If you are spending a lot of work on UX, you definitely want to know if you are likely to see a return on investment. That’s what ROI indicators are for. Check out what you should know about them and how to start using them.
UX designers feel a sense of pride when people enjoy using a digital product they have designed. It kind of means they have done their job well. However, those involved in tracking business metrics look at user satisfaction differently, often treating it as one of the so-called ‘vanity metrics’ – metrics that look nice on paper but say nothing about the value of the business. Nothing could be further from the truth – user satisfaction, as well as other effects of the UX designer’s work, can affect the state of a company. How? Let’s talk about UX ROI, so you can discover how working on UX impacts your business.
UX ROI basics
Perhaps you are faced with a choice of two interface change projects and need a way to decide which one is most financially worthwhile. Or perhaps you are looking for a way to show the monetary value of your new sub-page view design? In other words, you want to check the ROI (Return on Investment) of investing in UX design. How to calculate the ROI of UX?
What is a UX ROI?
ROI stands for Return on Investment. UX ROI is nothing but the return on investment in UX. Before we start a new project, we try to estimate how many resources (i.e. people, time, money) we should allocate. ROI will tell us what we can gain in return – whether an investment in UX will generate more revenue for the company or reduce expenses. Namely, what its business value is. What does this mean in practice?
UX ROI in practice
Improving UX is reflected in optimizing or increasing revenue for the company. For example, we can expect higher conversions with a streamlined purchase process. In turn, regular UX testing with user groups ensures that we create a solution that addresses their concerns. And it’s how efficiently we solve the target user’s problem that will leave the competition far behind and provide us with a multitude of returning customers (e-commerce) or counteract churn (apps).
The work of UX designers translates into the company’s financial standing – increased sales, building a loyal customer base, and higher value of the company.
The ROI of UX also includes reducing errors, saving costs associated with maintaining a website, application, or shop, and increasing the efficiency of sales and customer support teams. How is that possible? UX uses design processes that put the target user and their problems at their center. UX designers strive to design a digital product that meets users’ expectations, so designers conduct interviews and UX tests that allow them to come up with the most satisfactory solution. By staying in touch with users, they uncover issues that need to be addressed so the user has the best possible experience. By observing how users use the product, for example by tracking KPIs for UX or conducting UX tests, they are able to save time and resources spent on product development and customer service.
Some organizations omit UX Research and UX Design during product development and it is created from the beginning by developers’ hands, using ready-made libraries for interface building (material UI, semantic UI, ant design, bootstrap, etc.) which has its consequences.
What are the ROI indicators for UX design?
When choosing which project our UX team will work on, we want to make sure we opt for the one that will bring us the most profit. No wonder. After all, we are going to invest a huge amount of work and resources in it that we could have spent on a project with more profit potential. How can we be sure that what we are doing has really paid off or has the greatest potential for return?
ROI from UX design is associated with four areas of the business.
- Increased revenue
- Increased team effectiveness
- Reduced costs
- Improved brand loyalty
ROI from UX as an increase in revenue
UX has a high potential for return. It’s often said in the design and product management community that every dollar spent on UX is $100 in profit. Sounds convincing?
Increase in conversion rate
How we interpret conversion depends on what kind of business we are running. Most often it is the closing of a sale. Thus: UX has a direct impact on increasing conversion, especially through website conversion optimization. If our work on user experience increases the number of conversions, it means we can treat this as an ROI indicator from UX. Example? Let’s say we’ve improved the site navigation and the data shows that visitors find it easier to find the product and make a purchase. This means success.
Did you know that… Forrester conducted a study that found that better UX can quadruple conversion.
Increase in average sales value
It is possible that through UX optimization customers will buy more – more products (e-commerce), and more accounts (SaaS). To put it simply, the average value of a single transaction will increase. And all this by improving the user experience on the site. Obviously, to consciously notice such a change, we need to have tracked the average sales value much earlier.
Did you know that … 74% of customers abandon a purchase if the purchasing process is too complicated.
ROI from UX as increased team effectiveness
Financial benefits do not have to manifest themselves only in sales. Saving time, better communication within the team, or efficient project management are also benefits to which the UX department makes its contribution.
