How to Calculate ROI for UX Research
Quantifying the value of UX to business leaders
Most UX professionals have never tried to estimate the ROI of their work. Very few in UX have formal education in finance, which can make concepts like ROI seem out of reach. Unfortunately, this leaves them at a disadvantage when discussing the value of UX with stakeholders who are more financially focused. Without quantifiable impact, UX practitioners miss opportunities to secure buy-in and budget for their initiatives.
Fortunately, calculating return on investment isn’t as intimidating as it seems on the surface. Once you grasp their basic structure and the specific scenarios where they can be used, nearly anyone can do an ROI calculation.
This article will illustrate the importance and relevance of ROI calculations in UX research practices, helping you identify and understand three specific scenarios where UX professionals should calculate ROI.
Calculating ROI for UX Research: Importance and challenges
Return on investment (ROI) is a standard demonstration of the financial efficiency of an initiative. As its name implies, ROI calculates the profitability of an investment relative to its costs. By calculating ROI, UX practitioners can provide tangible demonstrations of the value their work generates. These demonstrations can help:
Appeal to financially-focused stakeholders - Many stakeholders in business are driven by dollars and cents. Linking UX initiatives to outcomes like boosting customer lifetime value or reducing development costs helps persuade them that user experience is good for business.
Secure buy-in and budget - Decision-makers want assurance that their investments will pay off. Budget proposals supported by ROI provide clear and persuasive benefits for our work, bolstering a more compelling case for funding.
Elevate the strategic importance of UX in an organization - Demonstrating financial and operational outcomes can help shift the view of UX as a support function to a mission-critical business driver. Linking UX outcomes to top-level goals showcases its strategic value. For example, if a business is focused on customer acquisition, a UX team can demonstrate how its work leads to increased product adoption.
Despite these benefits, few UX practitioners incorporate ROI calculations in their work. While third-party examples like Forrester’s case study claiming 9,900% ROI on UX investments are commonly cited, few UX teams apply similar calculations to their own projects. A few common barriers get in the way.
First, most UX professionals enter the field because they are passionate about improving how technology is designed by focusing on the people who use it, not financial modeling. While we might focus on the human benefit of our work, demonstrating ROI can help win over stakeholders who are more focused on monetary returns. The good news is that you don’t need any formal training in finance or accounting to start making basic return on investment calculations.
Second, ROI can feel daunting at first. In particular, many worry about the accuracy of their calculations. It’s natural to have these concerns, given how many variables influence business metrics. But rest assured that ROI is meant to be an estimate of the isolated effect of your work under controlled assumptions, not an exact figure. It’s a practical, theoretical demonstration of your impact, not a formal financial report.
Finally, time is one of the biggest constraints for UX practitioners. Performing ROI calculations can seem like adding one more thing to a long list of to-dos. Fortunately, ROI estimates can be surprisingly quick, only taking a few minutes after metrics are gathered. With this in mind, let’s look at how we make these calculations and go through a few examples.
How to calculate return on investment
On the surface, ROI calculations can seem intimidating, but they are rather simple when you break them down. Every ROI calculation uses this formula:
Return is the financial benefit that an initiative achieves, which can be an increase in profit (e.g., an improved conversion rate on an e-comm site leads to more sales) or a decrease in cost (e.g., improved usability on a booking page means fewer travelers need to call support for help with their flight, reducing call center costs). Investment refers to the expenses that were required to achieve the Return. In UX, this often includes participant recruitment, agency fees, software licenses, and time spent by designers, researchers, or developers.
Many articles on ROI focus solely on the Return part of the equation. Calculating the benefits of your UX projects alone is worthwhile because it quantifies the value of your work. Return-only calculations offer quick wins for demonstrating impact, but only tell part of the story. Calculating the complete ROI is even better, providing a full picture of your project's financial efficiency. However, estimating Investment can be difficult, especially for an individual contributor who might not have visibility into all the budget details for a project. However, to be a true ROI, you need to have estimates for both Return and Investment.
Once you have estimates for the Return and the Investment, enter them into the equation. For example, if a project had a budget of $10,000 and we estimated it increased revenue by $15,000, the calculation would be:
Let’s look at three in-depth examples of when you can leverage return-on-investment calculations.
1. Demonstrate the return on investment (ROI) of past UX projects
The easiest scenario to calculate ROI is for a completed project. To do so, you will need product analytics before and after design changes to calculate the Return.
Imagine we work at a software company with a subscription model offering the first month free. Our KPI is the percentage of users who convert to paying customers after their free trial. Our UX team works on a project to improve the onboarding process so users can set up and use the product more easily. This project leads to an increase in the conversion rate, directly increasing company revenue.
Imagine that we collected the following metrics:
Conversion rate pre-redesign: 2.5%
Conversion rate post-redesign: 7.5%
Average trials per month: 1,000
Subscription cost: $100
Average retention: 14 months
Total project budget: $300,000
To calculate the Return of our project, we could estimate that the increase in revenue follows this equation:
Our estimated Return factors together the increased conversion rate, the number of users who sign up every month, subscription cost, and how long the average user renews their subscription. The resulting return calculation would be:
This change in onboarding adds $70,000 in customer lifetime value per month. As we mentioned earlier, showing the Return alone can be sufficient, especially if you don’t have access to budget details. However, let’s imagine you have access to budget information for the project.
