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Thought Leadership & Enablement
January 5, 2023

Customer Experience ROI: How To Make The Most Of This Key Data

How to start calculating customer experience ROI and incorporate it into your business strategy.

Jenna Bunnell
Senior Manager, Content Marketing at Dialpad

In many ways, customer experience (CX) is what your business output should fundamentally be about. You need those customer dollars, so you need to make those customers feel good about parting with them.

However, it's easy to dismiss CX as merely another cost. What this perspective misses is that there is a return on investment with CX that should be understood and factored into a business strategy. Otherwise, you could be missing out on one of the key benefits of focusing on CX: the real financial benefit that accrues from looking after your customers. 

We'll assess what an awareness of customer experience ROI can deliver, but before we do, let's review a pair of fundamental questions to set the scene. 

What is Return on Investment (ROI)?

Free to use image sourced from Pexels

This is simply the amount that an entity gets back from the outlay it commits to an activity. Although there are multiple methods for calculating your ROI, a simple way to calculate it is  using this formula:

((Money gained - money spent)/money spent) x 100 = ROI

So, if your Australian goods company spent $10k on a boomerang promotion and sales of $15k resulted, you'd be looking at an ROI of (($15k-$10k)/$10k x 100 = 50%. That's quite a return, from those boomerangs. 

What is Customer Experience ROI?

So, if ROI is what you get back from what you put in, customer experience ROI is all about what you get back from putting resources into the arena of customer experience. In other words, what do your efforts in improving customer experience deliver in terms of good old financial gain for your business? 

However, things aren't as simple as that last paragraph made them sound. Companies can struggle to put a figure on the omnichannel customer experience that makes sense in an ROI formula. How do you accurately convey the benefit of a particular investment when the analysis is not always so easily quantifiable?

Free to use image sourced from Pixabay

For instance, going back to those boomerangs, suppose your company had invested $50k in an interface tweak so that the website was easier to use. Now, when posing that against a $15k income, you're looking at an ROI of -85%.

This looks shockingly bad. This is because we're not looking at the bigger picture. It’s important to remember that your website is not just selling boomerangs. There are many other elements of your business that will benefit from greater customer engagement, such as more repeat purchases that your CX investment will result in. Everything should be factored in. 

So, when looking at the ROI of customer experience, you need to be aware of all the relevant information and include it in your ROI calculations. 

The data you present will be more accurate and stand a higher chance of impressing those with their hands on the pursestrings. Because if they're under the impression that enhanced CX is just a cost, they may well be less likely to commit funds to it than if they can see it for what it is: an investment opportunity. 

Let's look at how you can make that clear to them. But before we do, let's assess what metrics are relevant to the world of CX.

Customer Experience Metrics

It's important to grasp the measurements that CX can be quantified in. They include the following:

1. Net Promoter Score (NPS)

How likely is a customer to recommend the company to others?

2. Customer Satisfaction (CSAT)

What level of contentment does the customer have with the service provided?

3. Customer lifetime value

How much does the average customer spend over the extent of their relationship with your business?

4. Retention rates

What percentage stay loyal customers, month on month? (This is the counterpart to churn rate, i.e. what quantity of customers leave your business, month on month.) Why's this important? Mainly because of the comparative difficulty in selling to a new customer in relation to selling to an existing one. 

new prospects vs existing customers costs

Image sourced from superoffice.com

So, reduce the churn, if you want to earn. 

All these measurements try to turn what might be dismissed as fuzzy and subjective - a customer's feelings about a company - into hard empirical information. This is the kind of information that will inspire investment, by providing comparable evidence for what might or might not be key to encouraging more sales. 

Let's look now at how you can use some of these metrics in order to encourage greater priority to be given to improving CX. 

Steps to take to show the value of CX ROI

1. Work out current customer lifetime value

There will, in all likelihood, be figures for this already. If not, you've got some calculating to do.

2. Identify the current churn rate

This can be quite disconcerting. If you've got, say, 50 customers leaving you every month, that's a big dent in your income. 

