Illustrating the ROI of CX
Despite its critical role in a company’s success, businesses often place customer experience on the back burner when it comes to financial investment. The hesitancy towards CX investments stems from the difficulty in directly attributing revenue growth to specific changes in customer experience. Compared to clear-cut investments, the ROI of CX can appear to be ambiguous. The returns from CX tend to accumulate at a gradual pace, making it difficult to pinpoint the precise effects. Yet there is an increasing amount of research that illustrates the validity of CX investments. The following studies aim to highlight the positive financial results of excellent customer experience.
Watermark Consulting’s 2019 Customer Experience ROI Study
Watermark Consulting’s 2019 Customer Experience ROI study examined the cumulative total stock return of the Leaders and Laggards in CX over the span of eleven years (Forrester Research’s CX Index from 2007-2015 & Temkin Group’s Experience Ratings from 2016-2018). They compared those results against that of the average S&P 500 Index during that same period.
The results revealed that the leaders in CX had significantly higher returns than both the Laggards and the average S&P 500 Index.
- The CX Laggards had a cumulative return of 63.1%
- The S&P 500 Index had a cumulative return of 138.7%
- The CX Leaders had a cumulative return of 183.3%
While it is important to note that over the span of eleven years, there are various factors that could have contributed towards a company’s success aside from CX, the vast difference between the Leaders and the Laggards suggests a very strong correlation between CX and ROI. The companies who fail to continually improve their customer experience run the risk of losing both existing and potential value.
Harvard Business Review Study
Harvard Business Review’s research aimed to predict future revenue based on prior customer experience. They examined two global companies; one with a transaction-based model and the other with a subscription-based model. The study looked at two universal aspects of both businesses: customer feedback and future spending. This data was used to correlate an individual’s customer experience to their subsequent spending behaviors over the following year.
To avoid to the possibility of cofounding variables that could have influenced customer spending behaviors, HBR performed multiple regressions to isolate the relationship between experience and spending. The results revealed increased returns as a result of improved customer experience.
Results for transaction-based models:
The transaction-model data focused on the annual revenue increase per customer in relation to the CX score that the individual reported.
Customer Experience Score Annual Revenue Increase per Customer
The results demonstrated a stark discrepancy in future spending behaviors between customers who had positive experiences versus those with negative experiences; 140% to be exact. Customers who had the most positive experiences spent 2.4x the amount that customers with the worst experiences spent.
Results for subscription-based model:
The subscription-model data predicted loyalty by looking at an individual’s customer experience score, and whether they remained with the company throughout the following year.
- Those who provided low CX scores were only 43% likely to remain customers over the period of a year.
- Those who provided a high CX had a 73% chance of remaining customers over the period of a year
CX is a valuable tool for understanding the direction and speed at which your company is expanding. Companies with lower CX scores can expect a slower growth, indicating the need to assess their alignment with customer expectations. Looking at why customers are terminating the relationship is an important step in increasing retention and, in-turn, increasing your returns.
Tempkin Group’s ROI of Customer Experience, Aug 2018 Study
Tempkin Group examined over 300 companies across 20 industries to illustrate the relationship between ROI and CX. They gathered consumer data from 10,000 respondents in the US. Based on consumers’ responses, the research revealed a positive correlation of 0.82 between CX and repurchasing.
Tempkin went further to create a model that would analyze the impact of a moderate CX improvement on a $1 billion company across 20 industries. The results showed significant benefits across all industries. They concluded that, on average, with a moderate CX improvement companies can gain over $775 million over the span of three years. Additionally, they determined that software companies were predicted to gain $1 billion.
While the initial cost of investing in CX improvements can deter businesses from taking the leap, it will ultimately pay off as customer retention and loyalty are increased. It costs less to retain existing customers than to acquire new ones, rendering a CX investment a cost-efficient decision. Based on the correlation between CX and ROI that is exemplified in numerous studies, initiatives to improve your existing CX program will yield positive effects in the overall health of your company.
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