Isnʼt running a business all about proﬁt? A website should match this goal. This article explains why investment in usability is a good investment.
In the early days of the internet, plenty of talks would show a photo of a train and someone who just missed it. The message was clear, if you donʼt jump on the train now, your competitors will overtake you. Many organizations did not take that risk and rose to the challenge. In a little while the bubble burst.
In the end, running a business is all about one thing: making proﬁt.
There are two ways in which businesses can make more proﬁt:
- generate a higher revenue
- reduce costs
Obviously one makes most proﬁt by doing both.
ʻYou canʼt manage what you donʼt measureʼ is a famous saying of management guru Peter F. Drucker. In this article, we will focus on calculating return on investment of usability. After a period of investment in wild ideas, the time has come now to handle the internet in a grown-up kind of way.
What is Usability?
Usability is a quality aspect and it is all about the way a user can use a website effectively and efﬁciently to reach his or her goals.
Beneﬁts of usability for end users:
- users comprehend the system quicker and reach their goals faster
- users experience their visit as pleasant, come back sooner and recommend the website to others
- users develop conﬁdence in both the website and the company behind it
- users can deal with all matters on the website, without the use of extra tools such as phone or email
More proﬁt thanks to usability
Usability is great for customer conﬁdence
The basis of each transaction comes down to conﬁdence. Conﬁdence of the customer in the organization keeping their promises. Usability increases conﬁdence. Research by Stanford University tells us that usability comes in second place in terms of important factors that inﬂuence customer conﬁdence.
Usability allows users to reach their goals
Eventually every website has just one goal and that is persuade the visitor to do something. You might want the visitor to ﬁll out a form, provide personal details or order a product. In practice, this does not always work very well. Shopping carts are left before submitting the order at least 3 out of 4 times. Five out of ten apparent reasons are related to usability.
Usability leads to higher customer satisfaction
More and more companies measure customer satisfaction. A high customer satisfaction is important, because companies can only maximize their proﬁt by growing. Selling more to existing companies and expanding the customer base are crucial. An interesting example of usability resulting in higher customer satisfaction is the case of the Asda supermarket chain. Asda did numerous changes on their website to improve usability and was awarded with a higher customer satisfaction.
A research by Gartner shows that usability testing and the consequences of implementing usersʼ demand, can increase customer satisfaction with 40%. When systems live up to the userʼs expectations, we see an enormous increase in customer satisfaction.
Usability encourages word of mouth
People inﬂuence each other. A recommendation of someone we know has a great effect on our decision to buy something. A bad recommendation even has double the effect that prevents us from buying something. A satisﬁed customer will tell his positive experience to an average of three friends. However, an unsatisﬁed customer will spread his annoyance to an average of eleven friends. Positive user experience is quite important when stimulating positive word of mouth.
Usability results in positive reviews
Positive reviews of our website and our products and services are valuable to get sufﬁcient trafﬁc to our website. We see more and more usability in reviews. On average, about 15% of the content of a review is about usability. Huge media companies like The New York Times, the Financial Times and The Wall Street Journal publish weekly columns in which sofware is discussed. It is vital to be mentioned not in a negative way, but in a positive way. Usability as distinguishing capacity.
Lower costs thanks to usability
Saving on development costs
Many software projects exceed the initial budget. This happens mostly because we ﬁnd bugs that have to be solved ﬁrst, while working on the project. About 63% of sofware projects runs over the original budget. The main reason for overspending is the lack of user research in the initial phase.
Saving time during development
In the development phase no revenue is made yet. The faster the website is available to the public, the faster revenue is made. Making the development phase more time efﬁcient is one of the most important reasons to implement usability research. Slowing down lead time with 25% can decrease proﬁt with 50%.
Reducing maintenance costs
Having your website launched, you are not there yet. The website has to be updated and expanded with new functionalities regularly. It is showed that 80% of the costs of a website are made during development phase and that these costs were not forecasted and consequences of bad usability.
Case Drill Ltd
Drill Ltd produces drills that work remarkably well when cutting holes in dimension stone. The director, Erik Stevens, recently talked to a company that performs user tests for websites. You are an employee of Drill Ltd and responsible for their website. The director asked you whether performing a user test is a sensible investment. In other words, can we make any money out of it?
Step 1: gather current data
Before we can start with our calculation, it is important to look at the current status of the website.
Conversion rate is the ratio of visitors that a website can persuade to desired actions. If one out of hundred visitors of your website is persuaded to perform the action, the conversion rate is 1%.
|Turnover via the website||€ 11.960|
|After-tax proﬁt||€ 3.960|
|Unique visitors per year||20.000|
|Average purchase amount||€ 299|
|Average after-tax proﬁt per purchase||€ 99|
Step 2: Calculate the costs of the user test
First we will calculate what the costs of performing a user test are. In our calculation we also specify the costs of the improvement of Drill Ltdʼs website.
|Lab||Rent||6||€ 100||€ 600|
|Respondents||Performing test||6||€ 50||€ 300|
|Usability expert||Observing||6||€ 160||€ 960|
|Usability expert||Analysing||2||€ 160||€ 320|
|Usability expert||Giving Advice||1||€ 160||€ 160|
|Designer||Adjusting||15||€ 70||€ 1050|
Step 3: Calculate the return on investment
We now know what the current status is and we know what performing a user test and solving the main issues will cost us. In step 3 we will look at the revenues and calculate when we will earn back our investment. We saw that investments in usability result in more revenue and lower costs. In our example we will only look at website statistics and conversion rate, not at any other categories.
It is common that efforts in usability result in a revenue or visitor increase of 100% or more. Erik Stevens is quite a conservative director, so we decide to go for a worst case scenario in our calculation. We will therefore assume an increase of ten percent. That comes down to 22.000 visitors a year.
In 2004 the Fireclick Index published conversion rates across a variety of segments. The average conversion rate for the electronics segment is 1.1%. The conversion rate of Drill Ltd is 0.2%, which is quite bad. In our calculation we assume a new conversion rate of 0.5%. In practice, this number will be higher, since usable websites have higher conversion rates than average.
Our new revenue then comes down to 22.000 visitors * 0,5% conversion rate * €299 average purchase amount = €32.890.
The current revenue is €11.960. Our investment of €3.390 results in an revenue increase of €20.930.
When looking at proﬁt, we can say we have an increase of 22.000 visitors * 0.5% conversion rate * €99 average proﬁt = €10.890 – 3960 proﬁt we had earlier = €6930 total proﬁt increase.
To calculate how long it will take before we earned back our investment, we devide the total costs by the total proﬁt increase and multiply that by 365 days = 178 days. Thus the investment is earned back in a half year. After that only proﬁt will be made. After the investment pays for itself, we will make €6930 every year. And not just in the current year, also in the years after. Erik Stevens is happy about your calculation and asks you to improve the usability of the website.
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