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How to calculate the ROI of your customer experience programme

New MyCustomer research reveals that only a third of CX leaders measure their programme's business value with financial metrics. So how do you do it?

7th Apr 2020
Founder XMplify Consulting Ltd
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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.

CX leadership report

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.

Replies (3)

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Steven Walden
By Steven Walden
09th Apr 2020 07:54

For me: the ROI of CX is mostly 'a posteriori' not 'a priori.'

Thanks (1)
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By sigreen - CVA
09th Apr 2020 20:00

I couldn't agree more on the 3 ways of understanding ROI from CX.
1- Higher topline;
2- lower bottomline - costs, wastage;
3- growth in CLV - more valuable customers for longer.

In my view you must predict the delta in each in advance to justify ROI, to justify the resources.
Otherwise resources are being allocated irresponsibly.

A CX change programme or a business transformation programme shouldn't include any initiatives or workstreams that are not justified in advance by financial projections and a business case.

As they are projections, the finances will be creative, not factual.
Understanding translation to fact or fantasy is simple. They must be tracked.

The remarkable thing, the alchemy, is the that CX work-streams can be self-supporting, resulting in financial improvements to Customer Value which multiply with each other to create exponential growth in overall customer value - and hence can make a difference to overall market capitalisation of large corporates.

Thanks (2)
Replying to sigreen - CVA:
Peter Dorrington - TTEC
By Peter Dorrington
16th Apr 2020 16:36

Thank you Sigreen,

Whilst I agree that CX work streams can be self-supporting and, if done really well, could fund even more radical transformation, there is a challenge - too often the benefit is attributed to a different line than the spend. For example, Sales claiming the credit for improved CLTV when a proportion of the benefit should be attributed to operational changes that were instituted as a result of a CX initiative on journey analysis.

Even worse, the return is not reinvested into making longer term changes: the ‘low hanging fruit’ is picked, but no one has purchased a latter to get to the sweeter fruit at the top of the tree.

Even before the current situation, CX professionals were starting to find themselves in their own existential crisis: ‘easy’ had been done on the back of poorly defined business cases (usually based on industry norms). As a result, the benefits weren’t properly quantified and now, when there is an even more urgent need for a robust RoCX case to do the ‘harder’ things, there is a believability gap about RoI.

If you liked this article, watch out for an upcoming piece on Measuring Comparative RoCX – it partly explains why some of the ‘60% of digital transformations fail’ statement is inaccurate.

Thanks (1)