Measure Customer Experience ROI. Customer experience is a hot topic in business right now, and we expect this to continue far into the future. With so much buzz happening around customer experience, many companies are investing more resources in this area. Some companies are investing in dedicated customer experience platforms that have omnichannel approaches and built-in AI and automation. Other companies are instead focusing on eliminating individual pain points or offering a broader communication experience. When it comes to customer experience, there’s an endless amount of decisions a company can make to improve this metric. Even a company popular with its customer base is never finished improving its customer experience. Customers evolve and companies must evolve too. This leads to a situation where businesses are constantly tailoring the customer experience to meet expectations today and for the future.

But how do you know whether the CX decisions you make are the right ones? Sometimes we hear about a great idea and decide to implement it in our company, but this idea might not work well in every industry. For example, some companies try to improve the customer experience by adapting their communication style to be less formal and more approachable. This works great for companies that sell consumer products to the general public. These customers want to walk away feeling happy and light when they make a purchase. However, a similar communication style complete with lots of emojis and friendly small talk might not be appropriate for other businesses. For example, a company that designs hardware for Data Centers might not benefit from this change. Why? Because this company is B2B and largely dealing with technical people who will need to ask a lot of questions about the product and how it fits into their data center landscape. When the conversation is fluffy, technical teams can feel like both parties are getting away from the point and things would be easier if they could just “talk business”.

In a situation like this, calculating ROI can be extremely useful. You get to determine which changes you make have improved your business, as well as which ones have harmed your business. And sometimes, the effect isn’t harming or providing improvement, but neutrality. If you invest a lot of money in a CX tool only to find that it had a very marginal effect on your customer experiences, then this tool probably isn’t a good fit for your business. You should be cautious about investing in tools like this one in the future.

With this in mind, let’s break down what ROI means for customer experience and give you some tips on how to get started.

1. Understand Why You Should Measure ROI

Return on Investment (ROI) is a key performance indicator that all businesses use. By using ROI, you can make better business decisions in the future and measure your success over time. Measuring ROI is essentially about taking the guesswork out of business and giving you a solid basis for your decisions. Remember, if you’re spending money on your business, then you have to justify this spending.

2. How Should You Use ROI?

Okay so now you know how to use ROI, but how should you use it? What are the situations when using ROI is useful? Here are some ways you can use ROI to add more value to your business:

• When purchasing new tools – Every business needs to purchase new tools and equipment to stay competitive and move forward in an increasingly fierce business landscape. However, there’s so much choice on the market that it can be difficult to know where to start. As a business, you want to make wise decisions. To help aid you in this, you can calculate the ROI of the new tools and products you buy so you can learn important lessons about what to purchase in the future.
• Hiring new employees – You can also calculate the ROI of new employees. Sometimes you think it will be a great idea to hire a new employee for a new team, for example, data science. This is a period of change for your business, and you want to determine whether this change is positive or negative, and by how much. Calculating the ROI to help you determine whether this employee is helping increase or decrease your profits. When you do this for several types of employees, you can get a better picture of who to hire in the future, which is always a valuable lesson.
• Adding a new department – Leading on from the last point, there are times of significant growth where you might want to add an entirely new department. A new department can be a smart move for your business if they successfully add value, however, not all new departments will do this. Calculating ROI can help you determine whether the new department is sustainable long term.
• Sales and marketing – Businesses experiment with several different sales and marketing strategies in the hopes of arriving at the most profitable strategy. Calculating the ROI of your sales and marketing strategies will tell you which campaigns were the most and least successful.

3. The Main Formula for Proving ROI

Okay, let’s get started. The first thing you need to do is get comfortable with the formula for proving ROI. Once you are familiar with this formula, you can start drilling down to the individual components of your customer experience strategy if you wanted to.

You calculate the ROI of your customer experience program using this formula:

ROI = Return/Investment X 100

Sounds simple, right? Well, it actually gets a little more complicated. To calculate the return, you need to use a separate formula. This is the return formula:

Return = Benefits – Investments

The benefits are the sum of money gained through your CX program.

