Measuring the intangible
How and why you must be calculating the design ROI.
All businesses, regardless of industry, likely faced some of these difficulties in the first few years:
Identifying the product/service model
Evaluating business models
Paying attention to their customers
Enhancing or adding new features to their product
While product design as a business process can assist in addressing those issues, measuring its impact can be challenging. Calculating the design ROI makes that easier.
For more than five years, McKinsey monitored 300 businesses. The most striking relationship between design actions and financial gain was discovered through measuring design actions and gathering vast amounts of financial data. In other words, it provides the design's commercial value. They discovered that the top designers grow their profits and shareholder returns at a rate that is almost twice as fast as that of their competitors in the sector.
In the article about most important metrics designers must track1 we learned system usability scale (SUS), completion rates, net promoter score (NPS), and how to measure those. Now, let’s explore why and how of design ROI.
Why calculate design ROI?
Different businesses approach design in different ways. Some people solely focus on appearances, some use design thinking to facilitate workshops, some use design to test concepts and iterate more quickly, and others make design the main priority when creating new products.
These businesses understand that figuring out the design's return on investment is essential, regardless of what approach is used.
Costs reduction
Bad decisions can cost a lot2.
The amount of money you will spend resolving customer problems after the product launch is one of the most undervalued return on investment elements. Users will encounter issues less frequently if you have conducted in-depth market research and produced precise, data-driven customer journey maps.
As a result, you'll need to spend less money fixing problems for users over the phone, through emails, support requests, etc. When there are few users, it might not seem like a big deal at first. When your product expands, it would become too costly and too late to do a redesign and development.
Conversion rate optimization
Generating leads from prospects is an essential aspect of every business. On your website, there are instances when visitors just choose not to click the button. You keep bringing in people and spending money on ads but in waste.
The good news is that it is fixable. You can identify the areas where you should concentrate your efforts by estimating the ROI of UX.
Sales increase
If it doesn’t sell, it’s not creative. This is an important argument, particularly in the context of e-commerce and marketplace design. Investing in marketing campaigns and having your customers go away because they couldn't figure out a purchase step is definitely not what you want to happen.
It is possible to remove sales roadblocks and uncertainty during the purchasing process by following the design best practices.
It's important to evaluate your design if, at this point, you see an obvious decline in business due to the number of shopping carts with products but no purchases or incomplete sign-ups.
Team performance improvement
Time can be saved by the choices you make during the design process. However, they can potentially improve teamwork even further. For instance, developers must spend hours trying to fix errors at random. However, because these solutions have resulted in more issues, they must now invest even more hours.
Your team will save time when you have a system and are aware of how design influences user behavior.
Raising LTV
It could be very expensive to bring in new business. While acquiring new clients is undoubtedly crucial for business growth, there are other avenues for revenue generation as well. You may increase your customers' lifetime value by using user-centered design.
They are more inclined to make a second purchase if they had a positive experience with the first. A strong retention rate also translates into a high lifetime value, which increases the ROI of design.
How to calculate design ROI
The Nielsen Norman Group identified 4 steps for calculating the design ROI:
Collect a metric in a benchmarking study
Choose a KPI
Convert the metric into the KPI
Report the calculation responsibly
Calculating the impact of design is a sign of the design maturity of the company.
Even though there are calculators to help you with design ROI for different metrics, the basic formula for design ROI is quite simple:
Gain is what you make from the design. Cost is what you spend on design.
Choosing the right design metric
Picking the appropriate design metric is the first step in measuring ROI. It's an essential step since if your goal is to lower operational costs, using conversion rate as a measure is pointless.
Sometimes it’s impossible to predict how much our mistakes might cost. Ever heard of “The $300 Million Button”? You can take time and read the full story, but essentially it’s about fixing a problem of registering on an e-commerce website that resulted in an increased number of purchases by 45% and making an additional $300,000,000 in the first year.
Choosing the KPI
Most of the time, we convert ROI into cash. Some companies, though, select different KPIs. One option available to you is the Customer Lifetime Value (CLV). Everything is based on your objectives.
NNG breaks one of the myths about calculating the ROI of design:
“Calculating the ROI of UX is more about demonstrating that design that improves the customer experience has a positive impact on our business goals – whatever those goals might be. Business goals often come down to money, but not always.”
Converting metrics into KPI
The calculations can be complicated. But it essentially breaks down to knowing the conversion ratio of a design metric into KPI.
Choosing a relevant report
Sometimes, even though the figures appear astronomically high to you, they are actually lower than you could get. Additionally, they are below market average. You must prepare a report outlining your numbers and offering guidance on how to improve them. The report should also include the details of the sources used to get those figures.
The report will provide you with estimates rather than the exact amounts of money you could make by following the advice. They can be used to revamp your plan or add some fresh ideas to it.
You can accelerate the growth of your product if you start monitoring the return on investment (ROI) of design right away. Furthermore, figuring out a new product's ROI on user experience can be a useful tool for identifying potential growth areas.
Calculating your return on investment is the most efficient way to show the value of your design work.
All things considered, managing poor design, including strategy creation and task prioritization, is made easier by figuring out the ROI of the design. It is beneficial for cutting expenses, improving business metrics, and reaching established goals.
