What Are Diminishing Returns And How to Prevent Them

Ever found yourself hitting the replay button on a new song you’ve stumbled upon? That first listen sends a wave of delight coursing through you. It feels so good that you can’t help but play it again.

But by the third or fourth round, the magic starts to fade. It’s still the same song, but the thrill isn’t what it was. Over time, pressing replay might even make you wonder why you liked the song in the first place.

That’s diminishing returns for you: when the joy or benefit you get from something shrinks the more you experience it. It’s not just about music. This principle is deeply rooted in economics, guiding organizations in their quest to strike the right chord in their production processes.

Think about it. Ever found yourself tweaking a report endlessly, even when it’s pretty much done? Or maybe diving deep into research, hoarding more and more resources without actually starting the project? Or pouring in excessive hours to improve something that’s already good?

In all these cases, there’s a tipping point where the time and effort you invest doesn’t give you the same returns it once did.

It’s not about working harder; it’s about working smarter. Recognizing and navigating the realm of diminishing returns is crucial. Get it right, and you can significantly ramp up your efficiency game.

Let’s dive in and unpack the concept of diminishing returns. By the end of this article, you’ll grasp its importance and learn how to spot it in your daily activities, ensuring you remain productive without burning out.

What Are Diminishing Returns?

In plain terms, the law of diminishing returns in economics is about reaching a point where adding just one more thing doesn’t make things better. In fact, it makes them worse:^[1]

The point of diminishing returns refers to a point after the optimal level of capacity is reached, where every added unit of production results in a smaller increase in output.

Imagine a pizza with toppings. The first few toppings add lots of flavors. But keep adding and soon, you’ve got a soggy, overladen mess.

What does this look like in a work setting? Let’s say you’re churning out widgets or writing reports. Initially, putting in more effort or adding more resources can significantly ramp up your output. But reach a certain point, and every extra hour you pour in delivers less and less value. You’ve hit the point of diminishing returns.

So, the crucial question to ponder is, when is ‘good enough,’ truly good enough? As the one steering the ship, you have to gauge when you’ve hit that sweet spot. Going beyond it only wastes time and energy without making your project any better.

It’s a fine line, but recognizing it could be the difference between running a tight ship and running yourself into the ground.

Examples of Diminishing Returns

Let’s make this real with some examples you might relate to:

Picture this: you’re knee-deep in a work project, clocking in round-the-clock hours because you think more time equals better results. Wrong move.

There’s a point where the extra hours not only stop improving your project but actually harm your productivity. And we’re not even talking about how this grind messes with your well-being and relationships.

In the quest for perfection, you end up neglecting everything else that matters.

Pr ever sat in a meeting that felt like it would never end? Yes, we all have. You might think more time spent discussing equals better decisions.

But here’s the kicker: the first hour is usually where the magic happens. After that, it’s all downhill. Everyone’s brain gets tired, and the meeting turns into a drag. The longer it goes, the less gets accomplished.

See what’s going on here? In each scenario, there’s a point where more doesn’t mean better; it means worse.

Recognizing that tipping point is essential to not just succeeding at work but in having a balanced life.

How Perfection is Related to Diminishing Returns

Ever find yourself stuck in the planning phase, analyzing every angle and collecting data until you’re blue in the face? All in the name of perfection, right? You think that the more time you spend on research, the closer you’ll get to that flawless solution.

Here’s the hard truth: chasing perfection is often a one-way ticket to the land of diminishing returns. Why? Because the quest for the “perfect” often keeps you from taking the action that would solve your problem in the first place.

Will your solution ever be 100% perfect, even if you spend ages fine-tuning it? Probably not. Perfection is often the enemy of progress. It keeps you tinkering around the edges instead of diving in and actually making a difference.

Ron Ashkenas, co-author of the Harvard Business Review Leader’s Handbook wrote:^[2]

Perfection certainly makes sense when designing an airplane or an office building. But if the search for perfection is leading you to diminishing returns and an avoidance of action, it might be worth taking a different path. — Ron Ashkenas

When we try to seek for the best, or even the perfect way of doing something or solving a problem, analysis paralysis happens. In most cases, perfectionists have the fear of failure and tend to avoid potentially harmful situations. They don’t want flaws in what they do and in themselves.

But the truth is, perfection doesn’t exist. Waiting for the perfect time, or trying to make something perfect not only wastes effort but also delays making progress significantly. This is when perfectionism leads to diminishing return.

How Diminishing Returns Affect Your Productivity

Diminishing return affects your productivity in four major ways:

Investing More but Getting Back Less

Spending a lot of time and energy on a task or project doesn’t always mean that you’ll get better results. A study conducted by Stanford found that you can get more done by doing less.^[3]

The truth is, investing a lot of time and energy after reaching the point of diminishing returns does not affect your results significantly.

