While many different factors go into a successful business, ultimately it comes down to whether or not you’re able to consistently turn a profit. Are you making money, or are you spending it faster than it comes in? When considering new purchases for the business, the first questions most executives ask are: “What’s the return on investment (ROI)? Will this be ROI positive?”
While measuring ROI might be easy for some business decisions, it’s not always so straightforward when it comes to customer experience. As a result, investing in customer experience can sometimes be seen as a low priority or even an unnecessary expense.
This is a shame, as improving customer experience has the potential to transform your business for the better. To prove this is the case though, you’ll need to calculate your customer experience ROI.
This article will cover the most important aspects of calculating customer experience ROI, including:
Customer experience ROI definition: The amount of financial revenue you generate from customer experience, taking into account how much you spend on improving their interactions.
Customer experience is more than just another buzz term — the way your customers feel about you, your business and your products can have a major impact on your growth and revenue. Customers who enjoy the buying process are more likely to shop with you again. They’re also more likely to recommend you to their friends and colleagues, leading to more new customers.
Everyone agrees a positive customer experience is a good thing, and there are plenty of stats to back that up. For example, research from PWC* found that:
However, simply knowing the statistics isn’t enough. Before investing any budget into customer experience, executives and decision-makers need to have complete clarity on what they can expect in return. By calculating your customer experience ROI, you can see how it has paid off in the past and predict future returns from further investment.
How do you measure ROI? It’s a relatively simple formula.
So, to calculate the ROI from your customer experience initiative, you need to know how much you’ve spent on it and how much you’ve got in return.
ROI calculation example: If you’ve spent $200,000 on improving customer experience, and that’s resulted in an additional $500,000 in revenue, then your ROI will be $300,000 ÷ $200,000, multiplied by 100 to get a percentage: 150%
However, quantifying the profit and costs involved in creating a positive customer experience isn’t always easy. Calculating customer experience ROI requires you to measure both how the experience has changed and the financial impact of that experience.
The first step is to choose which metrics you’ll use to measure the customer experience. Popular choices include:
All of these are ideal ways of assessing how the customer experience is changing over time. Looking at retention and churn rates is particularly helpful here, as it’s easier to see the revenue impact of customers who stay/leave.
While it’s usually seen as more qualitative than quantitative, assessing customer feedback is also a good way to see how they feel. For example, are you getting more positive reviews, or more complaints? When you talk directly to your customers, are they happy with the service they receive, or are they frustrated?
The next step is to see how those changes are reflected in your profits. Metrics you’ll likely want to consider include:
It’s then a case of working out how those first customer experience metrics affect these financial metrics. For example, you might find that raising your CSAT score by 10% results in your average upsell amount increasing by $500. If customer retention increases, then CLV is almost certainly going to increase too.
Of course, all of this comes at a cost. Whether it’s investing in a voice and video calling solution, expanding your customer success team, or delivering additional training, it all has to be taken into consideration when measuring ROI.
Even when you’re using the right service metrics, measuring ROI from your customer experience initiatives to get an accurate picture still requires effort. In most cases, it’ll be difficult to attribute those good results with 100% accuracy. Sure, that increase in cross-sells could be due to your improved customer experience, or it could be because you’re using a different sales strategy. In addition, seeing returns on your efforts can take time — it might be weeks (or even months) before you start seeing the benefits.
If this is your first customer experience initiative, start simple. Focus on just one or two key metrics, and then see how those metrics relate to your bottom line. One good way of analyzing your results is to segment your customer base. Seeing how your ‘happy’ customers (for example, those with higher CSAT and NPS scores) compare with others makes it easier to attribute financial impact to customer experience.
Finally, don’t get caught up in comparing your ROI with others. Every business will see a different level of return from their customer experience program, depending on their industry, their customers, their budget, and so on. Simply being ROI positive is usually enough to secure the investment you’ll need to. Just use your ROI to measure your own performance, identify which strategies have the best return, and optimize your approach in the future.
Creating a positive customer experience should be a priority for every business, leading to happier customers who spend more. However, to justify the investment in customer experience, you may have to prove the financial returns you can expect.
This means choosing the right metrics to measure experience, and then linking those to clear financial outcomes. By showing both the costs and returns you can generate through positive customer experiences, you can work out your customer experience ROI and get the backing you need to drive improvements.
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