Designers will measure
Remember back when there was this huge roiling debate about whether designers would code, and then all of the designers who refused to code got laid off and now designers code? You may wish to anticipate the next wave of expansion to the design practice: designers will measure.
Measurement will happen whether you’re part of the process or not. Designers will measure or be measured. Designers will measure the impact of their work, and then they will adapt their work to improve their impact. Because design is a form of leveraged power, in order to exert that power there must be measurement.
People hire value-based designers with the fundamental expectation that they’ll economically benefit the business. And measurement, which is the process of determining the effects of design decisions, is a natural extension of the value-based designer’s business focus.
Primary metrics
All value-based design decisions must be measured with respect to a primary metric that directly affects the business’s revenue or expenses, such as:
- Average revenue per user (ARPU): The total amount of money the business makes in new transactions over a given period, divided by the total number of visitors during the same period.
- Conversion rate: The percentage of visitors who become paying customers over a given period. Only revenue-generating transactions apply to a business’s conversion rate. For example, conversions from trial to paid plans would factor into the overall conversion rate. It does not include people who sign up for free trials or mailing lists, since these metrics do not involve money exchanging hands.
- Average order value (AOV): The sum of all revenue over a given time period, divided by the number of orders during the same period. This metric is especially useful for online stores. When AOV increases, the business increases its top-line revenue without needing to increase ad spend or other inbound traffic initiatives. Upsells, downsells, cross-sells, and add-ons are the most common ways for online stores to increase their AOV.
- Lifetime value (LTV): Especially useful for subscription and software businesses, LTV is the average amount the customer spends for the duration of their relationship with the business. This is averaged across all customers and frequently segmented by plan type, signup date, and/or business size.
- Repeat customer rate: The proportion of customers who come back to place subsequent orders. Related to this metric is average orders per customer, as well as 30-, 60-, 90-, and 365-day reorder rates.
- Churn: The share of customers who cancel their subscription plans over a 30-day period. Reducing churn is obviously a good thing, but it also has exponential impact, since you’re multiplying the share of churned customers month over month.
- Monthly recurring revenue (MRR): The sum of all revenue a business makes from subscription or other recurring charges in a month, minus the revenue lost from churn. Monthly recurring revenue is the lifeblood of most subscription businesses, and conversion rate increases usually map to a corresponding boost in MRR. You might also see annual recurring revenue for semiannual or annual subscription businesses.
- Upgrade rate: The proportion of customers who take specifically targeted upgrade offers before checking out. For subscription businesses, this is often the monthly share of customers who upgrade their plans minus the monthly share of customers who downgrade their plans.
- Refund rate: The share of customers who request refunds (when they contact the business) or chargebacks (when they contact their credit card issuer) over a 30-day period.
Secondary metrics
In conjunction with the above, every business has many additional secondary metrics, which are any non-revenue-generating metrics that can be used as a reasonable proxy for primary business goals. Put another way, customer behaviors can predict business performance – if you find the right secondary metrics to measure. For example, corporate messaging platform Slack discovered that teams that send 2,000 messages in aggregate are 93% likely to convert to paid plans. It stands to reason, then, that one of Slack’s goals is to get team members to send more messages. They’ll get more value from Slack as a result, and Slack will perform better as a business.
Finding useful metrics
Finding useful secondary metrics for a business is not easy, and they may shift over time. Yet doing so will result in a greater focus on what matters to the business – both experientially (for the customers) and economically (for the business’s continued success).
All secondary metrics are rooted in observable customer behavior. For example, onboarding is an observable behavior, while conversions (and hence increased ARPU) is the end result for the business.
Secondary and primary metrics correlate when changes in one correspond to changes of similar magnitude in the other. Use your analytics tool to track each secondary metric as an event, and then see what happens to your primary metrics when a given event increases or decreases in frequency.
Some correlations are well established. For example, most software businesses see a significant reduction in churn if a greater share of new customers successfully completes the product’s onboarding. You may want to measure the share of customers who successfully complete onboarding – and segment those who complete your onboarding from those who don’t, to see if there are any major differences in behavior.
And online stores tend to increase their AOV when they add upsells and minimum-order thresholds for free shipping. Upsell take rate acts as a good secondary metric for most stores to measure.
Explore what secondary metrics apply to the industry you’re designing for, and think about what design improvements could manifest for the business.
Primary metrics supersede all other goals
Value-based designers only focus on goals that have a quantitative economic benefit to the business. Goals that do not commonly have direct economic impact, but are often viewed as such, include:
- Mailing list signups. Yes, you should be running a mailing list, and you should be selling to that mailing list consistently. As a result, new subscribers can have a clear economic value. But that value changes as your list grows, and you may not have a clear way to calculate your list’s value right away. Unless you know the specific dollar amount of a new subscriber, you can’t count on new signups having economic value.
- Engagement. People can click all they want on a page, but the only click that matters to a business is on the “place order” button.
- Pages per session. If people are browsing your site a lot, are they fascinated or confused? Would a focused, short interaction help or harm the business, instead?
- Adds to cart. This might result in increased transaction volume, but it might not. It’s far better to measure every step of a conversion funnel (product → cart → checkout → confirmation, for example) to gain a comprehensive portrait of customers’ behavior.
- Views of the pricing or signup pages. This is a similar issue to “adds to cart,” above. Increased upper-funnel traffic is not an adequate predictor of conversion lift.
- Social shares. Interest in your brand is great, but social performance is a poor predictor of revenue generation. In fact, social outlets often represent the least engaged, and least wallet-out, of all traffic to the business.
If a value-based designer can’t make the connection between a given metric and its economic impact, it is, without exception, not worth their focus. Businesses neglect their revenue-generating abilities at their peril, and they should be well aware of this when determining how to best leverage their design talent.
Next week, we’ll be talking about the third and final essential component of value-based design, which is experimentation.
This week, for paid members
- This week’s paid lesson talks about what value-based designers should put in their contracts in order to protect their field & their practice.
- Our design of the week presents one of the weirdest nav designs we’ve ever seen. “Just add one more link,” they said! How about no?
- And our fortnightly teardown is for apparel brand Dri-Duck.
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Links
- Design is a form of leveraged power.
- Design is a form of leveraged power, part two.
- “Great artists steal,” they say. Originality comes from somewhere, but there’s definitely value to the remix. More, in this short book.
- Never hide your email unsubscribe link. Requiring login breaks federal law in the United States. I personally report and block any domains that don’t do one-click, which harms their deliverability in the long run.
- You can never learn too much about SVG. Chris Coyier has the reference you need.