Table of contents
1. How UX affects business revenue
2. Basics about ROI
3. Two myths of UX ROI
4. Calculating UX ROI
5. Why should you invest in UX
6. Key areas that can help elevate the user experience
7. Conclusion
1. How UX affects business revenue?
When we talk about business ROI, we usually don’t include the value of UX design. UX can directly influence the overall experience of the customer with your business. This means the better the user experience; the more will be the engagement, thereby contributing to your bottom line.
The Mckinsey & Company international consulting firm conducted studies to measure revenues and shareholder returns related to good design. They found that the best design performers increase their revenues and returns at nearly twice the rate of their industry counterparts.
Source: McKinsey
2. Basics about ROI
Return on investment (ROI) is a globally accepted KPI for evaluating the efficiency of an investment. It tries to directly measure the amount of return (in percent) on a particular investment.
2.1 What is ROI?
ROI is a standardized financial KPI that helps determine the profitability of an investment. It is a ratio that compares profits or losses from an investment.
ROI is calculated as (Income – total investment /total investment) * 100
For instance, if you invested $1000 in UX and earned over $1500, then your ROI will be 50%.
ROI = ($1500 – $ 1000 /$1000) * 100 = 50%
An ROI of 15-30 percent is considered good across industries. When it comes to marketing, a ratio of 5:1 is deemed to be strong for most businesses.
2.1 Why does ROI matter?
When you hire someone (developers, marketers, sales representatives, or graphic designers), you invest in them. Your investment must generate some income for you to continue the business. ROI helps understand if the investment is generating profit or loss, so you can choose to proceed only with the most promising ones or optimize the strategies. While there are numerous types of ROIs to measure in each business (e.g., hiring new employees, purchasing a new tool, sales strategies, etc.), we will stick to the ROI of user experience.
Measuring the ROI of UX helps determine:
- Whether your customers are enjoying or can use your product efficiently? If not, you will find it challenging to retain them.
- Are they facing challenges in getting the most out of your product? If yes, they will likely move to your competitor as they can’t find value in your services.
Without measuring the UX ROI, you won’t be able to determine if a customer left your website due to a bad user experience or any other reason. Before we move to how to calculate UX ROI, let’s understand the myths about it.
3. Two myths of UX ROI
Over the years, ways to measure ROI have evolved and are now being used to calculate the returns in various non-capital expenditures, such as human resources, technology, and user experience. For products (software), UX plays a crucial role after the user has bought it. A good UX helps retain them, while a bad UX drives them to your competitors.
That said, let’s look at the two biggest myths of UX ROI.
3.1 ROI is all about money
When calculating the return on investment, the end goal is usually monetary, but not always. ROI is not always about the dollars you are generating. The ROI of user experience is more about demonstrating that design positively impacts the overall customer experience, thereby improving your bottom line.
Let’s suppose redesigning an internal application reduces the time required to do a certain task. For that task, we can multiply the time saved by average hourly pay, the number of employees, and the task frequency. That would give us hundreds of dollars of savings every month. Apart from the money, your employees would be able to focus on other important tasks. In a nutshell, ROI is also about how users feel and say about your product. Internally, ROI is also about the time your employees save without affecting their work.
3.2 ROI has to be perfectly accurate
Though we want ROI calculations to be as precise as possible, these are only estimates. The only accurate ROI would be of your total investments and not individual investments (e.g., sales, UX, human resource, etc.).
Therefore, ROI does not have to be perfect. Here’s an example to help you better understand it.
Think about it this way. You launched a SaaS product. The project cost you $20,000, and you acquired 50 customers at $499/month. The overall ROI would be:
ROI = (50*499 – 20000 /20000) * 100 = (4950 / 20000) * 100 = 24.75%
This is the number the management would be interested in.
However, if the product’s design is not good, your customers will likely find it difficult to get its value. As a result, the overall customer experience won’t be good, and they might cancel their subscription, negatively affecting your bottom line. And, if they share their experiences with others, it would hurt your brand image.
That potential profitability or loss is what we are trying to estimate the value of. These ROI calculations do not usually determine exactly how much extra money will show up at the end of the quarter.
4. Calculating UX ROI
Now that you know what UX ROI is and its myths, let’s understand how to calculate UX ROI.
