How to easily benchmark the ROI of UX
As a business owner, understanding the ROI of UX is a hard task. Clarifying what to expect when you invest in UX is essential to make the right business decision.
Unfortunately, there’s a surprising lack of data and business case on the topic. UX is a team effort. This makes it hard to detach its contribution from other related activities.
To help clarify the ROI that you can expect when you invest in UX, Design Accelerator has run a survey among EU startups and scaleups on the business value of UX. In this article we share the results.
Defining what UX is
To determine the ROI of UX activities (research and design), we first have to clarify what UX is.
As a previous startup founder, I’ve seen there’s a common misconception on this point. UX is seen as the icing on the cake of an already-made product strategy. “We know what to build, can you now do the design?”. UX is not only about design. UX is the activity of learning what users want and translating it into a product.
That’s why any product roadmap should start from a solid understanding of users’ needs. The process of understanding these needs, validating and visualizing them is what is called UX.
UX to save costs and increase growth
We have defined what UX is about. Now, to calculate the ROI of UX, let’s see how good UX contributes to the success of your company.
Understanding what your users want will make you stand aside from the competition. You’ll understand not only what your customers want, but also why.
Key metrics improvement
UX is a growth element. It is essential for each one of the so-called pirate metrics: acquisition, activation, retention, revenue and referral.
Jumping to development too soon and only testing later means there’s a high cost of waste. Validating before you develop saves you the cost of having to redo what your users don’t need.
For early-stage companies, being able to show something makes all the difference. It increases your credibility in front of prospect clients as well as investors.
The business value of UX
So what does data tell about the ROI of UX? With Design Accelerator we’ve asked this question to 32 business leaders for startup and scaleup companies in 6 EU countries. With our research we want to start creating a benchmark for decision makers to help assess what to expect from UX activities.
You find a link to the full report here.
Here’s what the respondents told us.
When asked about the average ROI of UX activities, the majority of respondents said UX has delivered an ROI of 2x or more. This means for 78% of respondents UX has a return of more than 200%. In 1/3 cases UX yields an even higher return, between 400% and 600%.
The data offers a very interesting benchmark for those who want to make an estimation of how UX will benefit their company, but also for any UX specialist who wants to communicate the value of what they provide.
A surprising gap
However, there’s something else that strikes the attention. In facts, the majority of business leaders haven’t calculated the ROI of UX for their company:
This means that 71% of decision makers don’t know what to expect when they invest in UX.
Why is this a problem? Not knowing the value of what you buy (business owner) or what you sell (UX specialist) makes choices subjective. Harder to communicate and evaluate.
There’s at least 3 simple ways in which we can calculate the ROI of UX. Let’s have a look at them together.
Three easy ways to calculate the ROI of UX
There’s many ways to calculate the ROI of UX. Here’s 3 easy ones, suitable for startups:
- Focusing on how a better UX will increase revenue from users;
- Calculate how UX research will reduce the cost of development waste:
- Calculate how a better UX will impact the valuation of your company.
In the first case you make an estimation based on the monetization uplift and how much that uplift means for revenue. So if the current conversion is 1% and the current revenue is $10.000, a conversion of 2% means a revenue increase of 100%. If the cost of your UX service is $1.000 (so 1/10 of it), then the ROI is sales increase ($10.000) – costs ($1.000) / your cost ($1.000) = 900%.
In the second case you need to guesstimate how much time (especially development time) will be saved by UX. Here “A rule of thumb is for every one dollar invested in User Experience research you save $10 in development and $100 in post-release maintenance.” (source). The problem with this calculation is that it can only be done afterwards.
The last method is often forgotten, but very powerful for early stage companies. The valuation of your company will inevitably change when you can show: problem/solution fit, product/market fit or even just a working prototype to support your pitch.