How to predict the $ value of UX using
standard financial models
By Aaron Powers
Presentation & Research Supported By
Goal: Teach techniques to predict $ value of UX before doing the UX work.
What can UX improve about a business?
Increase Sales
Reduced tech support calls
Customer productivity & happiness
UX “professionals are called upon to take businesses with an interest in reaching broader audiences and make them accessible to every segment of the market”
–- Eugenie Bertus & Mark Bertus, “Determining the Value of Human Factors in Web Design”
How can UX improve sales growth?
Learnability
Transfer to other products
Recommendations to others
Renewals
Return On Investment (ROI)
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The result could be: “ROI of UX is 10%”
Return On Investment (ROI)
Challenges to using the ROI calculation in UX:
You must be able to financially separate:The gain from UXThe gain from all other efforts (e.g. development of new features)
Estimates can be perceived as biased by the person creating them.
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ROI & More
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Method 1: Estimate the value of individual UX decisions with a decision tree
Method 2: Model how investments influence business results
How can you use these?
• Use these models directly, in full or in part
• Use as a thinking framework
OR
Concepts Drawn From Diverse Fields
Finance
Textbook financial
modelling including pro
formas
13
Decision ModelsTextbook
models for simulating &
guiding decision making
Marketing Analytics
Marketing analytics has a lot of common
goals in connecting user
behavior to business results
Machine Learning
Regression modelling can be used to cut through noise
and build models
between user behavior &
business results.
Method 1: Decision Tree
Example: Early User Research
Decision Point
Cost
Final Value
Cost
Probability
Revenue
Final Value
The expected value … is the weighted average of all values…
The value may not be expected in the ordinary sense—the "expected value" itself may be unlikely or even impossible (such as having 2.5 children)…
Expected Value (weighted average)
Weighted average of market responses:
.45 * 4m +
.35 * -1m +
.20 * -6m= Expected Value = 250k
Expected Value
Simulation Results
What happens if we include user research up front to understand risk
better?
Benefit #1 of user research
Better estimation on whether the market response will be
Great:
Awful:
Fair:
Possible test results of a study with 5 people:
Great
Fair
Awful
If test result is: Market response probability becomes:
Add a decision herewhether to run a study first
Benefit #2 of user research
Early ability to tune overall product design so that you’re more likely to have a great market response
So, how much should we spend on running this kind of study?
EVSI=Expected Value of Sample Information
Value 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
Method 2: Model how investments influence business results
Example: Model The Value of Organization Wide Investments In UX
Based on work by others
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Len SchlesingerHarvard Business School
Professor
Jeff SauroAuthor of Quantifying the
User Experience
Jim LewisIBM Master Inventor with
77 patents
Three Stages
Model which factors influence revenue for your companyTechnique: Regression modelling & mediation analysis
Model influencersTechnique: Measure correlations from investment through to results
Calculate or predict the impactTechnique: Financial Pro formas
The Service Profit Chain
The Service Profit Chain
Model Factors In Between
48
Better teachers
Higher graduation
rates
Model Factors In Between
Better teachers
Better grades
49
Higher graduation
rates
Model the layers in between the business goal & UX
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Step 1: Model the effect of UX
Model How UX Affects the Business
Improved User Experience
Better perception of
product
Better Word Of Mouth Sales Growth
Increased Productivity
Awareness of savings
compared to alternatives
Higher renewal rates
Lower Barriers To Entry
More Users able to use
productSales Growth
How
Improved User Experience
Better perception of
product
Better Word Of Mouth Sales Growth
The most common model is:
Each has popular metrics:
The best part is that we’re not doing anything new – every step has been done before.
Investment In User
Experience
Higher System Usability Scale
Higher Net Promoter
ScoreSales Growth
How
Improved User Experience
Better perception of
product
Better Word Of Mouth Sales Growth
The most common model is:
Each has popular metrics:
The best part is that we’re not doing anything new – every step has been done before.
Investment In User
Experience
Higher System Usability Scale
Higher Net Promoter
ScoreSales Growth
Investment In User
Experience
Higher System Usability Scale
Higher Net Promoter
ScoreSales Growth
How
Measure Usability (with SUS)
Measure Usability (with SUS)
Investment In User Experience
Higher System Usability Scale
Higher Net Promoter Score Sales Growth
How
Investment In User Experience
Higher System Usability Scale
Higher Net Promoter Score Sales Growth
How
Net Promoter Score
Collect NPS or estimate from SUS
Investment In User Experience
Higher System Usability Scale
Higher Net Promoter Score Sales Growth
How
Investment In User Experience
Higher System Usability Scale
Higher Net Promoter Score Sales Growth
How
NPS is correlated with Sales Growth
Step 2: Get some financial data
Get a few numbers from the friendly guy in the finance department
Current revenueNumber of years to simulateAnnual growth rateTax rateEBIT marginCapital Expenditures as a % of revenueWorking capital as a % of revenueDepreciation as a % of revenue
Weighted average cost of capitalCost of equityCost of debtWeight of equityWeight of debt
Forecast The Next Few Years
Example: An Average Software Company
Example: An Average Software Company
Investment In User Experience
Higher System Usability Scale
Higher Net Promoter Score Sales Growth
How
Software Industry Averages
68 -15% 14%
Target
80 20% 19%
3% of spending
9% of spending
Example: An Average Software Company
Increasing SUS from average to best has the potential to increase sales growth 3.1%-8.4% per year
The financial returns on average would be:A 67% internal rate of return (IRR)54% Return on Investment (ROI)
Method 1: Model the value of individual UX decisions with a decision tree
Method 2: Model the value of organization wide investment with pro formas
How to predict the ROI of UX using standard
financial models
By Aaron [email protected]/in/aaronpowers