The goal of this presentation is to show some techniques that can connect UX improvements & financials.
I’ve been looking into the relationship between UX and sales growth. Based on what I’ve read in research, there are several ways that UX could improve sales growth for a company.1. Initial Learnability: Make it easy for teams evaluating a product to get started and feel productive fast, so that they will buy the product2. Transfer to other products: Streamline the experience so that users of one product can quickly pick up other products and make an accelerated buying decision3.Recommendations to others: Make the lasting experience positive so that our users encourage others to buy4.Renewals.Once they’re a customer do they stay a customer and renew year after year?What do you think, do you think these are likely to affect sales growth for your product(s)?Sources:For learnability: http://usabilitygeek.com/the-difference-and-relationship-between-usability-and-learnability/For marketing: Net Promoter Score
Scenario: Early usability testing.Let’s do a scenario that’s a bit exaggerated Let’s say we’re working for a company named Acme. Acme’s starting a new project and they’re planning to run development first on a design project that you’re not sure whether people will buy based on the plan.
Acme company is ready to invest in developing a new product. You think that they should do more user research first, to find out about the market and to begin design before development.
There’s a lot of spreadsheet to build… But it’s not as much as you might think. I’m showing this not to intimidate, but to show you that almost all of the model is displayed in one screen and the text is almost readable – it’s not that much. And more importantly, the unique stuff is highlighted in blue – you can see there’s not really that much data you have to fill in to make this model work for most software companies because the rest is standardized or abstracted. You can always build more but you don’t have to build more to start.
I’m not going to get into too much detail on this, but the basic idea is that you model the spending in the past and forecast future spending.To do this you have two choices: (a) take several semesters of finance, or (b) talk to your friendly internal financial guy who’s most likely already done all of this for you. This is a standard model which all public companies are required to do and most other companies do it anyways, because it’s the way you make simple financial forecasts.
Standard financial models help model the impact of quality of sales results.Research backs these models up between the points.System Usability Scale scores, and other surveys, are used to collect data about usability, features, and quality. There’s great work out there showing that 2200 SUS survey scores are connected to net promoter scores. There’s also lots of research showing that NPS and related surveys are connected to sales growth.You can tie this all together with a standard financial model, which looks at a product or company metrics.I’ve used all this information for an example model that looks at average scores and financial metrics for software companies in general. Based on the data that’s already out there, at software companies in general there’s a huge potential ROI, return on investment by putting more into usability.
Average software company from >180 public software companies
This is consistent with the largest survey I’ve seen for the ROI of UX (done by Jakob Nielsen), which averaged around 68% ROI – so if anything, 54% this is a bit below the likely industry average.One way to compare these numbers would be on what you’d invest in – for example, a US bond would return 3% a year whereas UX could return 54% a year.
Transcript of "How to calculate the value of UX with standard financial models"
5Goal: Showcase techniques thatconnect UX and financials.
6What can UX improve about a business?Increase SalesReduced tech support callsCustomer productivity & happiness
7UX “professionals are called upon to take businesses withan interest in reaching broader audiences and make themaccessible to every segment of the market”- Eugenie Bertus & Mark Bertus, “Determining the Value of HumanFactors in Web Design”
8How can UX improve sales growth?LearnabilityTransfer to other productsRecommendations to othersRenewals
9Method 1: Model thevalue of individual UXdecisions with a decisiontreeMethod 2: Model thevalue of organizationwide investment with proformas
10Method 1: Decision TreeExample: Early User Research
18The expected value … is the weighted average of all values…The value may not be expected in the ordinary sense—the "expectedvalue" itself may be unlikely or even impossible (such as having 2.5children)…
36So, how much should we spend onrunning this kind of study?
37EVSI=Expected Value of Sample InformationValue of sample information =Expected Value of Doing Test(if test were free)– Expected Value Without Test= Pay up to $987k for UX benefit #1or up to $1.25m for both UX benefits
38Method 2: Pro Forma + UX DataExample: Model The Value ofOrganization Wide Investments In UX
391Model the company’s financesover time2Model the spending on UX3Model the effect of UX on salesover timeSteps to build model
41It’s a lot of spreadsheet, but not as much asyou might have expected!
43Get a few numbers from the friendly guy in thefinance department Current revenue Number of years tosimulate Annual growth rate Tax rate EBIT margin Capital Expenditures asa % of revenue Working capital as a %of revenue Depreciation as a % ofrevenue Weighted average costof capital Cost of equity Cost of debt Weight of equity Weight of debt
47HowImprovedUserExperienceBetterperception ofproductMore Word OfMouthSales GrowthExisting, standard, financial models work like this:Each has associated metrics:The best part is that we’re not doing anything new – every stephas been done before.
60Investment InUser ExperienceHigher SystemUsability ScaleHigher NetPromoter ScoreSales GrowthHowSoftware Industry Averages68 -15% 14%Target80 20% 19%3% of spending9% of spending
61Example: An Average Software CompanyIncreasing SUS from average to best has the potential toincrease sales growth 3.1%-8.4% per yearThe financial returns on average would be: A 67% internal rate of return (IRR) 54% Return on Investment (ROI)
62Method 1: Model thevalue of individual UXdecisions with a decisiontreeMethod 2: Model thevalue of organizationwide investment with proformas
63MathWorks is hiringAaron.Powers@MathWorks.com