How to predict the ROI of UX

Why does UX make such a difference? And how can you predict the ROI of UX? 

User experience design — also called UX — can have a significant return on investment (ROI) for companies that invest in it. So how can you predict the ROI of UX? One of the most cited stats is that for every dollar spent on UX, companies see up to $100 in return — an ROI of 9,900 percent.

But of course, it all depends on what you measure. In this article, I’ll explore the benefits of UX, common problems that UX can help, and two ways to calculate the ROI of UX based on your company’s situation.

This article is based on Standard Beagle’s free webinar, The True Impact of Design. Watch the webinar here.

An example of the impact of UX

Here’s an example of how big a difference UX can make.

Jared Spool wrote in his company blog about a major e-commerce site that had a form that it didn’t know was causing a problem. Customers could add items to their carts easily, but when they were ready to checkout, the form they encountered had a design flaw.

The form required users to login or register before completing their purchase. To the people who designed the site, it made sense. They thought it would enable repeat customers to make purchases faster. They also assumed that first-time users wouldn’t mind registering because when they came back for more, they would be able to make those purchases faster.

But that’s not how users perceived the form.

Usability testing found that the form screen was blocking users.

The usability experts asked users to add items to their cart and then complete a purchase. They found that first-time users resented the registration requirement. Some first-time users also couldn’t remember if it was their first-time.  These users got frustrated trying to login and failing.

Returning customers also had problems. Most stumbled on the form and many couldn’t remember their email and password, so they fumbled through trying to retrieve the information.

In fact, analytics showed that every day, over 160,000 password requests were made. And 75 percent of the people with those passwords never ended up completing the purchase.

The form was supposed to make things easy, but instead, it actually prevented sales.

To fix the problem, the designers removed the register button, and added one that read, “Continue.” Instead of requiring users to register, it allowed users to check out as a guest.

The result? The number of purchasing customers went up by 45 percent, which led to $15 million more sales in the first month.

In the first year, the company saw $300 million in additional sales.

Benefits of UX research and design

Because UX is a process for creating products and services that are useful and usable for the people who use them, user experience research and design have three major benefits for companies:

• Increased conversions
• Increased productivity
• Increased revenue

In the story above, the ecommerce team thought that the login and registration at checkout would speed up customers. But when the usability team actually talked with customers, it turned out the situation was much different.

People didn’t like using the form, and they struggled with it. What’s more, it actually prevented sales.

Only through talking with users did they learn that key piece of information.

Sometimes businesses don’t know that they have issues with their websites and software that cause customers to turn away. UX can uncover these types of issues.

Problem #1 — Not all users can access

Accessibility means ensuring people of all abilities can access and use a product or service. Sometimes designers only focus on able-bodied users.

But designing for accessibility means considering those users with impairments as well.

According to the Centers for Disease Control and Prevention — 26 percent of US adults have some form of disability.

Disability can include vision, hearing, cognitive or neurological, and physical disabilities. There are dozens of areas to check accessibility for this vast array of disabilities.

Vision impairments

For example, individuals with vision impairments may rely on a screen reader to read the screen to them. But they can run into problems when a site isn’t designed and built to ensure that the screen reader can see or read the content.

That’s what happened when a blind user attempted to use Domino’s pizza tracker. The user wasn’t able to effectively use the site, and it resulted in a lawsuit against Domino’s.

Physical impairments

Another example — some users have arthritis or other physical impairments that make it difficult for them to use a mouse.  When a website or product has small clickable targets — like buttons or form fields — it can make it hard for these users to click on and use.

Sometimes these users want to skip the mouse altogether, and just use the tab key to navigate. But tabbing may be poorly implemented or disabled altogether.

UX can uncover where products and services aren’t accessible to all users.

Problem #2 — Beautiful, but not functional

A great user experience is a balance between aesthetic and function.

Users expect beautiful design. In fact, studies have found that 75 percent of users will determine how credible a site is based on how it looks, making this decision in less than 4 seconds.

But they also expect it to work.

A company may have a beautiful design. But if users have trouble using features, they might become frustrated, and the company will lose credibility.