Not Completing Anything

When you endlessly invest effort into something, you delay completing it; so you will end up not completing anything.

Putting off Decision Making

To achieve an outcome for every task, you need to make decisions.

Some people tend to spend too much time researching and analyzing data in order to make the best decisions. While this sounds like a logical thing to do before making a big decision, most of them tend to get stuck at this stage and are not able to make a decision.

Wasting Time and Losing Opportunities

When you spend a lot of energy on a project and fail to achieve the objectives, you’ll end up wasting time and losing opportunities. I have explained this in my other article about opportunity cost.

Opportunity cost is usually expressed in terms of how much time and value must be forgone to pursue an opportunity. For example, if you choose to spend time researching and analyzing results, the cost of this is the value of the time you would have spent testing your ideas in the field and getting feedback.

What You Can Do to Prevent Diminishing Returns

There are two effective steps that you can take to prevent diminishing returns:

Step 1. Use the Superstructure Method

The Superstructure method is LifeHack’s unique method for quantifying the value of your tasks, so you can organize them in order of importance.

Once you adopt the Superstructure Method and begin prioritizing tasks in your daily life you’ll see BIG rewards.

These will include a huge jump in your productivity and work output. You’ll also feel less stressed and overwhelmed, which will give you time and energy to be more expressive and creative.

Just imagine…

The new you could be getting more done while also having better mental and physical health, and more spare time to do the things you love.

This is not some fantasy. This is the life I lead right now. And it’s the life you can lead too if you put the Superstructure Method into action.

Every task has three components namely:

1. Intention

Figure out why you need to do these tasks and find out how you’ll benefit by working on the task, and how it will propel you towards your goals.

2. Value

Organize your tasks into the three categories below:

• Must-haves: Critical to achieving the objective. Without it, the outcome is meaningless.
• Should haves: Important but not critical. However, leaving it out may lessen the impact of the final result.
• Good to haves: Having it is nice, but not including it won’t have any negative impact on your objective.

How you decide to put them will be determined by your goals.

3. Time

After looking at your task’s priority, you need to evaluate the cost of each task in terms of time. The complexity of the task is reflected by the time you’ll need to complete it.

You can easily calculate time costs by splitting tasks into half-hour intervals. No task should be longer than three hours.

With limited time to complete something or make a decision, this method can help you get an optimal result.

Schedule the Tasks

By knowing the priority of your tasks and the approximate time each of them will take to complete, you now have the keys to taking positive, productive action.

And the good news is that it’s really very simple.

You just need to schedule your tasks on a weekly planner — choosing on which day and at what time should you tackle each task.

Once you begin following this Superstructure Method, you’ll quickly overcome any feelings of being overwhelmed. That’s because you’ll always have an organized weekly plan that allows you to master your time and achieve your goals.

And there’s more good news…

After a while of following the Superstructure Method, you’ll notice that you start to create a solid routine for some recurring task such as having regular meetings and replying to emails. And routines are a fantastic way of saving you time and energy, as they help you automate your tasks and keep you away from distractions. Learn more about the Superstrucuture Method here.

Use the Superstructure Method

2 Actions

Think of a goal that you want to achieve, and list out your Must-Haves, Should-Haves, and Good-to-Haves.

Then go to Step 2.

Step 2. Apply the 80/20 Rule

So now, you’re clear about the Must-Haves, Should-Haves and Good-to-Haves, let’s try to combine the 80/20 Principle too.

The 80/20 Rule (also known as the Pareto Principle) is one of the most important principles for productivity and effective time management. It states that 20% of your actions account for 80% of your results. Trying to achieve 100% of the results is not so practical because as I mentioned earlier, perfection doesn’t exist. Good enough is good enough, and there’s no need in dragging to achieve the remaining 20%.

When people try to achieve 100% of the results, they essentially spend over 80% of their effort and resources to fulfill the remaining 20% of the results. This is more than needed and is when diminishing return happens.

According to the International Journal of Project Management, by applying the Pareto Principle of sorting out the “important few from the trivial many” to focus attention on the key factors, success is more likely.^[4]

Use the 80/20 Rule

2 Actions

Go back to your list and take away the “Good to Haves” items and ask yourself  ‘Can I get an optimal result already with the remaining items?’

Then try to take away the “Should Haves” items and ask yourself again ‘Can I get an optimal result already with the remaining items?’ This can help you make decisions a lot easier.

Conclusion

The law of diminishing returns is an economic concept that applies to different areas of our lives. You can quickly boost your productivity and performance by understanding this concept.

As we have seen, the fear of failing and anxiety about taking action are the leading reasons for indecision and failure to take action. Coming up with ideas and implementing them on a small scale will enable you to get immediate feedback, improve business processes and boost your performance.

You can prevent diminishing returns by using the superstructure method and 80/20 rule. Understanding and using these two effective tools will help you set the right expectations and achieve your goals.