Proving the ROI of customer experience is essential if you want your company’s leadership to continue investing in your customer experience program.
Customer experience is the backbone of any successful customer-centric organization, but knowing it instinctually isn’t enough. Without providing hard numbers for leadership to peruse, you’re arguing to continue an expensive business function without proof that it’s actually helping the business.
How do you quantify how much revenue you’ve generated as a result of a providing a delightful experience to customers, and how do you report that to your higher-ups?
In this post, we’ll go over how to prove the ROI of your CX efforts and how to improve it over time — so that your business’ leaders continue investing in your program.
Customer Experience ROI: The Hard Facts
Investing in customer experience pays off for businesses that keep up with CX trends. The numbers show it:
- Businesses that prioritize customer experience grow their revenue 1.7 times faster than businesses that don’t.
- They also grow their customer lifetime value by 2.3X on average.
- 66% of businesses that prioritize customer experience see increased retention, and 60% see an increase in customer lifetime value.
- Customer experience leaders see a 307% return on their stock performance. That’s 108 points higher than the S&P Index 500.
- Most importantly, businesses that prioritize customer experience actively invest in it. Forrester reports that these businesses have, on average, 12 budget lines dedicated to CX.
How to Prove the ROI of Customer Experience to Leadership
Connecting your customer experience metrics with financial data can sometimes create more questions than answers. For instance, does answering email faster really help you keep customers longer? And how much more would a customer spend if you streamlined your checkout process?
That’s why it’s so difficult to prove how valuable CX is and why the investment is worth it. However, it’s essential to sell it to your executives to get funding, improve the program, and invest in your team.
While it might be difficult to assign a concrete number to CX, there are a few strategies you can use. Here’s how to start:
1. Calculate your company’s current customer lifetime value and churn rate.
When it comes to revenue, chances are that your executive team wants to see growth. One way to create that growth? Investing in CX programs. But before you can make the case for creating an expansive budget for a customer experience strategy, you have to show the executive team where your company has the biggest opportunities in terms of revenue.
You have two metrics to demonstrate how revenue can be impacted by a poor customer experience: Customer lifetime value and churn rate.
If you’re churning 10 or even 20 customers per month, that means that those customers have a short lifetime value, severely undercutting your revenue potential. And there must be a reason why they’re leaving you — which takes us to the next step.
2. Collect feedback from customers who’ve churned and use this data as a benchmark.
Next, it’s critical to find out why customers have left your business. To get that data, you’ll need to collect customer feedback, which will lead you to find hard proof that you need to invest more in customer experience. If customers are leaving you because your competitors offer better service, then that is a clear reason to invest more in your CX program.
If they are leaving you because of cost, then you can position CX as a way to maintain (or even increase) the high cost of your company’s products and services. Why? Because most people will pay more for a premium experience. In fact, nearly 3 in 5 customers will pay more for better customer service.
You can use customer feedback software to find out whether your customers are leaving you because of a poor experience or a cost issue. In the process, you may also assign the feedback a quantifiable score. Some tools you may choose include:
Once you have those scores, you can use them as a benchmark.
3. Calculate how much your company would earn if you retained even 1, 5, or 10 more customers per month.
This is the most important step in your CX ROI measurement. Once you identify the gaps in either customer lifetime value, churn, or both, you can calculate how much more revenue or profit you can bring in every month if you retained more customers. This is important to show how customer experience can directly influence revenue.
Showing the potential itself in the short term isn’t enough. To give leadership a more holistic understanding of the revenue impact of customer experience, consider calculating how much more money you’d earn per quarter and per year if you retained just 1 to 10 more customers. In addition, consider calculating the revenue potential further into three, five, and even ten years.
Multiplying the potential revenue by a longer timeline will show leadership that CX is worth investing in as a long-term strategy. During this step, you should calculate how much the company will lose if it doesn’t invest in customer experience.
4. Subtract program and team costs from the projected revenue.
Demonstrating the potential revenue gains alone won’t fully demonstrate the ROI of customer experience. To show leadership the full net return of your CX efforts, you must also subtract team costs, such as the salaries of your team members, and program costs, such as the cost of CX software tools and campaigns.
Subtracting these costs will give a rough estimate of the returns of providing a good customer experience, compared to the investments leadership is making in the company’s CX program.
Now that we've shown how to prove the ROI of customer experience, let's look at the metrics you'll need to monitor if you want to measure it.
Customer Experience ROI Metrics
You might already track a number of customer experience metrics, like NPS®, CSAT, CES, and First Reply Time. While these metrics highlight the state of your customer experience program, they don't necessarily tell you the impact that each one has on your business unless you connect it to a financial metric.