I ran into this lately using an app called Noom. The interface is modern, but as I started using the app, I found it to be buggy and it kept losing information. I also had a hard time with the navigation, because it wasn’t intuitive. I got really frustrated with it and started thinking I made a mistake in trying the service.

Compare that to my experience with Fitbit. It also has a sleek design, but it’s far less frustrating to use. It has fewer bugs and works easily.

UX can help strike the balance between beauty and uncover the issues that cause users frustration.

Problem #3 — Overlooking the entire experience

Humans, by their nature, make mistakes. And users will often use our products in ways we don’t expect. That’s why products and services need to consider what users experience when it falls outside of the expected path.

One of the most common places you’ll find the experience missing in between is in a form.

Designers need to be able to answer:

• What happens when a user is filling in their information?
• Does the form give them feedback to know if it’s correct?
• What happens when users forget a field?
• Does the form let them know before they click submit?
• What do users see when there’s a connection error?
• What do users see if they already signed up for the service or used up a free trial?

UX considers the entire experience — including the in-between states where users end up.

Problem #4 — Overwhelming users with too much information

Companies have a lot of information to share with users. The problem is — most people get overwhelmed when they are confronted with a lot of information.

Here’s a common example — a website that has a wide variety of users and lots of departments. Everything is in the main navigation or on the home page, because typically, when you make information visible, it’s easier to find.

But in this case, there’s too much. What’s happening is called the paradox of choice.

The paradox of choice observes how users who have many options to choose from actually feel more stressed and find it harder to make a decision. In the book, “The Art of Choosing,” author Sheena Iyengar explains this phenomenon. She talks about a study conducted at a grocery store.

The store had two different sampling stations. One had 24 flavors of jam. The other only had 6 flavors.

Here’s what happened —

At the station with 24 flavors, only 3 percent of shoppers bought a jar. But at the station with only 6 flavors, 30 percent of customers purchased at least one jar of jam.

More options attracted more customers, but the smaller selection generated more sales.

UX can uncover where products and services are overwhelming customers and help design a system that will have a higher conversion rate.

Problem #5 — Unresponsive design elements

Customers expect to be able to access digital products from anywhere — be it their laptop, tablet or mobile device.

Today, most designers understand the importance of mobile.  But what I’ve noticed is an over-emphasis on mobile, ignoring the experience on other devices. Mobile-focused design elements don’t always look good on larger screens.

A great user experience means ensuring that a user has a good experience no matter what device they use to access the product or website. In fact, 45 percent of users expect a site to load properly regardless of the device.

If they run into a site that doesn’t work correctly on their device, they’re five times more likely to leave the site.

The cost of poor UX

Design flaws can be costly for companies if they don’t find them. They can result in:

• Lost sales
• Lost customers
• And even human errors from their own teams.

Citibank learned a costly lesson in 2020, thanks to poor design of a software that led to losing millions of dollars.In August of that year, three Citibank employees made a transaction to a creditor of their clients’. The transaction was supposed to be $7.8 million. But Citibank ended up sending $900 million instead.

The problem was in the software’s user interface. The three employees reviewed the transfer screen before approving, and they didn’t notice anything wrong. The software itself made a warning about the transaction, but the warning didn’t contain the amount.

Citibank demanded the recipient to return the money, but the recipient disagreed. In February 2021, a federal judge ruled the recipients are not required to return the $900 million.

Even small issues that might seem inconsequential can make a difference.

Consulting firm GFK uncovered through UX research that one of its client’s had poor sales because of a poorly designed “Buy” button. Users didn’t notice the button and they also had a hard time clicking on it. The firm recommended adding additional buy buttons below each product image. This resulted in an additional $500 million in revenue per year.

It’s the expertise of UX designers and researchers that can uncover issues and help companies see benefits. But expertise is the key.

Walmart found that out after making a decision from a survey that asked the wrong question. In 2009, the company’s survey asked customers if they wanted stores to be less cluttered — a yes or no question.

Respondents answered “yes” for less clutter. So Walmart removed 15 percent of its inventory to reduce clutter.  They lost $1.85 billion in sales as a result and the team that made the decision was fired.

