Foundational UX

ROI of UX

December 3, 2020
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An investment in user experience represents a level-up from good-enough-to-release standards which has lasting effects on reputation improvement, brand growth, internal culture boost and an improved first-impression for sales efforts.

The field of user experience has grown enough in reputation where we no longer have to justify our practice. We get approached by companies who want to remain relevant, know the value UX can bring, but need to make the business case for it.

This page will guide you as you calculate the ROI for a UX investment for your enterprise software application. This will provide you with ideas for how to justify your spend and its timing. Some concepts are more concrete while others are more generalized prompts for you to interpret within the context of your own business.

What is ROI of UX?
Simply put, ROI is your overall ‘return on investment’ for your software project. Normally the UX part of your budget constitutes about %20 of your overall investment cost (we’ve found anecdotally). See these other definitions, on NN group for example.
Collage of types of variables include lower support cost, investor appeal and faster time to market

How is ROI of UX calculated?

Calculating your UX ROI is not as simple as “how much profit will be generated from good UX”. The value of UX also lies in avoided costs and strengthened business culture which have a breadth of benefits. To calculate your ROI, you’ll need to understand which KPIs in your company are impacted by good design. This is a whole other area of exploration.

However for enterprise software or SAAS products, Here are the different approaches you should be considering to calculate UX ROI (it’s not just about conversion):

  • Saving on development and support costs
  • Increasing revenue and sales
  • Opportunity cost
  • Employee capital building
  • Capitalizing on innovation & invention opportunities

Let’s dive into each one, so you can get to increasing your ROI through amazing UX.

Cost savings

One of the first elements to consider when calculating the value of UX is the amount of problems that design keeps you from having to solve in the future. And as a company, solving problems costs money. So this exercise can be looked at from the perspective of money that design is preventing you from having to spend.

Saving in development costs

When you have a clearer definition of your product positioning and overall direction, less time is spent reinventing the wheel. This ensures resources are working on the right thing and their efforts are more focused.

HOW TO CALCULATE
  • Gather the baseline velocity of the team (especially for UI/layout/interaction-heavy features)
  • Analyze the differential between estimates and the actual scope
  • Generalize that to an average percentage of, for example 20% scope creep per story
  • Estimate that over a large project or a longer timeframe, say, a year
  • Apply this cost increase to the yearly cost of the team per feature or epic

Saving in Support Costs

Not only does proper design work saves your company from having development efforts go to waste, the same thing happens with your support resources.

HOW TO CALCULATE
  • Review a sample of support tickets addressed by your support team over the past 3 to 6 months
  • Categorize the tickets which arose solely from usability issues, backwards logic or unexpected system behaviour
  • Calculate the average time spent solving the issue with a client whether that’s done through written communications or dealt with over a call
  • Add this to the overall cost of the support team (if possible)
  • Calculate the percentage of potential cost savings for support efforts that would be deemed unnecessary if better design had been employed

Another thing to consider. If your support team is highly specialized, scaling it represents a high cost in terms of recruitment and training. You should also consider the turnover cost of these specialists if they feel disengaged with a software that is difficult to use.

Increasing sales & closing deals

This approach is especially impactful for B2B software applications. Thorough UX helps build a lot of trust and faith in your product, especially if that experience is represented in software demos.

This trust is (at least initially) gained by conducting demos of your software. When your demo is stronger, it creates a positive reaction in the customer where they appreciate that:

  • Getting the system set up will be more expedient;
  • Less training will be required;
  • The software has been made as simple as it can be;
  • Their team will enjoy using it;
  • They will not regret paying for its high quality.

Ideas to consider for this calculation:

  • Review your sales pipeline, the number of opportunities your company came across, the average time to close a deal and the average lifetime value of a customer.
  • Determine how many passed last year due to poor demos, lack of usability or features which were not up to industry standards
  • Use the potential revenue from that year or the average customer lifetime value
  • Look at your existing customers and their feature requests
  • Determine if they are underserved
  • Calculate how those new features might be added on to your roadmap and how that would increase your earnings from those customers
  • Look at the customers in your pipeline who represent potential earnings but have previously been deemed as bad fits for your product
  • Examine if asking these questions about design has sparked a dialog to make your product evolve
  • If yes, you can consider the lost income these leads and their needs represent to calculate your UX investment

Opportunity Cost

Looking at UX ROI through the lens of opportunity cost is especially relevant for competitive and fast moving fields where losing out is more likely to happen and at a faster pace.

It is also relevant for more entrenched industries with incumbents having much more market share than they deserve and where more low hanging fruits exist for innovation and disruption.

Given that excellent user experiences give you a competitive edge, here are some ways to calculate the cost of missed opportunities:

HOW TO CALCULATE
  • Estimate the cost of market share being taken from your company by more design-forward competitors. This is the cost of being made “irrelevant” or “obsolete”.
  • Look at the cost of unaddressed or underserved market segments that are struggling to solve this problem. This is about calculating the money you’re leaving on the table for your competitors.ckets which arose solely from usability issues, backwards logic or unexpected system behaviour
  • Calculate the potential earnings that could come from out-competing another company for its entire market share.

Team velocity & morale

Good UX participates in creating an excellent product that employees can be proud of, get behind and get ‘obsessed’ with. It creates alignment across and within teams, moving the brilliant minds in the same direction. Initiatives like Design Thinking get teams aligned, exploiting the genius your team has to create innovation. Morale is something that can also benefit from having a product with an elevated interaction quality and overall user experience. Working in a design-centric way can also create a more nuanced team workflow between designers and developers (and product).

A couple of approaches to giving this a dollar value:

Look at the potential cost reduction of recruiting top talent if your company had an inherently better product.

Look at the potential returns that a well-aligned team can create
  • Internal promoter score, or employees’ willingness to be ambassadors of the company.
  • They themselves continually bring up possible improvements because they care and want to see the product or service thrive.
  • They feel excited to come to work. The effects of an overall motivation boost can be felt in other initiatives.
Look at the potential cost reduction of recruiting top talent if your company had an inherently better product.

Exploiting innovation & invention opportunities

Earlier, we alluded to disruption but here we want to focus on invention.

What would it be worth to you if your company were to unearth an unexpected discovery? Since the UX design practice has great influence on internal practices and facilitates out-of-the-box thinking, how likely do you think it is for true innovation to happen outside of a user-centred culture?

Do you feel that your teams are stacked with more potential than you are fully realizing? If you feel like your teams’ talent could unlock breakthroughs and your company is lacking the culture of initiative and creativity needed to enable them, can you really afford not to seize these opportunities?

While this is much more difficult to calculate and a bit more on the aspirational side, here are some ideas:

HOW TO CALCULATE
  • Calculate the market share of industries that could be removed were you to innovate
  • Look at events happening on a large scale which might be preventable
  • Extrapolate the worth of what those are costing to the public, to governments, etc…

Closing Thoughts

When you calculate the ROI of UX research and design, proceed with caution and remember than the more conservative you are, the better. You can also decide to consider an upper and lower limit to the potential returns or saved costs instead of fixed amounts. Finally, remember to gather your metrics from multiple angles to build a stronger case for a UX investment.


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