The Law of Diminishing Returns

The law of diminishing returns is a concept that I learned while studying economics in junior college, and I find it very applicable to personal growth. Here’s what it says:

The law of diminishing returns states that in a productive process, if a factor of production continues to increase, while holding all other production factors constant, at some point a further incremental unit of input will return a lower amount of output.^[1]

Let’s say you have a cornfield and you want to increase your corn yield with fertilizer. While adding fertilizer initially leads to a sharp increase in yield, the gains taper off once the optimal amount of fertilizer is reached.

The point when it starts to taper off is called the point of diminishing returns. Every unit of fertilizer from this point on will give you a smaller increase in corn yield, even though you are using the exact same brand and type of fertilizer! This smaller increase in yield is referred to as diminishing returns.

If you keep adding more fertilizer beyond this point, you will eventually get negative returns, where your total corn yield decreases because the cornfield is over-fertilized!

The Law of Diminishing Returns

The three phases of every production: (a) Productive Returns when there are productive returns, (b) Diminishing Returns when returns start to diminish, (c) Negative Returns when total output decreases despite additional input

Diminishing Returns in Our Life

The law of diminishing returns can be observed in different areas of our life:

• Work. While working non-stop from day to night, seven days a week, sounds like a good idea to get ahead at work, the reality is that we get diminishing returns in our productivity after long hours of work.
• Facebook. While it’s fun to use Facebook to catch up on our news feed and see what people are up to, there are diminishing gains after checking it for the nth time. (Do it excessively and we start to feel drained instead. That’s negative returns, where an activity drains us rather than uplifts us.)
• Learning. The first book we read on a topic is usually the most helpful as we learn the fundamental concepts of the topic. Reading 10 books on the same topic may continue to be helpful. But to read 20, 30, or 50 books on the exact same thing? You will find the gains minimal as the authors talk about the same things in different ways. (The exception is if the book is exceptionally written with unique value-add to the topic.)
• 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 becomes a time suck for everyone. The same is true when you have an excessive number of meetings a week.

As a writer, my writing sessions will normally reach a point when I hit a wall and run out of creative steam. This is usually after two or three hours, depending on what I’m writing. That’s my point of diminishing returns, when I should stop because spending more time on writing doesn’t help me generate more output. Having a five-minute break away from the computer or temporarily switching to some other task can help me reset and return with a fresh mind.

Then as the editor of my podcast show, I have noticed that my first edit (where I listen an episode from start to finish and edit the audio) is typically the most helpful as I remove flubs and trim large spections, creating a cleaner listening experience. But when I do a second or third edit, I start to over-edit and remove words that reflect natural speech (“um’s,” “ah’s”) as I review the episode as a perfectionist. My second edit doesn’t have such a large value-add compared to the first one. That’s the point of diminishing returns.

Applying Diminishing Returns to Our Life

Understanding the concept of diminishing returns is important as it helps us learn when to stop and when to press on.

• With overall work productivity: Instead of working endlessly when we reach diminishing returns, we should actually stop, take a breather, and come back later with a more energized mind.
• With task management: Instead of perfecting every little task to the point of oblivion, we should draw a cutoff and channel our time to more important tasks and goals.
• With improving our mental health and wellness: Instead of working daily without rest, we should take time out for our family, relationships, and well-being, especially when we feel tired or burnt out. When we have spent 100 hours on work, the 101st hour isn’t going to be as rewarding if we continue to spend it on work vs. our loved ones.

Exceptions to Diminishing Returns

At the same time, context matters when determining when you should stop or press on. Here are two exceptions to the norm.

a) When the benefits of achieving maximum output > costs

In terms of work, there are times when you should strive for maximum results in a goal or task, despite diminishing returns. That’s when the benefits of achieving maximum output outweigh the costs of doing so.

For example, a writer may want to edit his book over and over until it is perfect — even past the point of diminishing returns (in book quality). That’s because his goal is to write the best book on the topic, and the eventual gains of doing so — industry recognition, career growth, sales, etc. — far outweigh the work needed to do so.

As professional writer Danny Strong, who won two Emmys and two Writers Guild of America Awards for his writing, said before, “I’ve never done a project that I haven’t rewritten at least 20 times, if not more.”^[1]

So here, the output is the book quality and it may take a lot of effort to achieve the final 10% in quality. But this final 10% gain in quality is instrumental in separating you from the others in the field, i.e., the market leader effect. There are many gains that come with achieving the best output (such as industry recognition, sales, and reputation) and it’s important to consider them.

b) When the benefits of quitting > benefits of continuing

You also have to consider your goal in the bigger scheme of things, in terms of your other goals and life priorities.

For example, you may be getting good financial and career gains at work but it is giving you diminishing gains in terms of your happiness and well-being. Moreover, your excessive time spent on work weighs down on your family. Here you may decide to switch focus to your personal life and cut back on your time spent at work.