3. Discover the reason for the churn rate

Ask your leaving customers for feedback, perhaps make use of zero-party data

This data is often more easily obtained than you would think. Some people like to make a big dramatic exit, making it enormously clear why they've decided to go. It also helps your customers to feel like their opinion matters and that you care about keeping them.

You can also look at various customer service review examples, to see the best way to communicate with your customers and, in turn, get the most useful data for your business. 

This information is invaluable. You will be able to ascertain CSAT as well as find out just how significant your customer experience was in terms of prompting the abandonment.

Surveys show that poor CX is a hugely important factor in a person's decision to terminate relations with a business.

poor customer service experience

Image sourced from revechat.com

So, if, as is often the case, poor CX is cited, this gives a good reason to look at investing more in CX.

However, even when bad CX is not listed, it can still make the case for investment in better CX. 

For instance, most customers will pay more for a product if the CX is perceived as good. Customer expectations are key here. You'll reap the rewards if your customer service meets or exceeds expectations. So, if a customer cites pricing as the reason for their departure, it might make a lot more sense to invest in CX than to reduce product prices.

4. Work out how much more income would stem from greater customer retention 

This is the money shot. Of course, the first question will be how much will an investment in better CX cost. But, it’s also just as important to ask, how much will be raised as a result?

From your data, you can give figures in terms of, say, 20 customers retained per month = 240 customers per year. Multiply that by the average customer lifetime spend, and you should get a customer loyalty premium that will attract the interest of the folks with the funds. 

5. Subtract costs

Work out what you need to do to enhance CX. Some of this should be delivered by the feedback you solicited from leaving customers. You might also be able to derive insights from your CRM. You can also learn from looking at competitors' customer service, as well as asking your colleagues for suggestions. 

Once you know what areas need to be addressed, calculate how much this will cost to deliver, in terms of staffing and/or technical resources. 

You can then use the formula we talked about earlier to give an estimated ROI from improved CX.

Example of a company using customer experience ROI

Free to use image sourced from Unsplash

Let's say you have a company that specializes in the phone for small business sector. You currently have a customer lifetime value of $5000. Your churn rate is in the region of 10 per month.

Your exit feedback tells you that most of your customers are making the decision to leave due to poor support. Think about how to improve support levels. Will it take investment in staffing levels or training? Or do you need to introduce more of a tech response? Do you need to be more accessible via social media? Perhaps what's needed is a better interactive voice response (IVR).

Calculate how much this will cost. Let's say you go for a combined approach, that will cost in the region of $75000. 

Now, using your feedback information, estimate how many customers will remain in your customer base following the introduction of improved support levels. If you think 50% of those who left would stay, then use that figure to determine the amount of revenue that will likely result from their retention. 

If you have 10 customers per month opting to stay then, that's 120 customers saved per year. With an average lifetime value of $5000, that's a potential eventual retention of $60,000. Over the course of five years, that's a potential eventual retention of $300,000. In other words, a 5-year potential customer experience ROI of 300%. That’s not bad at all. 

Customer Experience = Revenue Growth

Make no mistake, customers are the lifeblood of a business. If this isn't appreciated, your business will flounder. But what follows from this observation is that customers have to continue to enjoy their relationship with a business. If not, then the result is an increased churn and a reduced income. 

So, it makes business sense to look after your customers. Assess what it takes to improve their experience and see revenue increase. Whether it’s something small, like getting a free virtual phone number so you’re always there to support your customers or a total re-vamp of your website so it’s more intuitive to use. Look at the data and see what will have an impact. 

This is what great CX is all about: making a difference. Nothing will benefit your ROI more. 

 

Bio:

Jenna Bunnell - Senior Manager, Content Marketing, Dialpad

Jenna Bunnell is the Senior Manager for Content Marketing at Dialpad, an AI-incorporated cloud-hosted unified communications system that provides valuable call details for business owners and sales representatives using helpful resources like this guide to call recording by Dialpad. She is driven and passionate about communicating a brand’s design sensibility and visualizing how content can be presented in creative and comprehensive ways. Jenna has also written for other domains such as VMblog and nTask Manager. Check out her LinkedIn profile.

Jenna Bunnell
Senior Manager, Content Marketing at Dialpad

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