More accurate planning
UX designing is a process that allows us to develop the right solution and test our idea before it reaches users. This ensures that we do not waste time implementing misguided ideas. UX processes help us anticipate challenges in project implementation, such as those related to product safety or the technology we should use. This will consequently improve the management of our project, as we will know what to expect and which specialists we need to involve in the project.
Did you know that … investing in UX while preparing the solution concept reduces development time by 33-50%.
Improved information flow within the team
And speaking of processes, the UX design process provides many tools and methods that improve communication within the team, e.g. persons, customer journey mapping, mockups, and prototypes. These are not documents that you put away in a drawer, but live files that you can share with the rest of your colleagues so that we are all informed about what is happening, why decisions are being made in the way that they are, and what we should look out for in the future.
Avoiding fixes and bugs
The aim of UX design is to develop a solution that is based on real, research-backed user needs, rather than our subjective assessment of the situation or observation of competitors. By taking an iterative approach to UX designers, making sure the design meets expectations, we can avoid expensive revisions in production.
Did you know that … solving problems at the development stage is 10 times more expensive than tackling them earlier through design.
What about when you are developing a product completely from scratch? The fact that you involve a UX specialist in your team or use an agency can only work in your favor. Research, hypothesis testing, and other elements of the User Centered Design process can bring you proof that you don’t have to do a million things to reach customers and convince them to buy. You may find that all it takes is for your product to do one thing well, and already people are willing to pay for it. What does this mean for you? That you’ll get it out into the wide-open sooner than you initially thought.
ROI from UX as reduced business costs
The return on investment is also reflected in the work of your team. By taking care of the needs and experience of the users of our online venue, our employees also feel the benefits. In turn, we as managers can save a lot on the onboarding of new employees, customer service, or the sales process.
Lower customer service costs
If we care about UX, our customer service department also has an easier job to do. Our digital product is tailored to the target customer and transparent enough to reduce the number of calls and e-mails asking for help. In addition, support staff or other people who have to deal with answering customer queries are able to solve customers’ problems more efficiently than if we offer an ill-conceived product without a clearly developed user path.
Did you know that … the Spanish branch of ING has reduced the number of queries to customer service to 0.7% after redesigning the information architecture of its website.
More efficient sales
If you are developing a digital product, then online customer acquisition is undoubtedly one of the pillars of your sales activity. By making your website, product, and application tailored to the end-user, your salespeople will find it much easier to convince customers to buy. What’s more, with one of the attributes of a UX professional – a customer journey map – you will know exactly what your customer’s buying process is and learn about their concerns, needs, and interests during the purchase process.
Did you know that … startups surveyed in 2016 observed that as an investment in design increases, sales increase.
Faster employee onboarding
This is an indirect influence of the User Experience. Because you have people in your team who stay in touch with the user and share their insights gained from conversations with users, a so-called user experience culture is created in your company. We will explain exactly what this means in another article. This culture ensures that those who join the team have no problem understanding user expectations.
Did you know that … McKinsey surveyed 1,000 B2B companies that reported that slow communication with suppliers was the most disruptive element in the path to purchase.
ROI from UX as an improved brand loyalty
Even in today’s world, saturated with news, competition, and alternatives, you can still count on winning over loyal customers and employees. What does that mean for your business?
Higher Customer Lifetime Value (LTV)
Customer Lifetime Value means the total amount of money that a customer has left with us over an extended period of time. Measuring customer LTV works well in most sectors. For SaaS applications, higher LTV may mean creating new accounts, stepping up to a higher subscription plan, or adding paid functionalities. In e-commerce, it can be the sum of all transactions. A predominantly rising LTV means that we have won the affection of customers and their loyalty. It would be useful to conduct interviews or send out questionnaires to see if we are right. And importantly UX contributes to increasing LTV.
Did you know that … according to Walker’s research, over the next few years customers will attach more importance to the experience they have with a brand (customer experience) than to price or the product itself.
Higher employee retention
Some studies suggest that there is a link between UX and employee satisfaction. Thus, not paying attention to the UX of an application, website or shop ends in higher staff turnover, while in those companies where UX is taken care of, employees are more satisfied with their jobs. Perhaps this is due to the previously mentioned user experience culture within the company.
