In 2020, e-commerce websites lost roughly $1.4 trillion because of UX-related issues.
There’s no more question if UX can bring money, the question now is “how much.” Or, in business terms, what would be the return on investment (ROI) of UX?
And that’s a really tough question because answering it can take you more time than solve UX issues themselves.
There’s this popular story when replacing a single website button brought $300 million in revenue to a major e-commerce website. What kind of ROI are we talking about here, 300 000%?
The irony is that cases like this one popularize the concept of UX as a business investment, which forces us to calculate the ROI of UX even more often.
In this article, we’ll talk about why many UX ROI calculations are so off and share formulas that you can use to calculate the UX of ROI for your project.
We know that a well-thought-out user experience has many benefits, such as:
Increased customer satisfaction
Improved conversion rates
Lowered support costs
Increased customer loyalty and retention
Reduced development costs
It goes without saying that all these benefits are interconnected, and any ROI UX formula is attached to at least one of them. We’ll share the formulas in the later section.
But even if you are using proven UX ROI formulas, there are still things that affect UX ROI calculations:
The level of maturity of your company. The impact of UX changes in established companies and startups is different. An e-commerce website might implement some UX changes to improve the conversion rate by a few percent. The ROI can be calculated more accurately because it will be tied to existing infrastructure.
Now compare that to a startup such as Airbnb that went from $200 per week revenue to billions after performing user research and implementing design thinking into their product. In this case, the role of UX is transformative, and thus its potential impact is bigger. To accurately predict the kind of returns [thousands or tens of thousands?] in the first year would be nearly impossible.
How data-driven your company is. According to a McKinsey survey, data-driven companies are 23 times more likely to outperform competitors in terms of customer acquisitions and 19 times more likely to achieve above-average profitability.
There are many reasons for that and one of them is that UX initiatives in a data-driven company are more informed. Whenever you change something in your interface there’s a wealth of data to help you calculate the impact of ROI of UX more accurately.
Point of application. The ROI of UX widely depends on your point of application, or to put simply, the “useR” in the user interface.
You’ll be using different formulas to calculate ROI whether you will be revamping the UX of your employees to improve their productivity or fixing the onboarding process for new users of your product.
Your goals. UX goals might not always be attached to monetary outcomes, but other benefits such as brand exposure, audience reach, or market differentiation.
Although these goals can be tied to monetary outcomes, they don’t always have t, and you might find other metrics that can be boosted by UX excellence.
One of the most common ways to calculate the ROI of UX is to check how UX-related changes affect your conversion rate.
Conversion rate is a metric designed to see what proportion of users perform the desired action. This desired action can be anything from signing up for your free course to checking out at an e-commerce website.
In this example, a retail company hires a UX agency for 3 months [$25,000] to improve the conversion rate of its online platform. The resulting increase of 0.5% yields $75,000 additional monthly revenue and ROI of 3500% over a year.
Conversion-based UX ROI calculation is good for:
Established online platforms with set up customer analytics
The work of UX professionals at the early stages of building a product can significantly reduce the amount of time and resources people spend on development.
A well-executed user testing can reveal what product features might be redundant or, on the contrary, the most needed. According to Experience Dynamics, UX research can reduce development time by up to 50% while reducing the re-work by another 50%.
As Forrester estimates, it’s 5 times more expensive to solve a problem at the design stage than it’s at the development stage, and 30 times more expensive after the product’s release.
For example, American Airlines reduced the cost of their website development by 90% by addressing the usability issues early in the development.
Although accurate UX ROI estimates are only possible after the development was complete, you might take into account how many tasks from your initial backlog you were able to optimize or get rid of after implementing user testing and other UX-related activities.
Development costs UX ROI calculation is good for:
Startups in the early stages of product development and strict burnout estimations
Outsourced development teams
Support activities of any kind might be draining the company’s money every day. One minute of servicing a customer by a call center costs about 1$, and if you have customers in thousands the costs keep piling up.
UX optimization can drastically reduce the number of support calls by making the product more intuitive and error-prone.
McAfee was able to reduce the number of support calls by 90% by simply fixing several usability issues in their software.
Surely calculating the UX ROI in regards to support calls is only viable for companies with established support centers, as they can immediately analyze and track the positive effects.
Support costs UX ROI calculation is good for:
Companies that spend lots of money on supporting their product
Companies that track their support expenses
A decade ago we had many really bad products. It was hard to not improve something in terms of UX.
But the UX field matured. These days the quality bar on entry is high, and it’s getting harder to improve existing products with quick fixes. At the same time investment into UX becomes noticeable as these days hiring UX professionals and supporting their work can get really expensive really quick.
That’s why the discussions around UX ROI matured as well. We’re getting better at justifying UX to businesses, and we should continue getting better at that in the future.