This is why some people cut back on work even though they are doing well in their career, in favor of personal and family time. They take fewer projects, request for a shorter workweek, or if possible, take a sabbatical. Even though their work pays well, having more money gives them diminishing gains. It’s more rewarding for them to focus on themselves and their family.

For example, Patrick Dempsey famously stepped back from Hollywood and left his well-paying role in Grey’s Anatomy in April 2015. His primary motivation was his family. His wife had filed for divorce in January 2015, and through couples counseling, they reconciled later in the year and called off their divorce in 2016.^[1]

Here, the larger context is your end objective and what you want in life. You have to evaluate if you are still getting meaningful overall gains (financial, personal growth, well-being, etc.) from what you are doing (work), or if it’s more rewarding for you to focus on something else (health, family, relationships).

How To Know When Diminishing Returns Are Happening

How do you know when diminishing or negative returns are happening? The first way is to track and measure.

Say you want to grow your blog readership using guest posting. You decide to guest post at site X. While your 1st, 2nd, and 3rd guest posts bring in 300-400 new subscribers each, your 4th guest post only brings in 100 new subscribers. Assuming all things constant, your 4th post has diminishing gains. If your 5th post at site X generates similar or lower results compared to your 4th post, it’s probably time to pick a different site to guest post, or explore a different blog building strategy.

The second way is to use your observation and intuition. This comes from experience. Over time you can accurately assess whether it’s better to continue working on a task, switch tasks, or switch your focus to a different life area altogether.

Ask yourself:

1. What additional gain will I get from spending another hour on this task? What difference can I make?
2. Is this additional gain worth the additional cost (extra time, effort) of achieving it? Every action has an opportunity cost — considering all the other things you can do with this time and effort, is it worthwhile to strive for this additional gain, or use it for some other project or purpose?
3. Is there a better task you can be focusing on right now?

If the additional gain outweighs the additional cost, then yes, continue with what you’re doing. If not, then it’s probably time to switch gears and do something else.

For example:

• Say you’ve been writing a report for 2 hours and you have begun to stall in your work. Here, you’ve reached the point of diminishing returns. The additional gain of spending another hour on this is probably low. You may want to switch to a different task, then return to the report later with a fresh mind.
• Or let’s say you’ve been working long hours for your software company. You just spent 60 hours working this week at the expense of family time. While you can spend the 61st hour working, the reality is that the marginal benefit of working for another 3 hours (having already worked 60 hours this week) is diminishing. In this context, working for 3 additional hours results in diminishing gains, while switching to focus on your family — such as going out or just spending some time together — is much more meaningful.

The third way is to study the people who have achieved your goal. For the goal you are working on, look at what others are doing for reference. Sometimes we pursue a precise vision with relentless determination, but it may be a target with little bearing on our end goal. Neurotic perfectionists are guilty of this.

With podcast editing, I could go neurotic with editing and edit my episodes fervently. But after reviewing top podcasts, I realized that the top podcasters don’t bother to edit out their “um’s” and “ah’s,” which interestingly don’t affect me as a listener. When I thought about it, I realized that such um’s, ah’s, and occasional tangential comments are normal speech patterns that don’t negatively affect an episode’s quality, as long as not in excess.

Doing the 3 steps above will help you evaluate the benefits vs. costs of maximizing a task. This is important for perfectionists, who have a habit of taking things to the extreme and maximizing every variable. Pick options that maximize your productivity, well-being, and happiness.

If you feel that the law of diminishing returns reminds you of the 80/20 principle, they are indeed related! The 80/20 principle states that 80% of results are caused by 20% of 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 it is worth spending this amount of effort for perfection, or if you should move on and focus on more important projects (or life areas).

It takes significant time and effort to perfect the final 20% of a task (Read: The 80/20 Principle)

Watch Out for Diminishing Returns in Your Life

Are there any areas in your life where the law of diminishing returns is in action? Some examples:

• Work:
  • Are you spending too much time on a specific task? Are you reaching diminishing returns, and if so is it time to switch tasks?
  • Are you spending too much time on work? Are you reaching diminishing returns in terms of your productivity?
• Relationships:
  • Are you spending so much time with a person (e.g., your best friend, your partner) that it has led to diminishing gains for both of you? (e.g., Neglected life priorities? Neglecting other relationships?)
  • Are you trying to be there for so many people that you’ve compromised on your life?
• Daily life:
  • Are you engaging in recreation, watching TV or Netflix, or playing games past the point of adequate enjoyment?
  • Are you spending more time on social media than necessary?
• Overall:
  • Are you spending so much time in a particular life area (e.g., career) that you are neglecting other life areas (e.g., health, relationships)?
  • Are you getting diminishing gains in this area?
  • Is there any other life area you can focus on to get meaningful gains? Is there any habit (e.g., meditation, reading) or activity (e.g., time with family) that you can pick up for better rewards?

Learn to be 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.

Read:

• 7 Tips To Be Productive, Not Busy
• The 80/20 Principle: How To Achieve More With Less In Life
• How To Overcome Perfectionism (series)