How to set your UX budget: How much do companies spend on UX?

7 minutes to read • Published 25 May 2020 • Digital strategy, UX design

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    When writing your budget for the next financial year, it can be tricky to know where to spend on UX in order to maximise ROI.

    This is one of the reasons that UX research is so important: the better you understand your users, the easier it is to identify where you need to spend money to improve the user experience.

    As professional user experience consultants, our team recommend looking carefully at your UX design approach to help you better define your UX budget and where you allocate it.

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    We have covered general UX principles many times and you can find lots of useful information about UX design and research in the insight section of our website.

    Your UX approach will depend on your business model and long-term goals, but you should consider making good use of free and low-cost ways to gather valuable research before spending out on more expensive research and design options.

    Use free methods of UX design and research

    While every business owner knows that user research and user tests are a critical part of developing a good user experience, for a smaller business or a new start-up there is often not a lot of money to dedicate to developing your user research.

    The best thing to do here is to list as many research and testing strategies as possible that don’t cost money, such as user questionnaires through Survey Monkey and conducting nano-research.

    (For digital marketing tips on a tiny budget, see this article.)

    While you will still need to dedicate your time to perform this research, it is an acceptable trade-off where your budget constraints won’t allow you to conduct financially costly user testing. 

    For example, you could add a forum to your website to solicit feedback. Remember to tell your users where to find it and how to leave feedback or start a discussion because they may not be inclined to look for this themselves.

    While in the design and testing stage, you could use tools like UseabilityHub’s Five Second Tests to get an insight into what your users think. By asking a few short on-point questions you can get quick responses without your customers overthinking their answers.

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    You could look at ways to trade-off with your users that won’t cost you any money. This could include exchanging free unlimited access to your premium services for a couple of months or a half-price subscription for their user input. 

    Rewarding your active users for their time in this way can be extremely valuable to you without it costing you a penny. 

    How UX affects ROI

    There is little doubt that a good UX will enhance your company ROI because having a good user experience will enhance your customer satisfaction levels. If your customers are satisfied, they will become loyal customers that will be happy to become repeat buyers.

    Return on investment (ROI) is a metric used to analyse the effectiveness of an investment. So your ROI equals the profit from an investment and is normally expressed as a percentage.

    For example, if you invest £1,000 in creating a website around your digital product and it increases your sales by £1,500, then the ROI = (1,500 – 1,000)/1,000 = 50%.

    A perfect example of good UX boosting ROI is the Amazon model of selling. Amazon focuses on delivering a good customer experience throughout their journey and continually monitor and measure their UX results on ROI. They put user experience above shareholder profits and this has worked well over the long-term seeing the company grow to its current world-dominating status. 

    Investing in your UX

    According to research conducted by The Design Management Institute, design-centric companies such as Apple, Coca-Cola and IBM outperformed the S&P index (which indicates the industry’s average performance) by 228% from 2003 to 2013. 

    Google, Airbnb and Intuit have integrated user experience into the core of their work processes. All of these companies invest heavily in their user experience and wouldn’t have been nearly so successful without such careful UX investment. 

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    You should invest in your UX as early in your project development as possible. According to Clare-Marie Karat, a principal UX consultant and former IBM researcher,

    “For every one dollar invested in User Experience research, you save $10 in development and $100 in post-release maintenance.” 

    So if you apply the 1:10:100 rule for change, it will cost you $1 to do initial research, $10 to change your design and $100 to change your product. 

    According to Jacob Neilsen’s research, if you spend 10% of the development budget on UX, you can get up to 83% in conversion lift. By improving the customer experience you will increase your KPIs (Key Performance Indicators) resulting in a substantial conversion lift. 

    For a small business or new start-up, let’s say that 10% of your overall development budget comes to £500. It would make sense to split your budget into four parts to cover these key UX activities that can be conducted in a short time frame:

    • One hour to question customers about their needs
    • One hour to review your design plans
    • One hour for a quick test of the design
    • One hour to enhance your digital product’s search engine visibility

    These UX research activities will certainly help to keep you on the right path as you develop your digital product. 

    So, how much should I spend on UX?

    Answering this question is one of the most difficult things to get right. Even UX designers with lots of experience can struggle to estimate costs for their UX projects.

    No-one likes to estimate how much of their budget to dedicate to UX, but most companies will define their UX budget as a percentage of their overall R&D budget. Determining how much of their R&D budget to allocate to UX will differ according to their business type.

    For example with staffing ratios, Adobe dedicates 12.5% of their R&D budget to UX giving a ratio of 8:1 for engineering to UX. In contrast, McAfee dedicates 2.8% of its R&D budget to UX meaning their engineering/UX ratio is vastly different at 35:1. However, these ratios will go up and down over time, depending on how things are going for User Experience at the company, at a particular time.

    See also →  Design management – the executive business guide 2021

    In very large organisations, many can afford do dedicate one-third to one-quarter of their entire budget to UX, but in reality, for most SME’s and solo entrepreneurs, this is typically much less.

    Basing your UX budget on % of R&D

    If you are looking to base your UX budget on a per cent of your overall R&D budget, then you need to be flexible with this. Don’t set your figure in stone each year, but instead allow yourself to adjust it accordingly when you start to gather and analyse your performance data. 

    Dedicating a set figure to your R&D and UX budget each year without any flexibility can often result in waste or can cause constraints. Remember though that UX is an integral part of your project so shouldn’t be run on a tiny budget. 

    There are many hundreds of thousands of different organisations across varied industries with different approaches to their R&D, but most companies involved in software-development allocate about 20% of their total budget to UX as a rough rule of thumb. 

    But if you are developing a true user-centric design project, then it is recommended to spend roughly a third of your budget on UX research and design. 

    If you need some help with your UX development you can look at hiring in a UX specialist company to work with you that has plenty of experience in hands-on UX, such as  

    See also →  How to test your design to ensure its commercial value

    We can be a great asset to a new start-up or small businesses. Getting expert help can give you a positive ROI on your UX investment. Why not get in touch with us today.

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