The survey was changed to a different question — “What do you think should be changed in Walmart?” This open question is a better way of generating feedback from users.

The benefit of UX is that finding and addressing issues can lead to substantial gains in profitability.

Investing in UX is a long game. UX in the short term requires an investment in time and resources. This can lead to short term decreases in profitability.

However, after this investment, companies can see a significant return.

There are three key areas where UX provides a positive impact for companies.

1. Increased revenue
2. Reduced costs
3. Competitive advantage

Customer loyalty leads to revenue growth

Improving the experience of a product or service can increase revenue, not only by increasing conversions, but also by building customer loyalty.

Seventy-nine percent of website visitors will search for another site to complete the task if they can’t find what they’re looking for. A better experience helps remove the obstacles that block users from finishing tasks. This increases sales. But it also increases customer satisfaction which leads to loyalty.

Reduced costs

UX can also reduce costs in two different ways.

1. Reduced development time and cost
   By doing UX research and design, developers can focus on implementing, rather than trying to fix issues.
   It’s been shown that UX reduces development time by 33 to 50 percent.
   In addition, design flaws that make it to development are 100 times more expensive to fix. So it’s better to use UX to create a better design so errors don’t make it to development.
2. Not developing features don’t want
   UX helps avoid wasting time and money on features that users don’t want because it uncovers user preferences as well as problems. Rather than spend precious resources on a feature for users to reject, companies can identify what users really need right up front.

Competitive advantage

Finally, companies that invest in UX have a competitive advantage.

Research by Forrester shows companies who have implemented user experience in their business strategy have gained 43 percent in performance over 6 years whereas S&P 500 companies only gained 14.5 percent over the same period of time.

McKinsey research also showed that companies that invest in design outperform. In 2018, the management consulting firm published results from a five-year study. The firm tracked 300 publicly-listed companies across industries and multiple countries. They tracked millions of statistics, including financials and design actions, and found that those companies that were strongest in design out-performed the industry-benchmark for growth by two to one.

How much should you invest in UX?

The key is to know what metrics you want to improve.

Let’s take a look at some hypothetical examples.

Let’s imagine that you have an e-commerce website. You sell bath products, and you’ve noticed that while traffic is high, your conversion rate is only 5 percent. Your goal may be to increase your conversion rate.

How might we calculate the value of UX? We need to know our current site profit and also what conversion rate we want to get to.

Here’s the formula:

ROI = [Annual site profit x [ improved conversion rate / current conversion rate ]] – Annual site profit / improvement cost

If our annual site profit is $1 million and we want to improve our conversion rate by 5%, here’s what that might look like.

[1,000,000 x [ 0.1/0.05]] – 1,000,000 = 1,000,000

Let’s say we hire an amazing UX team for $200,000 to complete a project to improve the conversion rate. They finish their project in a year and we measure their results.

1,000,000 / $200,000 X 100% = 500%

That’s an ROI of 500% in the first year — a ratio of 5:1

What about calculating the ROI of improving worker productivity?

Let’s imagine that you have software for internal users at your company. You’ve noticed that the workers’ productivity can be improved. UX can optimize the software interface and increase productivity.

For example — imagine you have 5000 employees that access the software everyday and complete 120 transactions to complete their work. Say we invest $100,000 in a team to make improvements to the software.

These improvements result in a half second improvement per transaction for every worker every day. A half second improvement per transaction in the software can add up over just the next year.

Let’s calculate it:

#users x #uses per day x days per year x hourly salary x Increase in efficiency / improvement cost = Gain from Improvement

5000 users x 120 uses per day x 230 days per year x 0.5 = 19,167 hours

$19,167 * $25/hour = $479,175 gain / $100,000

That’s an ROI of almost 500 percent.

Summing up

These numbers are squishy.  They aren’t something you’re going to report to the CFO about what you expect to earn based on UX.

But these formulas can help us determine what to invest as long as we understand what we are measuring.

Want to learn more? Here are some resources:

• Investing in UX Design Improves ROI
• How to measure retention in your digital products