Economic value of user experience (UX) Convincing ROI and risk management in UX

”Do more sports!“ A few months ago, that was one of my personal goals. I quickly found a suitable gym, conveniently located near my work place. Only a short registration form on the website stood between me and my new, sporty self. The form was even validating entries directly. ”Handy, then nothing can go wrong,“ I thought – and the form abruptly stopped my tracks. The problem: I live in a different country where zip codes have five digits, but the form only allows a maximum of four. There is no country selection. I try an unhelpful support chatbot and am eventually able to write an email to a human. Days later, nothing has happened. Frustrated, I go to the studio during a lunch break, but all I find there is a terminal with the same form. Until today, I still have not received a reply, and even if I do: I am now too frustrated to sign a contract there.

Business with user experience (UX)

This short personal example demonstrates what impact user experience (UX) can have on a customer’s relationship with a company. UX encompasses all user interactions with a digital product or service, such as the registration form. If users achieve their goals, this has a positive impact on their relationship with the company. In my experience with the gym, a simple country selection field or human support could have solved my frustration and ultimately led to the conclusion of a contract.

Good UX is not a “nice-to-have”, but pays off economically. This was proven by various studies. For example, Forrester Research reports that good UX reduces the willingness of customers to switch by 15.8% and increases recommendations by 16.6%. Positive experiences can therefore be worth hard cash. The McKinsey report “The Business Value of Design” shows that the turnover of companies with a high affinity for design is higher than that of others. The emotional impact of good UX strengthens customer loyalty, increases the psychological well-being of users and is a major competitive advantage.

ROI of UX: a question of numbers

But general studies such as these are not always enough to argue for UX. An alternative is to estimate the return on investment (ROI). The higher the ROI (as a percentage), the more worthwhile the corresponding measure is for an organization. A simple ROI formula is as follows:

The cost of an investment covers everything that an organization has to invest, whether it is money or other human and material resources. The value of the investment is a realistic guess of the benefit that it will generate. Of course, this often refers to money, such as higher revenues or lower costs. However, this does not always apply: in the public sector, there is typically no interest in making a profit, but rather a focus on how many people are reached. Therefore, UX professionals should align UX goals with strategic organizational goals. For example, rather than talking about wanting to “satisfy users”, they should estimate how much revenue the more satisfied users generate.

Let us look at a real-life example: A software startup wants to attract new customers, but many customers are unsure whether the product is right for them. A UX professional thinks that short video testimonials could help with the purchase decision. In fact, an exploratory test shows that around one in five customers is attracted by the tutorials and completes a purchase. The startup has 10,000 customers, which means that around 2,000 new customers can be expected as a result of the tutorials. The price for the product is 50 €. The cheapest offer for the tutorials is 50,000 €, plus around 15,000 € in internal costs. This brings the total cost of the tutorials to 65,000 €. This results in the ROI:

With an ROI of 53.85%, the tutorials should be worthwhile. It is important to make the assumptions behind an ROI calculation transparent: Where does the data come from? What is an estimation? What is based on preliminary studies or other reliable data?

However, the ROI is not a prediction. An ROI of 53.85% does not mean that the calculated amount will be in the account after one year. This is because the ROI assumes that everything remains the same except for the measure currently under consideration. In reality, however, a competitor could react to the tutorials and reduce prices so that the startup has less customer growth despite the successful tutorials.

Risk management with UX

However, there is also another value of UX work for organizations. Organizations are constantly exposed to risks. Some of these risks relate directly to UX, such as a new website going live untested and being rejected by users. Other risks can be mitigated with UX methods, for example to increase employee loyalty to mitigate the risk of a shortage of skilled staff.

Risk management is about keeping an eye on these risks and, if desired, preventing them or taking countermeasures. Risk management builds on two important key aspects: how likely a risk is and the extent of potential damage. This can be expressed in a formula as follows:

So how does risk management work in practice? UX expert Therese Fessenden from NNG recommends six steps:

1. define the organizational goals
2. identify risks
3. assess risks
4. develop risk management measures
5. implement selected measures
6. continuously evaluate measures

The first step (defining organizational goals) is very important because not all risks are worth taking. An organization should focus on those areas that are in line with its own goals. An example: The software start-up above realizes that the original business model with one-off purchases at 50 € is not sustainable. The startup would like to switch to a subscription model with different pricing options. This shift impacts various areas of the startup and leads to several risks.

The second step is to identify which risks can occur and to collect relevant information about them. Which features are particularly important to customers? What do your customers think about software subscriptions? What price would they pay for it? User research plays a major role in collecting data allowing to make an informed assessment of the risks. For the software startup, it could look like this:

• Risk R1: Users do not subscribe because their need for the paid features is not high enough to justify regular payment.
• Risk R2: The change of business model frustrates existing customers.
• Risk R3: Users are confused by different subscription options.
• Risk R4: Users feel “trapped” because they can no longer open archived data if they no longer use the subscription.
• Risk R5: Users forget about the subscription and pay unnecessary fees.

UX professionals can then use the collected background information to assess the probability and damage of the risks (step 3). For the damage potential, this could look like this:

• negligible: minor inconvenience
• medium: major disruption to the customer relationship
• critical: serious, long-term disruption to the customer relationship, potentially even termination
• catastrophic: existential threats, such as danger to health or financial situation

Using data from user research, UX professionals can assess probability and damage potential of the identified risks (see Table, column “Assessment”) and enter them into a matrix or table (black dots in the risk matrix below).

The fourth step involves identifying measures: How could we reduce the probability and/or damage caused by a risk? The table provides examples for the software startup. UX work can reduce the probability of some risks, for example by developing and validating prototypes before development (risks R1, R3). For other risks, we could reduce the damage potential, for example, through special pricing models for existing customers (R2), dedicated reader apps (R4), or subscription reminders (R5).

Step 5 concentrates on making a decision as to whether and which measures will be taken. For example, a reader app could minimize the risk of frustration among existing customers, but it would divert too many resources from other projects. In this case, an organization may prefer to live with the risk. There may also be differences between teams or business areas. For example, an innovation department might deliberately be more risk-affine than a department responsible for the core business. Risk management is therefore a decision-making aid, but never a substitute for strategy.

Finally, step 6 ensures that we continue to collect data to verify the success of measures and make necessary adjustments.

Conclusion

Numerous studies provide evidence of the economic value of UX work. UX professionals can also calculate the return on investment (ROI) to estimate the cost-outcome ratio. It also helps to clarify the role of UX in risk management. With these methods, UX professionals are well equipped to provide decision-making support to their management.

Note: A version of this article in German was published in t3n 79.