Knowing your point of diminishing return

Published · 4 min read

A simple law of economics states that in a production process, adding more of one factor of production while holding all others constant, will at some point yield lower incremental returns. For example, if a factory increases the number of workers, the total output of widgets will grow, but at an ever-decreasing rate. At some point, the widget-factory owner will know the exact moment where he or she makes the most profit per item, maximizing their economic investment.

My point of diminishing return

As an attorney and small business owner, I made the mistake of over-advertising. I grew too fast and took every case that walked through the door. I could not handle all the paperwork associated with all the cases, so I hired more assistants to help.

The employees would take nice, long cigarette breaks (together). These cigarette breaks became more and more frequent. In fact, I had one employee taking a 10-minute cigarette break every 30 minutes.  She needed company so others would join in on the conversation outside.  If it were not for the fact I had a cordless phone system, clients would have to leave messages for much of the day.  I did not realize how bad things were getting due to the fact I was taking every case I could take to pay for the ever-increasing overhead.  Taking these cases meant that I was rarely in the office because I had to bounce from courtroom to courtroom, in four different counties.

It got so bad, in fact, that I started filing notices of scheduling conflicts when I had a 9 a.m. divorce case in one county that could last until 11 a.m. in another county an hour away.  I would be the first attorney to arrive in one place and plead with the judicial assistant to let my case be heard first so I could get to three more cases before noon in two other counties.  Every day my calendar was a nightmare and became my biggest concern.  Clients were frustrated because they didn’t see me until half the docket was over. My biggest concern was not my clients’ cases, but wondering how I was going to make it to all of the court hearings the next day.

Other attorneys, however, did not have this same problem.  They didn’t have my client roster, either.  Although I had thousands of dollars (sometimes even tens of thousands) coming into my firm account weekly, my overhead cost me more.  It was a vicious cycle.  When I realized that even the associates were taking advantage, I decided to scale back.

Calling it quits

I turned away cases when I knew I wouldn’t be able to meet the clients’ demands.  I started specializing in certain areas of law instead of being all things to all people.  The cases I had won for clients and the fight for justice I had fought for some of my best cases turned into more new clients when they recommended me to their friends.  By the time I found my sweet spot concerning maximizing my return on employee investment, calendaring and caseload, I was already emotionally and economically spent and ended up closing my practice.

Here are some tips that I wish I had not learned the hard way:

Establish an employee policy:

Know what the laws are regarding employee breaks and working time, and then have it in writing.  Know which questions are off-limits in an employee interview.  Although you may live in a right-to-work state, there are limits on what is fundamentally off-limits in an interview and once a new employee is officially hired.  Once you are aware of those restrictions, then formalize the policies you wish to put in place for your own company.  (This will limit those 10-minute smoke breaks every 30 minutes!)

Separate yourself from work and don’t take it home with you.

Probably the main reason I was good in the courtroom because I would put myself in my client’s shoes and argue from that perspective.  I ate, slept, walked, breathed my clients’ cases.  I lost sleep at night because I could not stop thinking about my caseload.  It consumed me.  Even though I didn’t rob a bank, drive drunk, cheat on my husband or shoplift at Walmart, I may as well have because I lived like the person accused of doing all those things.  The benefit I have now with my new career is being able to go home at night and leave my work at the office.

Have a heart, but don’t let others take advantage of it:

If you don’t have more business and a need for a new resource, even if you have an employee who has a cousin who just got laid off, don’t create a position just to hire him.   Remember, you have a business to run and need to support yourself and current staff.

Limited quantity:

If you are in the service industry (accountant, lawyer, hairstylist), there are only so many hours in the day and ultimately there is just one YOU.  I ran around from county to courtroom and on my busiest day, I counted 12 court hearings in multiple counties! If someone had just sat me down at the beginning of my law career, I would have known that I needed to put the brakes on my racetrack practice.

What is your point of diminishing return in your business?  

To figure out whether you have reached the point of diminishing return in an area of your business, it may be necessary to ask yourself some tough questions:

  • Are you overpromising and under delivering?
  • Are you making a profit?
  • Are you setting the right expectations for the consumers of your service or product?
  • Are you meeting projected milestones and deadlines?
  • Is your reputation starting to suffer because of your lack of ability to meet customer demands?

Knowing your point of diminishing return will enable you to make conscious decisions about staffing and meeting goals while growing your business organically with purpose.

Subscribe to the Sage Advice newsletter, and receive our latest advice direct to your inbox.

Leave a response