How to calculate the ROI of customer experience CX

Truth be told, measuring the ROI of customer experience (CX) is not straightforward. A common mistake is conflating an uptick in CX metrics with top-line results in the business.

Apparently, companies who are great at CX and customer-centricity are 60% more profitable and bring in 5.7 times more revenue than those who don’t.

These are compelling stats, but can you rely on them enough to make a business case?

Imagine your company reported a 20% increase in sales during which time you’d built a base camp for CX best practice. Should your CX efforts get the credit for that? Perhaps, if you’d been able to point to a marginal increase in NPS? Now imagine you’re a company with sky-rocketing CX scores but revenues going through the floor. What should you make of that?

Tying CX metrics to top-line revenue performance can work, for example by tracking whether NPS advocates actually do recommend you, and what effect this has. Some seriously clever people at Cambridge University did just that, but it’s clearly not a straightforward exercise.

Measurement without action is just numbers

CX metrics like NPS, CSAT and CES are worth tracking. Data in general is good, particularly if you’re regularly engaging with customers to garner fresh, pertinent feedback at various stages in their ‘journey’.

However, the biggest mistake you will make in measuring CX ROI is focusing too much on measurement alone. Let’s take two examples:

Information overload leads to analysis paralysis

If you start collecting customer feedback and/or regularly measuring CX metrics for the first time, prepare to be enlightened. But depending on factors like how you do it, how many customers you have, etc, it could be overwhelming. Like getting a glass of water from a fire hydrant. Ensure you can categorize and visualize data in a digestible, bite-sized way or it will cost you time and money to stay on top of – compromising your ROI calculation.

Failing to act on the data you garner

The ROI on measuring CX alone is going to be a big, fat zero. Zilch. Nada. Why? Because unless you act on the data, you will have no effect. This happens surprisingly often; good intentions driving investment in CX measurement with not enough execution feeding off the data that’s produced.

So how do you do it?

In the words of CX commentator, Blake Morgan, “to showcase the ROI of customer experience, changemakers need to connect money and data to key aspects of the customer journey.”

A good place to start is using feedback to strip waste out of all sorts of customer-facing and internal business processes. Time is money, right? For example, in developing and marketing products and services. Listening to and applying feedback ensures you are resonating with customers, meeting expectations and preventing future issues.

To do this you need to establish information flows between departments. Bringing teams such as customer support, product design and marketing together gives each maximum utility from the feedback acquired. They’ll end up doing a better job, faster for less effort. And you can measure that.

CX customer experience program journey single pane glass

Saving money doesn’t stop there. Consider the huge opportunity of customer retention. Take this ROI calculator that equates the value of retained business achieved through a well functioning CX program.

ROI of retention:

Just enter the average annual dollar value of your customers, and the percentage of your customer base you lose per year, and adjust the slider for how many you could save with effective CX tools and techniques.

Increase customer lifetime value

Using CX to protect and extend a base of retained customers creates a fantastic asset that upwardly skews ROI. You probably know that acquiring new customers costs 5x more than retaining them.

Incremental revenue gains are easier too, with typical success rates of upselling around 60-70% versus 5-20% for new customers. Increasing customer retention by just 5% has also been shown to increase profits by as much as 25-95%.

CX is effective at boosting customer lifetime value (LTV) and this can become self-perpetuating. Investing disproportionately in net new customers could cause you to neglect your existing base. Switch that around and suddenly you are galvanizing a revenue powerhouse.

By being attentive to the changing needs and personal requirements of this cohort, you become more efficient and successful at serving them. This leads to a virtuous circle of personalization and LTV fuelling one another.

Clearly there are limits to how much you can make from existing customers. At the top end LTV will eventually deliver diminishing returns, which is why a balance is essential to ensure new customers are successfully attracted and onboarded too. And how do you learn how to efficiently do that? By deploying effective feedback mechanisms as part of a CX program that retains customers for the long term.

Build on the basics

CX goals don’t have to be lofty and wide-ranging. It’s better for your ROI calculation if you start simple and bank some quick wins.

The Customer Thermometer mantra is ‘brilliant basics and magic moments’, and it’s worth implementing them in that order.

Magic moments are all about going the extra mile and creative ways to inspire customer delight. But this can be tricky to evaluate.

Brilliant basics is more methodical and starts by examining the customer journey to spot and remove points of friction and irritation.

This came up in our recent CX Masterclass with best-selling author of ‘The Grid’, Matt Watkinson. In terms of measuring CX ROI, Matt advocates a goal like “removing all errors from a certain kind of interaction” rather than “let’s make people happy”.

Instinctively, you just know that improving customer experience (CX) is good for business. But instincts won’t wash in the boardroom. Somewhere down the line financial numbers need to add up. You need a way of calculating the ROI of CX to validate investment, justify your efforts and optimize your next strategic move. We hope this has been useful!

If you want data-driven insight and action get your free trial of Customer Thermometer’s real-time, transactional feedback here…