Financial metrics, like the ones listed below, are valuable to your leadership team because they provide actionable insights into your customer experience program. Tracking these metrics helps management understand whether the business is growing and making money.
Customer Lifetime Value
Customer lifetime value projects how much money a single customer will spend on your company's products. It's calculated by multiplying customer value by average customer lifespan.
Your churn rate represents the percentage of customers that will cancel or leave your business within a given period. It's calculated by dividing the number of customers who churned by the number of customers acquired. But, if you want to save some time, you can use this handy churn rate calculator, instead.
Cost of Support
Support costs are expenses that don't relate to production or manufacturing. This includes things like quality assurance and customer service programs. These costs should be compared closely to your customer satisfaction metrics.
Average Transaction Size
Average transaction size is calculated by dividing the total revenue acquired during a given time by the total number of sales made during that same period. This gives you an idea of how your customers shop and which products they prefer most.
Average Contract Value
If you're a subscription-based company, average contract value might replace average transaction size. Fortunately, it's calculated the same way: By dividing the total value of contacts you've signed during a period by the total number of new customers you've acquired.
Connecting customer experience with the metrics above involves combining your data so each customer's profile contains contextual information. This can usually be done in a CRM or with a data analytics tool.
Here's an example of what that might look like.
From here, we can find trends within the data, so we know what makes one customer spend thousands, while another customer walks out the door.
How to Improve Your ROI on Customer Experience
Companies just starting with customer experience analysis may begin with looking at NPS or CSAT scores. Measuring these metrics over time will certainly uncover trends, but without digging deeper, it's impossible to know what actions to take to improve overall performance.
Here are some steps you can take to better understand your customers and generate a stronger return from your customer experience program.
1. Segment your customer base.
To better understand the customers you work with, it helps to categorize them into groups based on their personal characteristics and behaviors. Not every customer acts the same, and identifying different buyer personas can help you uncover opportunities to increase revenue.
Here are some ways you can segment your customer base.
- Product/Plan Purchased
- Contract Value/Average Transaction Size
- Number of Daily/Monthly Visits
- Job Title
2. Use text analytics to review qualitative data.
Rather than manually sorting through support tickets and listening to phone recordings, text analytics software can analyze qualitative data from survey responses, customer conversations, online reviews, social media conversations, and more. This technology helps you process tons of valuable information without having to personally review each piece of customer feedback.
3. Look for historical trends.
Once you've gathered a significant amount of data, look for patterns that outline what has worked — or hasn't worked — in the past. Do all customers in a specific segment talk about a particular feature? Do you have higher churn rates with a certain target audience? What did their qualitative data reveal about their perception of your brand?
Looking at data through this lens can help you compare your customer experience program against the metrics that you're measuring. You'll have a better idea of what initiatives are working and where you can make changes for a greater return.
4. Identify opportunities that will yield the most impact.
Once you have a feel for how your program is performing, look for a specific buyer persona or group where you can make a significant impact on their customer experience. For example, you could start targeting a high-value segment where churn rate is high, but there's still plenty of areas to generate customer delight.
This is where your customer experience metrics come into play. Look at the initiatives you've launched in the past that have been successful with similar audiences. Use quantitative data to measure financial success and qualitative data to personalize your next initiative for your new target persona.
Customer Experience ROI Example
To understand just how impactful customer experience can be, let’s travel back to the 90s.
In 1997, the credit card giant, Mastercard, was faced with a critical dilemma. Consumers were buying more of its competitors' products and the company was losing value in its marketplace.
The solution? Mastercard decided to rebrand, starting with the launch of this — now famous — marketing campaign.
The Mastercard "Priceless" campaign transformed the brand's image and has been a core component of the company's reputation for the last 23 years.
But why was this message so successful? It captured the idea of customer experience. While products cost a fixed amount, great customer experiences are priceless — for both customers and businesses.
The irony is that while customers should feel like their interaction was "priceless," businesses are trying to calculate exactly what that experience is worth. Calculating the return on investment of customer experience initiatives is important because it helps marketing and customer service teams strategize and make key business decisions.
Growing a Business with Customer Experience
Customer experience ROI isn't just a fun metric for your business to measure. It helps you prioritize upcoming projects, generate buy-in for customer-centricity, and boost overall team morale.
The key to calculating customer experience ROI is to connect metrics that you already measure to the financial metrics listed in this post. By comparing that contextual information with customer feedback, you can better understand whether your customer experience program is successful.
Editor's note: This post was originally published in June 2020 and has been updated for comprehensiveness.