How to Measure the ROI of CX
In a previous blog, we looked at evidence that points to a strong correlation between customer experience and return on investment. Indeed, understanding this correlation between the two is very important, yet it leads to a new question: How does one actually calculate the ROI of CX? In order to get the stamp of approval for your CX investment, you will most likely be asked to illustrate the expected return; fair. For C-Suite executives, investing in CX may feel like throwing money into the void without a clear end goal in sight. While the ROI of CX can seem abstract, and in-turn, difficult to consolidate into a straightforward proposal, the process is not nearly as daunting as one would imagine.
The return on CX is measured as such:
- ROI= (Returns from Investment) – (Cost of Investment) / (Cost of Investment) x 100
Now we have the formula, but its individual components have various intricacies of their own. Let us begin by establishing some parameters beforehand.
Choosing a CX Metric to Measure
To begin, you will want to choose a CX metric that will be relevant to the investment. There are countless metrics to choose from. We have listed the top ten in a previous blog; net promoter score®, customer satisfaction, and customer effort score are all commonly used measurements to name a few.
Say that you want to invest in a new training program for your customer service team in an effort to increase the efficiency of service. In this case, you might choose between either Customer Effort Score (CES) or Customer Satisfaction (CSAT). Customer effort will look at the level of difficulty of interacting with the service whereas customer satisfaction examines the customer’s sentiment towards said interaction. For this example, we will choose CSAT to measure the customer’s level of satisfaction following their customer service experience.
For this particular metric, there are a few things that should be noted. CSAT is what Forrester calls a perception metric, a measurement that is based on the customer’s personal interpretation of the experience. While one person may find an interaction to be extremely dissatisfying, another may find that same interaction to be an average experience. The variation in perception could affect the margin of error in your measurements. To account for discrepancies in customer perception, make sure to record descriptive metrics as well. This would include call time, wait time, page visits, etc. This way, you will be able to further differentiate two customers with identical scores if need be.
Determining What to Measure on the Return
Next you must select the corresponding financial metric that will be measured alongside your CX investment. When choosing your metric, think about the objective of the investment in terms of the return. Will it increase sales? Decrease cost? Increase customer spend? In the case of the new customer service training program in our example (an investment aiming to increase customer satisfaction), you would want to look at frequency of purchase or the average spend per customer.
When a customer is satisfied with their customer service interaction, the idea is that their positive sentiment towards the brand is strengthened, which, in-turn, translates into the customer spending more/increasing their number of purchases. For our example, it would be best to incorporate both measurements to create a more comprehensive illustration of the investment’s effect.
Comparing Across Segments
Once you have collected your data, you will want to divide your customers into segments based on their CSAT score. Within each segment, you can calculate the financial metrics that you decided on. In our example, you would calculate the average spend and frequency of purchase for a typical customer within a particular segment. Let us say that the average person who scores a three for CSAT spends an average of $15 and makes an average of twenty transactions per year. Likewise, the average person who scores a four for CSAT spends an average of $17 and makes an average of twenty-three transaction per year. In this case, a one point decrease in CSAT translates to a loss of $91 per customer each year on average. On a larger scale, if 500 customers move from a four to a three, the company will lose an average of over $45,000 that year (and vice versa).
You can make a prediction of the ROI by applying this logic to your existing consumer data. Taking the CSAT scores that you have already collected from previous interactions, and finding the financial metrics that correspond with each segment, you can illustrate the correlation between the two. Granted, there may be other factors that could affect the spending behaviors of customers, such as their satisfaction with the product itself, so cross-examining data like this will be essential for isolating the relationship between CX and spending.
Good customer experience is highly valuable, but seldom awarded the financial support that it deserves due to its seemingly ambiguous returns. If you are able to show your C-suite execs that their investments will pay off, the company will benefit all around.
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