Diminishing Returns: More Work, Less Value

Diminishing returns is an economical law that states that in a production process, we will at some point reach a lower unit of output per unit of input. In other words, we will put in the same amount of work for less results. Upon hitting the point of diminishing returns, we still produce, but the efficiently greatly decreases. The law is fundamental to micro and macro economics and can be applied in nearly every field outside of economics.

A common example of diminishing returns is hiring more people on a factory floor to manufacture and produce more. Given that there are sufficient manufacturing machines, technology, and warehouses, increasing the amount of employees will increase returns in proportion. If 100 people were employed, upping the number by 5 would result in a 5 percent greater input and 5 percent greater returns. This, however, changes when we employ 50 new workers. The factory gets crowded, there are too little machines, and people are getting in each other’s way. Thus increasing the number past the point of diminishing returns lowered the productivity and efficiency of each individual, despite higher production rates.

You can apply the model to just about any area of your life. The first bite when eating is always the most enjoyable, after which each bite brings us less pleasure. The initial few months of physical exercise will yield the greatest return on investment, after which it’ll take months to see even incremental improvements. When you apply mental models for the first time, you will be more excited and surprised by the results than after having practiced your latticework for a while. The idea is that you are only so productive for a while. Each added input, at some point, will result in a decreasing rate of output, which is when it’s best to stop.

Suppose you don’t stop, you risk entering the negative returns phase. That is the place you want to avoid at all costs. For example, when exercising, the first few sets will result in most of your growth. The accessory movements at the end will provide less, yet still be productive. But if you overdo it and add in too many exercises or too much intensity, you enter the negative returns zone. Here, you could injure yourself, strain your muscles, or fatigue yourself past the point of timely recovery for your next workout. Stop somewhere along the diminishing returns phase. Not only do you not get a return for your effort in the negative returns phase, but you risk decreasing your overall output. In the case of injury, that decrease lasts a while!

The concept originates in agriculture, where increasing how much fertilizer you use on a plot of land initially improves yields but eventually leads to smaller and smaller increases. But we know it can be applied beyond economics, anywhere where time, effort, energy, and resource allocation is concerned. The core insight: we should do our best, but we shouldn’t overdo it! The same applies to work by the way. Working longer hours results in diminishing productivity due to fatigue—and burnout is the negative returns phase. Maximizing output isn’t about working harder, but about working smarter.

Real life implications of diminishing returns:

• Business: a company might hire more employees to boost output, but as space and resources become constrained, each hire will contribute less to overall productivity, so focusing on streamlining processes or scaling infrastructure before adding more employees is sound;

• Fitness: exercising for 30 minutes will provide significant health benefits but doubling the workout time can only yield marginal improvements and heighten the risk of injury, so plan your training to maximize benefits while avoiding overtraining;

• Learning: studying a new subject is most effective early on, but as mastery grows, further study yields fewer noticeable improvements, so prioritizing the foundations and shifting once gains plateau makes sense not to stagnate;

• Marketing: a business increasing it’s advertising budget incrementally will see diminishing returns as the target audience sees their message over and over again, so diversifying advertising strategies to keep your audience engaged is a wise way to walk around boring your customers;

• Wealth: earning an extra 10,000 dollars is significant for somebody earning 40,000 annually, but may not make as much of a difference for somebody earning 400,000;

• Team: adding more people to a project boosts progress initially but results in inefficiencies later due to coordination challenges, so you should aim for the least members needed to complete the task at hand;

• Leisure: watching your favorite show is enjoyable initially, but binge-watching for hours results in diminished enjoyment due to oversaturation.

How you might use diminishing returns as a thinking tool: (1) identify the point of diminishing returns, determining where the benefit per unit of input begins to decline and whether investing more time or resources is justified; (2) avoid overinvesting in areas where results have plateaued, redirecting them to high-impact opportunities where the point has not been reached; (3) balance inputs, complementing different approaches to prevent inefficiency, like hiring staff to manage growing workloads and investing into manufacturing equipment when needed; (4) continuously measure how much each unit of input increases output to see where additional investments drop off; (5) recognize when overloading a system translates to outright harm and try not to reach that point.

Thought-provoking insights. "More isn’t always better.” is a principle challenging the assumption that doubling efforts always doubles results. The parable of the farmer—the farmer who increases the number of seeds in a field, until overplanting leads to poor growth due to overcrowding and nutrient depletion—shows us that we should concentrate on what is impactful to avoid the trap of diminishing returns. Returns taper off. Identify optimal input levels. Additional efforts are not always worthwhile. Whether applied to business, health, or personal growth, the diminishing returns model is a powerful lens to value measured actions rather than relentless effort.