Proper clearance between the punch and die is essential for piercing a well-made hole efficiently.

• Too much punch and die clearance results in more rollover deformation where the punch enters the material and a large burr on the die side.
• With proper clearance between the punch and die, there will be minimal rollover deformation around the hole where the punch enters the material. As the punch cuts through the material, it creates a region of vertical burnishing until the fracture line created by the punch meets the fracture line defined by the size of the die at which time the material breaks creating the hole.  On the die side there will be a minimal burr.
  
• With too little die clearance the fracture lines of the punch and die do not meet, thus requiring a secondary shear of the material to make the hole, and this secondary shear is at the expense of requiring more tonnage, and in severe cases within the hole it results in a second region of vertical burnish that will grip the punch as it is being extracted, thus requiring (1) more stripping force to extract the punch from the hole and (2) additional wear on the punch.  Indeed the extra tonnage needed to make the hole and the additional stripping force required to extract the punch can result in premature punch failure in the form of chipping or breaking of the punch.

You can estimate proper die clearance with a die clearance calculator.  To optimize the die clearance, inspect the slug and hole.  To correct an unacceptable burr on the die side of the hole requires tighter clearance.  Looking at the side of the punch slug, the top 1/3 should be sheared and burnished and equal to the size of the punch; the remaining material is typically dull and torn and the size of the die.  If there has been a secondary shear, there will be two regions of burnishing on the side of the slug.  If on the side of the punch slug, more than about 1/3 of the side is sheared and burnished, or if there are two regions where the slug is sheared and burnished, die clearance is too tight.  Die clearance can be made larger to reduce tonnage and improve tool life.