Marginal Impact
Written October 14 2024
Est. 5 minute read
This article draws heavily from Probably Good (see their up-to-date entry here).
Marginal impact refers to the additional difference your specific investment of time, money, or effort makes. Rather than focusing on the total impact of an organization or movement, it’s about recognizing how much your contribution adds to what’s already being done. This way, you can better decide where to direct your resources for the greatest effect.
What’s my additional impact?
People are often drawn to large, impactful movements—there’s something exhilarating about being part of a project that’s changing the world. But if you’re aiming to maximize your positive effect, relying on the total impact of a movement or organization can be misleading.
[Young person in casual clothes walking away from a crowded mass of people wearing a t-shirt that reads “my marginal impact”]
The marginal impact of your efforts is the incremental difference they make. For example, think about the parable of the man who planted a vineyard (Matthew 21:33-46). The vineyard was fruitful, but the owner had to make careful decisions about how much more to invest in it. If the vineyard became overgrown with weeds or if the market for wine became oversaturated, the owner might find that investing in additional vines would lead to diminishing returns or even losses.
In this case, while the vineyard may have been profitable overall, the marginal profit from planting one more vine could be negative, signalling that it wasn’t worth the effort.
[Vineyard owner stands next to a healthy grapevine, but looks outwards to see withering grapevines]
Similarly, when you invest time, money, or resources in a cause, it’s crucial to focus on the additional impact you’ll create. This awareness helps you avoid the sunk cost fallacy—continuing to invest in something simply because it has been successful in the past, even if future contributions aren’t effective. Just as the vineyard owner must weigh the benefits of further investment against the realities of their harvest, so must we evaluate the true impact of our efforts to ensure they bear fruit in the future.
Why is this important?
But does this nuance truly matter in real life? If I want to donate to charity, for example, wouldn’t its current impact be a good proxy for how impactful future donations would be? Not necessarily.
Every year, millions of people choose to donate to Wikipedia. This makes a lot of sense—Wikipedia serves more than a billion people every month, providing access to educational materials, answering practical questions, and fighting misinformation. At the same time, maintaining their technical infrastructure costs around $36 million a year. This means that Wikipedia provides this value at a cost of less than one cent a month per individual—what could be a better impact-focused donation? However, while Wikipedia needs about $36 million a year to keep the lights on, in recent years they’ve been raising well over $100 million every year.
[Wikipedia logo in the centre of page with hands full of cash competing in a crowded mass to drop money down from above. Reflecting overcrowding]
More importantly, most of those extra revenues are invested in efforts that have high costs and unclear results, according to a previous executive director. As a result, it’s unclear that additional donations to Wikimedia lead to improvement in the content provided by Wikipedia. This is an example where the total impact (or even total cost-effectiveness) is a pretty terrible proxy for the marginal impact of additional donations. The first few millions of dollars that Wikipedia receives are incredibly valuable and important, but those are already a done deal—you can only control the marginal impact of the 100 millionth dollar or above.
These kinds of effects are not unique to Wikipedia. Most organizations experience diminishing returns (or to be more accurate, diminishing marginal returns). That’s when the first dollars spent are worth much more than additional investments. But marginal returns can also be higher than average returns, for example if an organization has significant fixed costs or economies of scale. The bottom line is simply that to choose our next actions, we need to look at the marginal impact of our efforts instead of the total or average impact of the organization—whether they’re higher or lower.
How does this affect career decisions?
When it comes to career choices, the concept of marginal impact is just as critical as it is when deciding where to donate. The marginal impact of a new employee in a company can differ significantly from the average impact of other employees, and your contribution depends on various factors. Here’s how this idea might influence your career decisions:
At first glance, it may seem that joining a highly successful and impactful organization is always the best choice. However, working at a large, well-established organization may mean you have less direct influence over its overall direction or success. This can make your marginal impact less clear.
That said, working at successful organizations is often still a great move. These organizations typically offer excellent opportunities for individual impact and provide valuable career capital. But it’s important not to let their total impact overshadow whether you’ll actually make a difference in your role.
This consideration also highlights the importance of personal fit and seizing unique opportunities that others might overlook. While well-known opportunities often come with larger total impact, finding niche roles where your specific skills or insights can make a real difference can lead to a greater marginal impact.
Summing Up
Marginal impact:
Refers to the incremental difference your contribution makes
Can be facilitated by niche roles can offer greater opportunities for individual contributions
Allows for better decision-making by prioritizing future contributions over past successes
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Do you have any career uncertainties? Click here to read our article on three big career uncertainties you can trust God with.