As many as half of CX leaders are not properly able to quantify the impact of customer experience on crucial business metrics like revenue or LTV. This is problematic. How can you justify the cost of building your game-changing customer experience program if you can’t clearly demonstrate its value to the board or senior management?
Like any other business program, continued investment in CX requires a concrete, quantitative business case (with reliable ROI projections). But is it even possible to measure the ROI of CX within your company?
It’s a complex measure, to be sure, which means the most honest answer might be “Well, it’s complicated…” But even if you can’t exactly measure all of it, you can effectively estimate the return on investment of customer experience (or ROX, the return on experience) with the following three approaches.
Use third-party data and research to “prove” ROX
There is a lot of highly respectable data out there.
Research by Gartner found that low-effort interactions cost companies 37 percent less than high-effort ones. They also confirmed something we all intuitively know: high-effort interactions are more likely to make customers disloyal — by a factor of 10.
Saving costs and retaining customers are the principal ways in which CX improvements affect ROI. As we’ve seen, making life easier for customers keeps them loyal and therefore saves money. So how do you know what problems to fix? You ask the customers!
McKinsey reported on an energy company who, through speaking with customers, reduced the number of steps required to set up an account from 18 to five. This resulted in reduced complaints, recovered staff hours, and measurably lowered costs.
These are just two of many examples where companies have self-reflected, fixed some obvious problems, and directly profited from the work — without generating any new sales or launching any marketing campaigns. Where problems already exist, CX improvements are inherently likely to have a positive ROI.
Estimate the dollar value of customer retention
Increased customer retention is the gold standard for CX improvements. It’s what every CX campaign is looking to achieve: make the product so good, so effortless, and so valuable that customers don’t even bother looking at alternatives. In addition to the less-tangible reputational boost and word-of-mouth referrals, improved CX directly correlates with retention.
Increasing customer retention by just 5 percent has been shown to increase profits by as much as 25 to 95 percent — while this is an unhelpfully open value, it is accepted that better retention leads to higher profit. While there is an upper limit to how much brands can squeeze current customers for, CX improvements are a definite boon to customer retention and LTV.
Let’s imagine your SaaS customers spend an average of $250 annually on your products, but you lose 100 customers a year to churn. If CX improvements prevent just one of those customers leaving every month, you can put a powerful dollar value on those gains — nearly $3,000 in this case.
The higher the average customer value and the better the retention, the bigger the financial motivation to invest in customer experience!
Depending on the nature of your business and what you’re selling, the symbiosis between improved CX and increased LTV can become almost self-perpetuating. The better you make the customer experience, the more customers are willing to pay for it.
Assess the less measurable benefits of CX improvement
As we’ve said, results of CX improvements aren’t always strictly measurable. But introducing both functional (speed, ease of use, reduced effort) or emotional improvements, brands can get happier, more satisfied customer that:
- Are less price sensitive
- Spend more and churn less
- Explore more of the product range
- Have fewer complaints
- Help other customers (through forums or an online community)
- Are more likely to recommend products
- Will respond to surveys or provide feedback
While direct attribution to CX is probably impossible, these benefits have been witnessed by many companies and there are unequivocal longer-term financial benefits of CX improvements, including:
- Increased margins
- Increased AOV and LTCV
- Increased AOV
- Reduced customer service load
- “Free” word of mouth marketing and brand advocacy
- Increased customer base and revenue
- Valuable insights and process improvements
And while this ROI might not be strictly measurable, it is easy to survey a pool of customers before and after CX improvements are made and use this qualitative data to validate your assumptions. If customers are happier, more engaged, or actively spending more with the brand after the improvements, then you can assume financial ROI as a result.
Ready to learn more about customer experience? Start here.