Since I am the technical face of our company, I often get questioned on the value of the design side of our business from clients' technical stakeholders.
Why should I pay for design??
The question speaks directly to the pitch I use in meetings with potential clients at Tuple Labs. Today, I will use math to justify why paying for good design is not only worth it, but foolish to ignore.
Why Is UX Difficult?
Good, comprehensive User Experience (henceforth UX) is exceptionally difficult, on-par with architecting large distributed systems on the development side. The parallels along keeping interfaces simple, consistent, discoverable and robust hold well.
Good UX implies making that which is complex, chaotic and disordered into that which is simple, sensical and ordered. It is largely an exercise in entropy reduction in a difficult-to-quantify field, as measured by human psychology. Reducing entropy is always difficult and requires significant energy, and in this case it is complicated by having human taste and behavior as the measuring devices.
Good UX makes a ton of money, and companies do not pay the top tier nearly enough.
ROI: Cost Reduction Scenario
Suppose my company needs to update a design for an internal tool supporting 250 support agents at a large company. These agents make, on average, $40k/year, at a burdened cost of $60k/year. Thus, the company spends $15MM/year solely on paying humans using this software all day.
If I design the UX to make doing the agents' job 10% easier and faster, I have decreased annual expenditure by $1.5MM, by making the company require less agents as the company grows, since each one is more efficient.
Assuming a weight-adjusted cost of capital of 8% (WACC correlates to the time value of money for a company and 8% is normal for S&P 500), the present value of a $1.5MM/yr perpetuity is $1.5MM/0.08 => $18.75 million. If the designer takes a year to make the efficiency upgrades, and is paid even $100k at a burdened cost of $150k, he/she has produced...
A 10,000% return on investment.
ROI: Revenue Increase Scenario
Suppose my average annual earnings per customer for a service is $2000 - doable for some kinds of software services targeting enterprises. Customers on average also contribute to 0.05 free referrals per annum.
Then, I am making $2000 per customer per year on average, and they are also producing 5% growth over time. This is a growing $2000 perpetuity of 5%. Since this sustained growth is only possible in younger company, I will assume a 25% WACC this time. Then, my average customer's present value is $2000 / (0.25 - 0.05) => $10,000.
If my designer kicks butt and makes referral rates double, to make customers 10% annual growth perpetuities, because the UX is better, suddenly, each customer is worth: $2000 / (0.25 - 0.10) => $13,333.
I am paying my designer $150k fully burdened and it took him/her a year to make this improvement. At these scales, he/she just did this:
1000 customers => $3.3MM increase in value => 2,200% ROI
10k customers -> ...
22,000% return on investment.
... And so on and so forth. Make the profit per customer lower and the number of customers higher and the effect is the same.
An excellent designer virtually prints money when working on a scaled initiative. Try making these calculations, even with far more marginal improvements, and you will still see crazy high ROI numbers.
If you find a good UX person, give him/her the freedom to do what he/she wants, as large scale a problem as possible, pay them well so he/she is never poached, and sit back while he/she prints money.
Giving a good enough designer a big enough problem is like paying $1 to get $100 or even $1000.
Questions, comments? Want to tell me I'm wrong? Tweet me @ayetempleton