the roi of cx

Businesses that truly focus on their customers’ needs and preferences are more likely to succeed. It seems so obvious that many executives roll their eyes at the concept of customer experience. In practice, it’s very common for people to get sidetracked by their own priorities and forget to see the world through their customers’ eyes.

That’s why it’s so important for every organization to have a formal Customer Experience Management area of practice. CX leaders remind everyone in the organization of the reason why they are there: to serve the customer. But CX leaders also have a challenging task: demonstrating the impact of CX initiatives on business results.

It’s challenging, but not impossible. Measuring the return on investment (ROI) of customer experience (CX) has been widely discussed. There are calculation methods for every need and context. In this article, we summarize the basic guidelines for measuring the ROI of CX. We also discuss how to increase this ROI by transforming positive customer experiences into added brand value.

Basic Guidelines for Measuring the ROI of CX

Most businesses already measure customer experience through metrics like NPS, CSAT, and CES. However, it is by tying these metrics to business results that CX leaders can demonstrate the real impact of customer experience. The ROI of CX is exactly that: quantifying the financial outcomes of an organization’s investments in customer experience initiatives. Here’s how you measure the ROI of CX in four steps:

Step 1 – Document the Current Situation: The only way to demonstrate change is through comparison. And your organization’s current (or previous) state is the best parameter for this. Collect all relevant information and create an overview of the current situation to compare against the new scenario after implementing one or several CX initiatives.

Step 2 – Design Your ROI Model: Consider the customer experience metrics you are already monitoring (or could monitor) and the financial metrics available. Create a model that includes key metrics relevant to your business and that you can reliably measure.

Step 3 – Estimate the Impact of CX Initiatives: Before implementing any CX program or initiative, it is important to have a clear goal in mind. Define exactly what you are trying to achieve in terms of business results so that you can later track and evaluate if the desired outcomes have been achieved.

Step 4 – Measure, Evaluate, Communicate: Monitor the results of your CX initiatives in terms of customer experience and selected business outcomes. Demonstrate the impact of these initiatives by comparing the new metrics with the previous scenario. This should be done at regular intervals depending on the duration of the new program or until you can see results. Most importantly, share the information across the organization in a smart way. Don’t overwhelm your audience with too many details. Focus on key metrics, or even a single metric combination, to make it clear and easy to understand.

Key Metrics in CX ROI Measurement

You now know the process for measuring the ROI of CX. But what specific metrics should you include in your ROI model? Different business contexts will require different metrics, but the general logic is to combine customer experience metrics with business metrics or financial indicators, and how they are impacted over time. These are the most commonly used metrics in CX ROI analysis:

Customer Experience Metrics

  1. Net Promoter Score (NPS): Measures customer loyalty by asking how likely customers are to recommend your company to others.
  2. Customer Satisfaction Score (CSAT): Assesses customer satisfaction in a specific touchpoint or with the overall experience.
  3. Customer Effort Score (CES): Indicates how easy it is for customers to get their issues resolved or their needs met.
  4. Customer Churn Rate: The percentage of customers who stop using your products or services over a period of time.
  5. First Contact Resolution (FCR): Measures the percentage of customer issues resolved on the first contact.
  6. Customer Retention Rate: The percentage of customers who continue to use your services over a specified period.
  7. Average Response Time: The average time it takes for your support team to respond to customer inquiries.

Business/Financial Metrics

  1. Customer Lifetime Value (CLV or LTV): The total revenue a single customer brings to your company throughout their relationship.
  2. Revenue Growth: Your company’s sales increase compared to the previous period.
  3. Cost to Serve: The total cost involved in providing service to a customer.
  4. Customer Acquisition Cost (CAC): The cost of acquiring a new customer, including marketing and sales expenses.
  5. Return Rate: The percentage of products returned by customers.
  6. Upsell and Cross-sell Rates: The frequency of additional sales to existing customers.
  7. Revenue per Customer: The average revenue generated from each customer over a specific period.
  8. Operational Efficiency Metrics: For example, metrics like “cost per contact” can indicate how efficiently customer service is being delivered.

Examples of Connecting CX Metrics with Business/Financial Metrics

  • NPS to Revenue Growth: High NPS can indicate strong word-of-mouth marketing, leading to reduced customer acquisition costs and revenue growth.
  • CSAT to CLV: Higher satisfaction scores can correlate with higher lifetime value, as satisfied customers are likely to remain loyal and spend more.
  • CES to Cost to Serve: Lower effort scores can reduce service costs, as customers are less likely to require repeated support interactions.
  • Customer Retention Rate to Revenue Growth: Improved retention rates directly impact revenue growth by ensuring ongoing sales from existing customers.
  • Churn Rate to CAC: Reducing churn can lower customer acquisition costs, as retaining customers is usually cheaper than acquiring new ones.