We can enter our estimated Return and project budget into the standard ROI equation. Since our redesign creates ongoing benefits, while the project budget was a one-time expense, it is logical to calculate ROI over time. In this example, we’ll multiply the monthly return by 12 to estimate ROI over a year.
Through this example, we easily demonstrated the ROI of a past project by using analytics to track key outcomes before and after redesigns. In this case, we can say our redesign adds $70,000 in LTV per month and is estimated to yield 180% ROI over the first year.
2. Estimate the potential business outcome of proposed projects
In addition to calculating the ROI for past projects, UX practitioners can estimate the ROI for a proposed project. By demonstrating the potential business outcomes of a user experience project, you can make a stronger case for its approval and funding.
The main difference in these a priori calculations is that they are speculative estimates. When calculating the return on investment of a past project, we can refer to changes in product analytics. On the other hand, when determining the potential outcomes of a future project, we have to forecast results using reasonable estimates from public case studies or your team’s prior work.
Imagine an example where we’re working for a hotel chain facing frequent customer support calls from users struggling to book rooms online. These calls, resulting from a poorly designed booking flow, cost the company a significant amount of money. This is a clear opportunity to redesign the booking experience, which could both help our users and save the company money. Our UX team wants to include an ROI estimate in our project proposal.
To produce our estimation, we collect the following metrics:
Current booking success rate: 75%
Expected ∆success rate, based on previous case study: +12%
Traffic volume: 80,000 users/month
Probability of calling support: 18% (of users who fail to book)
Average support call cost: $8
Project budget: $35,000
To estimate the Return, we’d compute the projected cost reduction from the decrease in customer support calls from users who fail to book online. That might look like:
After entering our values we get the expected Return — we estimate the changes will reduce customer support costs by $13,824 per month.
Now, using this estimate and the project budget, we can compute ROI. Again, it makes sense to illustrate the ROI for a year, as the budget is a one-time cost while the usability improvements will produce lasting effects.
Through this estimation, we can demonstrate that our proposed project reduces customer support costs by $13.8k/month and yields a 374% return on investment within 12 months.
3. Make the case for investment in tools and software
Finally, it is useful to demonstrate the return for a tool or software that your team is considering purchasing. In isolation, software costs look like expenses that a company wants to reduce. However, when put in the context of an ROI calculation, tools can be framed as strategic investments that help save time, reduce costs, and increase a team’s ability to deliver results.
Let’s imagine that our team is considering a new subscription to a participant recruitment tool. Our researchers spend hours recruiting, scheduling, and sending reminders to participants for their usability studies. Our goal in purchasing this tool is to streamline recruitment, allowing them to focus on other impactful tasks. So, our team runs a proof-of-concept (POC) with a prospective vendor and collects these metrics:
Current time per study: 4 hours
Time per study with new tool: 1/2 hour
Average hourly cost of UXR: $90
Studies per year: 175
Avg participants per study: n= 8
Avg cost per participant, current process: $90
Avg cost per participant, via new tool: $125
Software license cost: $20,000
We can estimate the Return by factoring the time saved per study with the value of our researcher’s time, and the total volume of studies over one year.
Entering the values we collected produces the following estimate:
Now, we estimate the total cost of the tool. Factoring both the fixed cost of the license and the estimated variable costs of participant recruitment.
Note we’re looking at the difference in cost per participant, as we’d be recruiting participants either way. After entering our figures, we calculate the estimated year-long investment as:
After plugging in the Return and Investment, we find a negative ROI for the software. At the currently quoted price, this software doesn’t produce financial benefits for our team.
Although the estimation didn’t show positive returns, that’s useful information. Now, we know that we’d need to negotiate the price of the software license or the cost per participant to see positive economic returns.
The bottom line
Return on investment calculations are a standard method for demonstrating the financial efficiency of an investment. UX practitioners can leverage ROI calculations to demonstrate the value of their work, secure buy-in from financially motivated stakeholders, and elevate the strategic importance of user experience in their organizations.
While many in UX don’t calculate the ROI of their work, it’s quite easy to get started. By using a standard equation, and making a few estimates, UX practitioners can demonstrate the business impact of UX improvements, estimate the potential impact of a proposed project, or even make the case for new software or tools that will make their work easier.
Drill Deeper
Depth is produced by Drill Bit Labs, a leading UX and digital strategy consulting firm working side-by-side with UX and product design leaders to elevate their digital strategy, delight their users, and outperform business goals.
How we help:
User research that informs strategic decisions and helps you optimize user experiences.
Expert-led training to arm your team with the skills they need to excel in today’s competitive landscape.
Advisory consulting services that provide guidance on structuring teams, improving processes, and measuring ROI effectively.
Let’s discuss how we can help you unlock even more value from your user research efforts. Reach out to start a conversation that can transform your organization’s approach to UX.