return on investment

Tags: Business,  Carriers,  Design,  Strategy
June 4, 2008 by Barbara

"Increase return on investment (ROI)."

Magic words in the business community. Too often, decisions are made at the micro level: that button will cost $0.07 per unit, thus costing us millions of dollars, so let's remove it. Design is considered a cost. This is wrong.

Design is an investment, with returns. The returns come in three categories:

  1. increased sales/distribution, especially in a viral environment
  2. reduced after-sale costs
  3. reduced churn

Increased sales is pretty obvious. I just signed up for a web app after somebody on a mailing list in a similar situation to me asked for recommendations, evaluated many, and came up with his answer. I'm also on a couple of social networking sites to which I will not send invitations because I don't yet know how good they are.

If you are selling something via your service, a good experience reduces barriers to purchase. You can literally increase sales with a good design.

Reduced after-sale costs can include training costs, return costs, and customer support costs. Accenture just reported that 95% of consumer electronics products returned as defective are actually functioning. This is a failure of design. These customers can not understand how to use something, and they think it is broken. I'm a reasonably savvy customer and I've made the mistake before. For many companies, merely answering the phone for a single support call costs the entire profit they would have made from that customer.

We did a usability study for an operator a while back, looking at their content store. One of the problems we found was people were making inadvertent purchases. Another problem was that people were making purchases but never getting the content. In both cases, they'd make a call to customer care to fix the problem. Phone support is expensive, and that call erased the profit from some ten purchases. Some 20% of transactions would have one of those problems, and about a quarter of them would call customer care. So to make the profit of a single trouble-free sale, you have to actually sell around twenty items.

A good design, at a design & implementation investment of around $120,000, would have reduced these problems by (our estimate) 90%, and also make customers trust the system more and hence purchase more.

That brings us to churn. Churn is very very expensive: it costs a lot more money to get a customer than to keep one. Think of all the advertising, the sales costs, setup costs, and more. I had one company come to me with 100% churn per month; they were in dire straits. They needed to improve stickiness. This is a benefit of good design.

Invest in design. It doesn't have to be perfect, it just has to be good enough for your users. You'll get a return on your investment.


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1 Comment »

  1. Excellent post Barbara, you make a great case for ROI. I had written about the need for educating decision makers on what good design brings to the table.
    http://sachendra.wordpress.com/2008/05/06/easy-is-good-but-it-is-not-enough/

    I’ll add this post to the list on how to convince decision makers on ROI

    Comment by Sachendra Yadav — June 9, 2008 @ 6:10 am

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