For example, let’s say your Return is $20 and your investment is $4, what would your ROI be?

ROI = $20/$4 X 100 = 500%

4. Quantifying Benefits in ROI for CX

If you paused during the last section thinking “what are benefits? Are they all financial?”, then don’t worry, this section should help shed some light on the issue. Of course, when it comes to customer experience, it can be hard to quantify all of the benefits in a financial sense. Some benefits are much more clearly financial, and others aren’t.

For example, financial benefits include top-line revenue, the cost to serve, customer retention, cross-selling, and upselling. It’s fairly straightforward to quantify how many cross-sells and upsells you are conducting in comparison to before you had your CX platform. By analyzing this data, you can get a financial figure for just how much value (money) this platform has added to your business.

With customer retention, it’s widely understood that retaining customers is much more profitable than acquiring new customers, why? Because to acquire new customers you have to conduct a dedicated marketing campaign and spend a lot of money upfront, but you still might not convince these prospects to purchase your product. With an existing customer, you’ve already done the hard part – convinced them to buy. Once you’ve crossed that hurdle the first time, it’s much easier to get them over the hurdle again.

Quantifying benefits is more difficult than quantifying investments. Why? Because with investments there is a straightforward financial answer. With benefits, you have to quantify both qualitative and quantitative data. It’s complicated, but it’s doable.

Let’s take an example by using customer satisfaction. Customer satisfaction scores (CSAT) are widely used by businesses everywhere to determine how satisfied their customers are and to make meaningful improvements to the customer experience. If you implement a new CX program and then later find that your CSAT scores have gone up, then great, it looks like your new technology is working for your business. However, this isn’t enough. You can’t simply show that the CSAT score has gone up, you also have to show that even just a one-point increase in your CSAT is impacting your revenue.

Let’s say you send out a survey and get the following responses from 1000 people:

• 600 customers gave a satisfaction rating of 4-5 (satisfied).
• 200 customers gave a satisfaction rating of 3.
• And a further 200 customers gave a satisfaction rating of 1-2.

Based on these results, your CSAT score would be:

600/1000 = 0.6 X 100 = 60%

This means that 60% of your customers were satisfied with their experience.

You now start looking at the unsatisfied people (the ones who gave a 1-2 rating) to determine why their experience was so poor. When you talk to these people, you find out that they thought the wait times were too long when contacting customer service. You are also able to determine that 90% of these customers churn, and additionally, 75% of the customers who rated you a 3 also churn.

90% of customers with 1-2 rating churn = 180 customers lost.

75% of customers with 3 rating churn = 150 customers lost.

This is a total of 330 lost customers.

Let’s pretend that the average spend per customer is $100. If you have lost 330 customers due to poor customer experience, then you’ve lost $33,000 in revenue.

You’ve identified long wait times in customer service to be the main issue causing poor CSAT scores, so you decide to invest in technology to improve this score. For example, you invest $2000 in a new live chat system and $500 in training your employees to use it. Sometime after the new technology has gone live, you send out another survey. This time, the results you get are different:

• 700 customers give a 4-5 rating
• 240 customers give a 3 rating
• 60 customers give a 1-2 rating.

Your CSAT score is now 70%. If we do the same math as above, we find that this time we have 234 lost customers and $23,400 in lost revenue. This means that the benefit of implementing your new CX solution is:

Benefit = 33,000 – 23,400 = $9,600

To calculate our return we also need to minus the investment:

$9,600 – $2500 = $7,100 in return.

5. Quantifying Investments

Okay, so we know what benefits are and how to quantify them, but how do we do the same for investments. Investments can include things like the cost of new technology (software or hardware), operational costs, and employee training. It’s important to include all investments and not just the raw cost of the technology. The technology might be cheap, but the IT team might have spent several hours tweaking the technology to be right for your business. This accounts for many hours of labor that all have an associated cost. If you don’t include these costs, then you don’t get the full picture.