (the extra time, effort) of achieving it? Every action has an opportunity cost — considering all the other things you can do with this time, effort, is it worthwhile to strive for the marginal benefit or use that for other projects or purpose?
- Is there any other task or area where you can better spend this time?
With editing for my podcast, I shared in my perfectionism series that I can go crazy with my editing and edit the heck out of my audio clips. But after reviewing top-rated podcasts, I realized these folks don’t even bother to edit out their ums and ahs, which incidentally doesn’t affect me as a listener. When I thought about it, I realized such ums, ahs, and at-times tangential comments are normal speech patterns that don’t negatively affect the quality of an episode, as long as not in excess.
Within the context of overall life, you want to do a personal reflection, and take stock of the situation.
For example, maybe I’ve been working for the whole week at the expense of family time. While I can continue to work, in the context of my broader life objectives which are to spend time with my family and be a good mom to my daughter, an additional hour of work doesn’t mean as much to me as spending time with my family.
By asking the questions above, it helps you take a step back and evaluate the benefits that can be gained vs. the costs required to achieve these benefits. This is important for perfectionists, who have a habit of taking things to the extreme and trying to max out every variable, when there are tasks where such optimizations don’t make a big impact, and it’s better to channel this effort elsewhere.
If you feel that the law of diminishing returns reminds you of the 80/20 rule, they are indeed related. The 80/20 rule states that 80% of results are caused by 20% of key factors. Usually, the effort required to achieve the final 20% of results, such that a piece of work becomes “perfect,” takes an astonishing amount (80%) of effort. This is when diminishing returns kick in, and this is when you need to decide if the state of perfection is worth this huge amount of incremental effort, or if you should move on and focus on more important projects (or areas of life).
Watch Out for Diminishing Returns in Your Life
Are there any areas in your life where diminishing returns are in action? Some examples:
- Are you spending too much time on a specific work task? Are the additional hours you’re spending on this task justified by value you get? Is it time to switch to a different task?
- Are you spending too much time at work, to the point of diminishing returns? Are the additional hours you are spending at work justified by the value you get?
- Are you still learning and gaining at your job, or have you reached diminishing returns? Is the gain from staying on in your current job worthwhile, or is it time to explore other job options?
- Are you trying to keep up with so many friends that you’ve compromised on your life?
- Are you spending so much time with a person (your best friend; your partner) that it’s leading to diminishing gains for both of you? (For example, neglected life priorities? neglecting other relationships?)
- Daily life:
- Are you spending so much time in a particular life area (e.g. career) that you’re neglecting the other life areas (e.g. health, relationships)?
- Are the gains in this life area worth it, or are they diminishing?
- Is there any other life area you can focus on to to get meaningful gains? Is there any new habit (e.g. meditation, reading) or activity (e.g. time with family) you can switch to that can have better rewards than spending the xth hour on the same thing?
Exercise your gut and become conscious of diminishing returns in your life. This will be extremely useful as you optimize not just your productivity, but also your fulfillment in life.