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What Are 'Diminishing Returns'?

Something suffers Diminishing Returns when, after a certain point, having more of it becomes pointless or detrimental.

Optimizing everything to perfection is almost impossible. After picking the "low hanging fruit", further optimization can cost more than the returns you'll reap.

Optimize until reaching the point of Diminishing Returns, then focus on something else.

Josh Kaufman Explains 'Diminishing Returns'

If you have $10 in your bank account, finding $5 in the pocket of your freshly laundered pants is a cause for celebration. If you have $10,000,000 in your bank account, the same situation is a pleasant afterthought.

In a similar vein, eating one cookie is great. Eating two cookies is even better. Eating a hundred is actually worse.

More is not always better. (The same relationship applies to drinking beer and taking vitamins.)

All good things are subject to Diminishing Returns-after a certain point, having more of something can actually be detrimental.

When I was in marketing at P&G, we spent a lot of time and effort analyzing the results of our advertising. In the first few weeks of running a television commercial, it's easy to see if it's performing as expected. If the commercial was performing well, we'd allocate more money to airing it, but that would only work for so long.

No matter how much people liked the commercial, at a certain point it would "wear out," and the company would no longer produce $1 of revenue for every dollar the company spent airing it. That was the "Point of Diminishing Returns"-if we spent more dollars showing the same commercial, the company would start losing money. Far better to spend that money promoting the product in a different way.

It's always better to spend a little time and energy to get the big wins than do nothing.

In I Will Teach You To Be Rich, Ramit Sethi recommends applying what he calls the "85% Solution." So many people get wrapped up in making the perfect decision that they wind up overwhelming themselves and doing nothing.

Focus on doing a few simple things that will produce most of the results you're looking for, then call it a day. Don't feel like you have to optimize absolutely everything to perfection.

Optimization and Refactoring are affected by the Critical Few as well-a few small changes can produce enormous results. After picking the "low-hanging fruit," further optimization can cost more in effort than you'll reap in returns. That's a good point to stop.

Perfectionism is a trap for the unwary. Optimize and Refactor up to the point you start experiencing diminishing returns, then focus on doing something else.

Questions About 'Diminishing Returns'

• How can you identify the point of diminishing returns?
• How much optimization is enough before you decide to focus on improving something else?

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"The last 10 percent of performance generates one-third of the cost and two-thirds of the problems."

Norman R. Augustine, aerospace executive and former U.S. undersecretary of the Army

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