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How to calculate the value of UX with standard financial models
- 1. 1© 2012 The MathWorks, Inc. How to calculate the value of UX with standard financial models By Aaron Powers
- 2. 2
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- 4. 5 Goal: Showcase techniques that connect UX and financials.
- 5. 6 What can UX improve about a business? Increase Sales Reduced tech support calls Customer productivity & happiness
- 6. 7 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”
- 7. 8 How can UX improve sales growth? Learnability Transfer to other products Recommendations to others Renewals
- 8. 9 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
- 9. 10 Method 1: Decision Tree Example: Early User Research
- 10. 11
- 12. 13 Cost
- 13. 14 Final Value
- 14. 15 Cost
- 15. 16 Probability
- 16. 17 Final Value
- 17. 18 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)…
- 18. 19
- 19. 20 Expected Value (weighted average) Weighted average of market responses: .45 * 4m + .35 * -1m + .20 * -6m = Expected Value = 250k
- 22. 23
- 23. 24
- 24. 25 What happens if we include user research up front to understand risk better?
- 25. 26 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:
- 26. 27 Great Fair Awful If test result is: Market response probability becomes:
- 27. 28 Add a decision here whether to run a study first
- 28. 29
- 29. 30
- 30. 31
- 31. 33 Benefit #2 of user research Early ability to tune overall product design so that you’re more likely to have a great market response
- 32. 34
- 33. 35
- 34. 36 So, how much should we spend on running this kind of study?
- 35. 37 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 #1 or up to $1.25m for both UX benefits
- 36. 38 Method 2: Pro Forma + UX Data Example: Model The Value of Organization Wide Investments In UX
- 37. 39 1 Model the company’s finances over time 2 Model the spending on UX 3 Model the effect of UX on sales over time Steps to build model
- 38. 41 It’s a lot of spreadsheet, but not as much as you might have expected!
- 39. 42 Step 1: Model the company’s basic finances
- 40. 43 Get a few numbers from the friendly guy in the finance department Current revenue Number of years to simulate Annual growth rate Tax rate EBIT margin Capital Expenditures as a % of revenue Working capital as a % of revenue Depreciation as a % of revenue Weighted average cost of capital Cost of equity Cost of debt Weight of equity Weight of debt
- 41. 44 Forecast The Next Few Years
- 42. 45 Step 2: Model the spending on UX
- 43. 46 Step 3: Model the effect of UX on sales
- 44. 47 How Improved User Experience Better perception of product More Word Of Mouth Sales Growth Existing, standard, financial models work like this: Each has associated metrics: The best part is that we’re not doing anything new – every step has been done before.
- 45. 48 How
- 46. 49 Measure Usability (with SUS)
- 47. 50 Measure Usability (with SUS)
- 48. 51 Investment In User Experience Higher System Usability Scale Higher Net Promoter Score Sales Growth How
- 49. 52 Investment In User Experience Higher System Usability Scale Higher Net Promoter Score Sales Growth How
- 51. 54 Collect NPS or estimate from SUS
- 52. 55 Investment In User Experience Higher System Usability Scale Higher Net Promoter Score Sales Growth How
- 53. 56 Investment In User Experience Higher System Usability Scale Higher Net Promoter Score Sales Growth How
- 54. 57 NPS is correlated with Sales Growth
- 55. 58 Example: An Average Software Company
- 56. 59 Example: An Average Software Company
- 57. 60 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
- 58. 61 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)
- 59. 62 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
- 61. 64© 2012 The MathWorks, Inc. How to calculate the value of UX with standard financial models By Aaron Powers
Notas del editor
- 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.