The Law of Diminishing Returns – – da da daaaaa (dramatic music plays). What in the world is the Law of Diminishing Returns?
Actually, it is a pretty simple concept, it’s the finding of the balance that is the hard part.
Definition: The Law of Diminishing Returns – (n) – The tendency for a continuing application of effort or skill toward a particular project or goal to decline in effectiveness after a certain level of result has been achieved.
The most common example of this law is that of fertilizer. Imagine you plant corn in a 200×200 plot. You plant the appropriate number of seeds per row and appropriate number of rows per the plot. You tend to it by watering it, keeping it free from weeds and birds and your payoff is a modest yield of corn.
The next year, you do everything the exact same way, but also add 1 part fertilizer to the mix. You see your yield double.
The following year, you increase your fertilizer by one additional part, your yield triples from the first year.
The following years, three, four and five, you incrementally increase the amount of fertilizer you put on the plot, but now your overall increase starts to decrease from the first year.
Here’s the point – keeping all things equal and only increasing (or decreasing) one factor, there is a point at which the output will level out and eventually start to decline because of this increase.
Let’s say you are a small business owner, you are a marriage counselor who sees clients on a weekly or monthly basis and you are trying to increase your gross income. The obvious way to increase your income would be to increase the amount of couples you work with each week or month. And while this works for adding one or two more clients each week, BEWARE – there is a point when the increase outweighs the income.
Things to consider – are you physically capable of adding more and more clients to your daily schedule. What sort of price does doing so cost? Consider your overall health, your required rest needed to be fresh and mentally alert for each client meeting. Don’t forget the added work that needs to be in the form of reports written, insurance claims, invoicing, etc.
The important thing about the Law of Diminishing Returns is to find the balance of where the maximum amount of input produces the maximum amount of output. Just remember – adding more and more to your plate, won’t always produce more and more income.
Because I like to apply business terms to your home management system, how’s this example.
Imagine you do laundry every week (or maybe this is your reality and no imagination is required). Every week you do laundry for your family of five and it breaks into 15 loads. Finally, you are able to upgrade to one of the new fancy and extra-large capacity washer and dryers.
With these new machines, you are able to increase the size of the loads and cut that amount down by a third. But you didn’t figure out the magic number was ten until you tried increasing the size of the loads so much that at some point the washer was shutting down or the clothes weren’t getting as clean – merely because the washer was packed too full.
Just like at home – it’s all trial and error and that’s what makes running your own business or managing your home so exciting. You have that control over your destiny and the fun and challenging part is getting to figure it all out.
One last important reminder – don’t be afraid to try things, just because you are afraid of diminished results. For our counselor example – OK – so he overbooked himself one month and had a crazy/ultra hectic month. Lesson learned – too many clients makes him cranky and overwhelmed. Next step, reduce by 10% and see how that works, and again and again until he finds the right balance that works for him.
Good luck. Are you struggling with ways to make adjustments to your business to find ways for increasing your income or decreasing your workload? Give me a call – let’s chat about it.
Thanks for reading – Amy
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