4.1 Measuring the exact ROI on UX is difficult
Getting a dollar value for your investments in UX is difficult. However, as mentioned above, ROI is not always about the money.
The major areas where you can experience a higher return on investment from better UX are:
- Increased conversions
- Enhanced customer retention
- Improved team productivity
- Reduced support costs
- Reduced development costs
For example, a few years ago, Mozilla received 70% fewer support calls after spending around 14 weeks making usability improvements.
So, the question is, how do you calculate UX ROI?
The best way to calculate UX ROI is by A/B testing. Observe what works and what doesn’t. Or make some design changes in your product to see how users react.
For instance, Humana, a health insurance company, used A/B testing on its homepage banner. The first one was good, but the company felt they could increase the CTR by making simple changes in design and copy. As a result, the new design received 433% more clicks.
Source: Marketingexperiments
4.2 Examples that show minor changes can have a positive effect on conversions
For businesses who still think investing in UX is not worth investing in, here are three real-life examples of how design can positively impact your bottom line.
1. Virgin America
In 2014, Virgin America decided to reinvent the digital travel experience to meet the expectations of modern travellers. After successful A/B testing the new design against the old, they released a responsive website.
Source: Toptal
- 14% increase in conversion rates
- 20% fewer support calls
2. Rev
Rev, online transcriptions and captions service, completely redesigned its website for a more modern look. Their old website was a little outdated, and its main element was a carousel highlighting the three value propositions of the company: speed, quality, and service.
In the new design, they replaced the carousel with a simple, bold value proposition. It also had three service cards, with a brief explanation, pricing info, and a CTA.
Source: Justinmind
As a result, Rev.com improved its conversion rate by 18% in nine months.
3. Vocier
Vocier is a luxury suitcases brand. Though their website was generating enough conversions, they felt it could be improved.
Source: Vocier
After qualitative usability testing, they found:
- The website is primarily for the older generation.
- Catalogue navigation was confusing.
- People weren’t able to zoom in on images.
- The checkout process was complicated.
With these details in mind, they started A/B testing pages. The conversion on the final version was 75% higher than the older website.
5. Why should you invest in UX?
Investing in UX enables you to improve the overall customer experience. It also helps increase conversions and boost market share.
Here are some statistics that show the importance of user experience:
- Every $1 invested in UX results in a return between $2 and $100.
- The top companies leading in user experience outperformed the S&P index by 35%.
- Strategic user experience has the potential to raise conversion rates by as much as 400%.
- 13% of customers will tell 15 or more people about their bad experience. 72% will tell 6 or more people about good experiences.
UX experts can help you identify issues and bottlenecks in your website and product. They can also help remove any obstacles preventing your growth.
6. Key areas that can help elevate the user experience
In order to improve the overall user experience, there are three key areas that need to be improved.
6.1 Usability (Discoverability and Navigation)
Easy to navigate websites makes it clear what actions a user can take in the website. Redesigning the information architecture and site navigation can help users find what they are looking for, thereby improving the conversion rate.
For example, CallHippo, a contact center solutions provider, has an easy-to-navigate virtual phone system that makes it easier for customers to use the product. Their mobile app has a design similar to a smartphone dial pad, enabling everyone to use it without assistance.
Source: CallHipo
Customers repeatedly asking your support team questions like, “how do I do this,” or “where is this feature” can damage brand perception and drive them away.
Make sure all the features of your product can be accessed easily and without much effort. You could also consider adding a search option to make it easier for customers to find what they’re looking for.
6.2 Consistency (UI design and interaction design)
Consistency in design reduces learning and eliminates confusion. For instance, different colours, layouts, or font styles on different pages can confuse customers and negatively impact usability. Furthermore, it means using similar elements to achieve similar tasks. As well, when you launch new features, it should reflect your current UI. Consistent UI design eliminates the need for learning new representations or toolkits for each task, thereby improving the overall user experience.
6.3 Workflow (User flow and efficiency)
Improving the workflow of your product increases customer productivity and enables them to get work done faster. Menus and submenus have to make sense for customers.
Consider adding an account dashboard to your product to boost efficiency. It should give an overview of the most critical actionable data so they can stay updated with their business performance.
Source: CallHippo
7. Conclusion
User experience is an integral part of every business. It impacts various aspects of your business, including conversion rate, retention rate, and productivity. Use A/B testing to determine the true impact of UX on your business.