The Impact of Positive Customer Experiences on Business Results

Delighting customers is not always the end goal of business operations. And it shouldn’t be. After all, serving customers in the best possible way is not always financially viable and can threaten business survival. Still, the positive effects of happy customers for businesses are undeniable. Here are some of the benefits of positive customer experiences for businesses:

  • A better understanding of customer needs: we, humans, tend to focus on negatives. And that sometimes happens to customer feedback. When you focus solely on negative customer feedback, you risk missing out on an important source of insights into your customers’ needs and preferences which is positive customer feedback. By critically analyzing the content of positive customer feedback, you can get a deeper knowledge of what makes your customers happy about your products and services.
  • Increased brand loyalty and retention: a positive experience makes customers have a better impression of your brand. That means that the next time they need similar products or services, they won’t hesitate to engage with your business again. That’s how brand loyalty begins. Businesses that rely on repeat purchases must invest in building strong connections with their customers that result in long-term relationships.
  • Identifying potential new customers and markets: when examining customer feedback, determine if any specific customer groups are likely to have a positive experience with your brand. That can be an indication that people with similar profiles could be an interesting target market to focus on.
  • Building a fanbase of brand advocates: what’s better than a happy loyal customer who repeatedly purchases your products or services? One who also spreads the word about your business! People like to rave about the products and brands they love to family and friends. They will also boast about them online, but sometimes they need some stimulus to do so.

10 Tips to Encourage Happy Customers to Leave Positive Reviews

  1. Use automated review collection tools and integrate them into your CRM or e-commerce platforms to automatically send review requests after pre-defined triggers, like a purchase. These tools also send automated reminders, which can increase response rates.
  2. Timing is crucial when asking for reviews. The best time to request a review is shortly after a customer has had a positive experience with your product or service. A good practice is to include a link to a review page at the end of a satisfaction survey.
  3. The way you ask for a review can influence a customer’s willingness to provide one. So choose your wording carefully and use friendly, polite, and appreciative language to make the request. Personalizing the message instead of a generic request can also increase the likelihood of a customer leaving a review.
  4. Offering incentives can sometimes be used to encourage customers to leave reviews. These incentives can include discounts on future purchases or loyalty points, for example. Make sure they don’t seem like a bribe and incentivize genuine reviews.
  5. Engaging with customers who leave reviews can make them feel heard and also encourage others to share their experiences. Respond to reviews and show that you value customer feedback and are committed to improving their experience.
  6. The review process must be as simple as possible. Provide clear instructions and direct links to review sites. If possible, pre-fill information to minimize the effort required from the customer.
  7. Don’t limit your review requests to just one touchpoint in the customer journey. Ask for reviews after relevant interactions to capture a broader range of customer experiences and increase the chances of getting reviews.
  8. Display positive reviews prominently on your website and marketing materials to encourage new customers to leave their own reviews. It also reinforces the idea that you value and appreciate customer feedback.
  9. Use your social media channels to ask for reviews and share positive reviews to highlight customer satisfaction and encourage others to leave their feedback.
  10. Follow up with a friendly reminder if the customer hasn’t left a review. Sometimes, customers intend to leave a review but forget. A gentle reminder can prompt them to take action. But don’t be too pushy. Be careful with the words and frequency of your reminders. 
encourage customer reviews

Connecting the Dots: Measuring the Impact of Positive CX on Brand Value

We’ve talked about the main benefits of positive customer experiences for businesses. The missing piece is an often overlooked element: brand value. This intangible benefit might feel harder to quantify, but with the right approach, it can certainly be done.

What is a Positive Experience for Your Customers?

To know what makes customers happy, you need to understand their initial expectations. In some business contexts, reaching the end goal is what defines a successful customer journey. But that’s not always the case. In some instances, the whole journey is more important than the end goal. This is true for experience-based businesses, such as hotels and leisure industries. In other cases, a positive experience can be achieved through exceptional customer service, even if the customer does not achieve their desired objective. Understanding your particular business circumstances helps define what constitutes a positive customer experience and how it can be measured.

What is the Value of Your Brand?

Brand value is the financial worth of your brand. It combines tangible and intangible elements, such as brand recognition, brand loyalty, perceived quality, and market position. If you are a small business or your company doesn’t measure brand value and lacks the resources to perform brand awareness studies and market research, there are some practical ways to get started. For example, you can monitor brand interest online by analyzing the volume of organic searches for your brand terms and how they evolve. You can also track the following and engagement of your brand on different social media channels and perform sentiment analysis on customer feedback and reviews to see how it changes over time.

How do Customer Experience and Brand Value Affect Business Performance?

The final question CX leaders need to answer is how improving customer experience and increasing brand value affect business performance. This can be done by systematically tracking customer experience, brand value, and business performance over time. Once you can demonstrate that a higher number of satisfied customers increases brand value and generates better business results, you’ve successfully showcased the ROI of CX.

The goal of any CX leader is to ensure that every interaction a customer has with a brand is positive, to increase loyalty, and encourage repeat business. Over time, these positive experiences accumulate, increasing brand value. Happy customers and a strong brand are key to better business performance. If you are a CX leader struggling to demonstrate the business value of customer experience, try incorporating brand value in your ROI analysis and let the numbers work their magic.

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