You've been there. It’s 11:00 PM. You are staring at a spreadsheet or a marketing plan, and you think that one more hour of grinding will finally crack the code. But it doesn't. In fact, the work you produce in that eleventh hour is usually hot garbage compared to what you did at 9:00 AM. That isn't just exhaustion. It is a fundamental economic principle smack-dab in your face.
We call it the law of diminishing returns.
In the world of classical economics, specifically looking back at guys like David Ricardo and Anne Robert Jacques Turgot in the 1700s, this wasn't about "burnout." It was about soil. Seriously. They noticed that if you keep adding more workers to a single plot of land, eventually, those workers just start getting in each other's way. The total output goes up for a bit, then it levels off, and eventually, if you keep adding people, the whole thing crashes.
What the Law of Diminishing Returns Actually Means for Your Bottom Line
Basically, this law states that if you increase one input—like labor, money, or caffeine—while keeping everything else the same, you will eventually reach a point where the extra output you get starts to shrink.
It’s a curve.
At first, you see "increasing returns." This is the honeymoon phase. You hire a second person for your startup, and suddenly you’re doing 3x the work because you can specialize. One person handles sales; the other handles the product. It feels like magic. But then you hire a tenth person. Then a twentieth. If you don't buy more computers, increase your office space, or upgrade your software, those new hires are just sitting around waiting for a login.
The math behind this is often expressed through the marginal product. If $MP$ is the marginal product and $\Delta Q$ is the change in total output, we look at the ratio:
$$MP = \frac{\Delta Q}{\Delta L}$$
Where $L$ is the labor input. When $MP$ starts to drop, you’ve hit the wall. You are officially in the zone of diminishing returns.
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It is not a "Law of Negative Returns" (At Least Not Yet)
People get this mixed up. Diminishing returns doesn't mean you are losing money or losing progress. It just means you are getting less progress for every dollar or hour you spend.
Think about a gym session. The first 45 minutes are gold. Your muscles are firing, your heart rate is up, and you’re building strength. If you stay for two hours, you’re still working, but those last 15 minutes are barely doing anything. If you stay for five hours? Now you’re entering "negative returns" because you’re literally tearing your muscle fibers apart and risking injury.
Most businesses live in the middle zone. They are spending 80% of their budget to get the last 20% of their results. It’s inefficient, but often necessary in hyper-competitive markets.
Why Your Marketing Strategy is Probably Bleeding Cash
Marketing is the most obvious place where the law of diminishing returns kills profit margins.
Imagine you’re running Facebook ads. You spend $1,000 and get 100 customers. Awesome. You think, "Hey, if I spend $10,000, I’ll get 1,000 customers!"
You won't.
Honestly, you'll probably get 600. Why? Because you’ve already picked the "low-hanging fruit." You’ve reached the people who were already looking for your product. To get that next batch of customers, you have to target people who are less interested, harder to convince, or living in more expensive ad territories. Your Customer Acquisition Cost (CAC) starts to climb.
Thomas Robert Malthus, a name you might remember from history class for being the "gloom and doom" economist, used this logic to predict a global famine. He figured that since land is finite, we couldn't possibly grow enough food to keep up with population growth. He forgot about technology.
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Technology is the only thing that "resets" the law of diminishing returns.
In farming, it was tractors and nitrogen-based fertilizers. In business, it’s automation. If your team is hitting a wall, you can't just throw more people at it. You have to change the "fixed" factor. You need better tools, not more hands.
Real World Evidence: The Case of the Overworked Developer
Let’s look at software engineering. There is a famous book called The Mythical Man-Month by Fred Brooks. He was a project manager at IBM working on the OS/360.
He formulated "Brooks’s Law," which is basically the law of diminishing returns for the tech world. It says: "Adding manpower to a late software project makes it later."
Why?
- Ramping up: New people need to be trained by the people who are already busy.
- Communication overhead: The number of communication channels increases exponentially, not linearly.
- Divisibility: Some tasks just can't be split up. You can't have nine women deliver a baby in one month.
If you have two developers, they have one channel of communication. If you have ten, they have 45 channels. They spend all day in meetings talking about work instead of actually writing code. That is the law of diminishing returns in a cubicle.
The Point of Vanishing Significance
There is a point in every project where the "extra polish" doesn't matter.
If you are a writer, you can spend ten hours on a blog post and get it to 95% perfection. To get it to 99%, it might take another twenty hours. Is that 4% improvement worth twenty hours of your life? Probably not.
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In economics, this is related to the Optimal Output Level. You want to stop producing right at the point where the cost of the next unit (Marginal Cost) equals the revenue that unit brings in (Marginal Revenue).
$$MC = MR$$
If you go past that, you're literally paying for the privilege of working.
How to Fight Back: Actionable Strategies
You can’t break the laws of physics, and you can’t really break the law of diminishing returns either. But you can navigate it.
Audit your inputs. Look at your weekly schedule. Where are you spending the most time for the smallest gain? Most people find that their Friday afternoon "admin" sessions are a total waste of time. Cut them. Use that time for high-leverage thinking or just go home and rest so your "returns" on Monday are higher.
Diversify your channels. If your Google Ads are getting too expensive because of diminishing returns, don't double down. Move that "excess" budget into a new channel like SEO, influencer partnerships, or email marketing where you are still in the "increasing returns" phase.
Upgrade your fixed assets. If your team is maxed out, don't hire a junior. Buy better software. Automate the repetitive stuff. If the "plot of land" (your infrastructure) is the bottleneck, make the land better.
The "Stop at 80%" Rule. In non-critical tasks, 80% is usually enough. Professional perfectionists are the primary victims of this law. Recognize when the marginal utility of your effort has dropped below the value of your time.
Start looking for the "flatness" in your growth curves. When you see it, don't push harder. Step back, change the variables, and find a new curve to climb.