Did you know that … companies surveyed said that since they started improving the customer experience, employee engagement has also increased.
How to calculate UX ROI
We learned from the previous section what ROI indicators we have to choose from. Now we will talk about how to put the knowledge we have gained into practice. How to calculate ROI from UX? Since ROI means the return on investment, we can intuitively conclude that ROI is the ratio of money spent to expected profit. How do we know what profit we can expect?
Start from collecting data
You won’t be able to calculate your return on investment if you don’t know the condition of your business. How many people visit your shop? How many sales inquiries do you get per day? What is the average sales value per quarter? Those are some of the basic questions you can measure with data. Identify the data that tell you the most about your position in relation to your goals and business strategy, and then use tools to help you collect it. Once you know the company’s current situation, it will be much easier to forecast what might happen in the future.
What data to collect to calculate the selected UX ROI?
We wrote above that UX ROI addresses four business areas, but how can you combine it with data collection? Let’s see.
- Increased revenue – if you’re looking to increase revenue, follow the average sales figure, this is the amount that shows how much you can earn from a single order. In some sectors (e.g. e-commerce) such an amount will be nominal. In other industries, the amount sometimes has to be contractual (e.g. when a company prices each project according to the customer’s needs). Nevertheless, it is worth establishing it so that we can better visualize what we are aiming for. Let’s add this value as a conversion value in Google Analytics or another tool we use to analyze website traffic and user behavior.
- Improved team effectiveness – want to see how investing in UX will improve team effectiveness? Prepare in advance by measuring the average time spent on a project in relation to its size or the number of people involved. If you reduce the average time spent on a project for all your projects while keeping revisions to a minimum, you will find that you have saved a lot of time. This metric can be deceptive, so gather feedback from your team to find out if you’ve actually saved time and resources and thus improved information flow, or if it’s a false lead.
- Reduced business costs – how to measure ROI in this case? Look at the monthly or weekly number of support queries and see how many of them have been resolved. It is best if you present this as a percentage. When facilitating a sale, observe the user path and monitor its progress.
- Improved brand loyalty – to calculate this, build a culture of feedback in your company. Send out questionnaires, arrange interviews and collect feedback. We often cut off contact after we close the sale. It is not necessary. Similarly, we need to ensure that our employees are comfortable and periodically check how they perceive our brand.
All this will show you what trends are prevalent in your business. What’s more, it will make you aware of which zone is worth addressing. Perhaps the best investment this quarter will be in cost optimization. How about taking better care of customer retention? How to bring it all together?
Carry out ROI calculations
Typically, ROI is calculated using a simple formula in which we subtract the cost of the investment from the expected profit, and divide the resulting sum by the cost, multiplying all of this by one hundred percent.
ROI = ((estimated profit – investment costs) / investment costs) x 100%
Let’s say you would like to add a new functionality to your application. For example, we expect adding a chat to an offer site to increase conversions by 40%. Let us get down to calculations. How much money will an extra 30% of customers bring us? And how many hours does our team have to spend to add and test chat application settings? How much does the chat itself cost?
Is the investment worthwhile?
In some cases, the investment in UX will not pay off immediately. We need to wait a while before we can measure the results. Should we factor in inflation? Jeff Horvath, in a report on the business value of UX done by Human Factors, suggests that we consider inflation, using a formula from economics.
UX has a business value
The purpose of measuring UX ROI is to make sure that every cent spent on UX more than pays off. The return on investment is proof that UX benefits our business and that it is worth the effort. And what to do to ensure your result exceeds your expectations? UX literature provides a recipe for this. What is it?
UX designers identify three levels of user satisfaction:
- Meet user expectations – this is fundamental; without it you can’t move on, your product must be tailored to the user’s needs, which will earn you their trust;
- Exceed expectations – once you have met expectations, you can focus on this stage; if you give the user more than they need, you will gain their loyalty, which will allow you to gain valuable testimonials and referrals;
- Shape expectations – this level will allow you to sell more or expand your portfolio of products that are blindly perceived as valuable as with Google or Apple (see: Expectation Engineering).
What stage is your company at? What can you do to move to a higher level? Companies that reach the final level conduct UX research, surveys and interviews with each user group. We recommend you conducting a UX audit to see if you can improve the UX of your product.