How to calculate the ROI of your customer experience programme

In new research conducted by MyCustomer.com, a majority of CX leaders reported that they commonly use CSAT and NPS to gauge CX programme success (74% and 73% respectively), but only about 33% measure its business value with financial metrics.

However, according to Forrester in their predictions for 2020, “…to continue succeeding, CX leaders must prove the ROI of CX investments…”. In the same report, Forrester predicts that 25% of CX professionals will lose their job in 2020, whilst the number of CX executives will grow by 25%. In my view, one difference between the two groups is their ability to directly connect improvements in CX to business results.

For CX leaders to win the support of their peers in the boardroom, they are going to have to show how their investments in improving customer experience are resulting in quantifiable business outcomes and a positive ROI, for example, by:

• Increasing topline growth – with higher sales values, increased cross-sales, etc.
• Reducing costs – by reducing waste and improving efficiency & effectiveness.
• Generating higher lifetime value (LTV) – by decreasing customer churn and increasing lifetime economic activity.

In addition, over half of those surveyed reported an uptick in customer satisfaction or in NPS, yet a quarter of those surveyed (24%) also reported that measuring ROI is the biggest obstacle to their CX programme's success.

So how do we go about calculating a robust return on customer experience (RoCX)? Here is my advice:

• Determine what your measure(s) of success will be – it should not just be the common CX measures, even though these are often correlated to overall business performance. The economic purpose of business is to create value for their stakeholders. Most business executives are used to thinking about data, numbers and business cases, so focus on how your CX investments specifically will do that – pick a business KPI. For example, in the MyCustomer.com research, reduced customer churn and growth in revenue were reported by 43% of those surveyed, and reduced cost of operations by 36%.
• Objectively benchmark where are you are today – in any ROI equation, calculating the investment is relatively straightforward, but you cannot quantify a return unless you know what the ‘as is’ value is (or is predicted to be). Whilst not getting bogged down in too much detail, avoid overly-simplistic cost allocations – ‘averages’ can hide a lot detail. That said, I am frustrated by how few organisations are prepared to ‘face the awful truth’ about their current situation – even at an ‘averages’ level.
• Invest in a unified customer data platform (CDP) – the term ‘single customer view’ is hardly new, and yet many organisations have yet to fully integrate/link their customer data sources to produce one. Without it, it is impossible to generate a complete picture of each customer, their behaviour and what’s driving it. If you don’t have comprehensive data about what your customers (and you) are doing, it’s impossible to perform the analytics needed to make data-based decisions at the by-customer level.
• Invest in analytics, or in moving up the analytics evolution curve – in the world of CX, too many organisations restrict their use of analytics to operational management, simple explanations of past results and progress against predefined customer journeys, or for measuring outcomes that are not directly related to financial metrics. Yet, there is more on offer – the ability to predict customer behaviour, optimise the next best action, make automation more intelligent, and even become more proactive. Ultimately, this means that models can be build that show the causal links between an action and an effect - if you do ‘X’, the customer will do ‘Y’ - and each has a cost or value attached to it.
• Focus on what is driving the measure, not the measure itself – whilst some organisations focus on ‘moving the needle’ of their chosen CX measure (often because someone’s bonus is tied to it), many have started to try to understand what is driving those changes. However, be wary of just focusing attention on drivers of things like customer satisfaction – these do not always tell the whole story of what contributes to business results. For example, it is not always the case that improvements in customer satisfaction inevitably lead to improved sales or loyalty. Ensure that your analyses can be linked directly to your chosen business KPI, using CX measures to help tell the story, not be the story.
• Learn what really matters to customers – It is in this area that big advances have been made over the last few years; using modern analytics to get to the ‘why’ behind the ‘who, what, where, …’. That said, the link between the cause-and-effect of customer experience is not straightforward; human decision-making is complicated, messy, not entirely logical and rarely are people fully conscious of what is going on in their own heads.

There are a number of factors that can contribute to a customer’s decision to act on any given stimulus; what they need, how they feel, their internal biases, what other people say, and their own personal experiences. These will be different for each customer, but there is enough commonality to use what I term ‘Predictive Behavioural Analytics’ to forecast their next decision.

Also bear in mind that customers rarely care about what’s important to an organisation, only in what’s important to them. Without knowing this, it is too easy to invest in ‘fixing’ something that the customer doesn’t really care about, whilst missing an opportunity to excel in an area they do.

• Find out what customers expect – a large part of how customers evaluate an experience is also how it compared to what they expected to happen. My own research shows that many people prefer predictability over being surprised, even pleasantly so. Therefore, part of your business case should be focused on achieving consistency, not just improving the customer experience. This may mean delaying improving the absolute level of customer satisfaction in favour of stabilising delivery.
• Know your audience – different stakeholders have different objectives and responsibilities, and whilst busy people may appreciate the simplicity and brevity of single number metrics, they also appreciate data and insights that relate to their specific needs. Take the time to tease out highlights from the core data that has meaning and value for each stakeholder. Better yet, add recommendations based on the data that can answer the obvious question; ‘so what?’.
• Finally, start treating CX like a discipline, not just a philosophy – effective CX management is a data-driven, rational approach to managing organisational delivery against customers’ expectations: before, during and after every interaction. Whilst it acknowledges the subjective nature of experience, it uses objective Systems Thinking to orchestrate a business’ interactions with its customers.