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1© 2012 The MathWorks, Inc.How to calculate the value of UX withstandard financial modelsBy Aaron Powers
2
3
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 themaccessibl...
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 invest...
10Method 1: Decision TreeExample: Early User Research
11
12Decision Point
13Cost
14Final Value
15Cost
16Probability
17Final Value
18The expected value … is the weighted average of all values…The value may not be expected in the ordinary sense—the "expe...
19
20Expected Value (weighted average)Weighted average of market responses:.45 * 4m +.35 * -1m +.20 * -6m= Expected Value = 2...
21Expected Value
22Simulation Results
23
24
25What happens if we include userresearch up front to understand riskbetter?
26Benefit #1 of user researchBetter estimation on whether the market responsewill beGreat:Awful:Fair:Possible test results...
27GreatFairAwfulIf test result is: Market response probabilitybecomes:
28Add a decision herewhether to run a study first
29
30
31
33Benefit #2 of user researchEarly ability to tune overall product design so thatyou’re more likely to have a great market...
34
35
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)– E...
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 m...
41It’s a lot of spreadsheet, but not as much asyou might have expected!
42Step 1: Model the company’s basicfinances
43Get a few numbers from the friendly guy in thefinance department Current revenue Number of years tosimulate Annual gr...
44Forecast The Next Few Years
45Step 2: Model the spending on UX
46Step 3: Model the effect of UX on sales
47HowImprovedUserExperienceBetterperception ofproductMore Word OfMouthSales GrowthExisting, standard, financial models wor...
48How
49Measure Usability (with SUS)
50Measure Usability (with SUS)
51Investment InUser ExperienceHigher SystemUsability ScaleHigher NetPromoter ScoreSales GrowthHow
52Investment InUser ExperienceHigher SystemUsability ScaleHigher NetPromoter ScoreSales GrowthHow
53Net Promoter Score
54Collect NPS or estimate from SUS
55Investment InUser ExperienceHigher SystemUsability ScaleHigher NetPromoter ScoreSales GrowthHow
56Investment InUser ExperienceHigher SystemUsability ScaleHigher NetPromoter ScoreSales GrowthHow
57NPS is correlated with Sales Growth
58Example: An Average Software Company
59Example: An Average Software Company
60Investment InUser ExperienceHigher SystemUsability ScaleHigher NetPromoter ScoreSales GrowthHowSoftware Industry Average...
61Example: An Average Software CompanyIncreasing SUS from average to best has the potential toincrease sales growth 3.1%-8...
62Method 1: Model thevalue of individual UXdecisions with a decisiontreeMethod 2: Model thevalue of organizationwide inves...
63MathWorks is hiringAaron.Powers@MathWorks.com
64© 2012 The MathWorks, Inc.How to calculate the value of UX withstandard financial modelsBy Aaron Powers
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  • 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"

    1. 1. 1© 2012 The MathWorks, Inc.How to calculate the value of UX withstandard financial modelsBy Aaron Powers
    2. 2. 2
    3. 3. 3
    4. 4. 5Goal: Showcase techniques thatconnect UX and financials.
    5. 5. 6What can UX improve about a business?Increase SalesReduced tech support callsCustomer productivity & happiness
    6. 6. 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”
    7. 7. 8How can UX improve sales growth?LearnabilityTransfer to other productsRecommendations to othersRenewals
    8. 8. 9Method 1: Model thevalue of individual UXdecisions with a decisiontreeMethod 2: Model thevalue of organizationwide investment with proformas
    9. 9. 10Method 1: Decision TreeExample: Early User Research
    10. 10. 11
    11. 11. 12Decision Point
    12. 12. 13Cost
    13. 13. 14Final Value
    14. 14. 15Cost
    15. 15. 16Probability
    16. 16. 17Final Value
    17. 17. 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)…
    18. 18. 19
    19. 19. 20Expected Value (weighted average)Weighted average of market responses:.45 * 4m +.35 * -1m +.20 * -6m= Expected Value = 250k
    20. 20. 21Expected Value
    21. 21. 22Simulation Results
    22. 22. 23
    23. 23. 24
    24. 24. 25What happens if we include userresearch up front to understand riskbetter?
    25. 25. 26Benefit #1 of user researchBetter estimation on whether the market responsewill beGreat:Awful:Fair:Possible test results of a study with 5 people:
    26. 26. 27GreatFairAwfulIf test result is: Market response probabilitybecomes:
    27. 27. 28Add a decision herewhether to run a study first
    28. 28. 29
    29. 29. 30
    30. 30. 31
    31. 31. 33Benefit #2 of user researchEarly ability to tune overall product design so thatyou’re more likely to have a great marketresponse
    32. 32. 34
    33. 33. 35
    34. 34. 36So, how much should we spend onrunning this kind of study?
    35. 35. 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
    36. 36. 38Method 2: Pro Forma + UX DataExample: Model The Value ofOrganization Wide Investments In UX
    37. 37. 391Model the company’s financesover time2Model the spending on UX3Model the effect of UX on salesover timeSteps to build model
    38. 38. 41It’s a lot of spreadsheet, but not as much asyou might have expected!
    39. 39. 42Step 1: Model the company’s basicfinances
    40. 40. 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
    41. 41. 44Forecast The Next Few Years
    42. 42. 45Step 2: Model the spending on UX
    43. 43. 46Step 3: Model the effect of UX on sales
    44. 44. 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.
    45. 45. 48How
    46. 46. 49Measure Usability (with SUS)
    47. 47. 50Measure Usability (with SUS)
    48. 48. 51Investment InUser ExperienceHigher SystemUsability ScaleHigher NetPromoter ScoreSales GrowthHow
    49. 49. 52Investment InUser ExperienceHigher SystemUsability ScaleHigher NetPromoter ScoreSales GrowthHow
    50. 50. 53Net Promoter Score
    51. 51. 54Collect NPS or estimate from SUS
    52. 52. 55Investment InUser ExperienceHigher SystemUsability ScaleHigher NetPromoter ScoreSales GrowthHow
    53. 53. 56Investment InUser ExperienceHigher SystemUsability ScaleHigher NetPromoter ScoreSales GrowthHow
    54. 54. 57NPS is correlated with Sales Growth
    55. 55. 58Example: An Average Software Company
    56. 56. 59Example: An Average Software Company
    57. 57. 60Investment InUser ExperienceHigher SystemUsability ScaleHigher NetPromoter ScoreSales GrowthHowSoftware Industry Averages68 -15% 14%Target80 20% 19%3% of spending9% of spending
    58. 58. 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)
    59. 59. 62Method 1: Model thevalue of individual UXdecisions with a decisiontreeMethod 2: Model thevalue of organizationwide investment with proformas
    60. 60. 63MathWorks is hiringAaron.Powers@MathWorks.com
    61. 61. 64© 2012 The MathWorks, Inc.How to calculate the value of UX withstandard financial modelsBy Aaron Powers

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