The ROI of CX: Demonstrating the value of customer-centricityby
Olga Potaptseva, founding director of the European Customer Consultancy and CXpanda, explores the top four challenges in proving the ROI of CX and gives tips to overcome them.
Today, customer-centricity is no longer a mere buzzword but a necessity for business survival. The real question is not whether to invest in customer experience (CX) but how to effectively measure the return on investment (ROI) of such initiatives to fully understand their financial impact and justify their value to sceptical executives.
Change-makers and CX leaders encounter a formidable obstacle when it comes to convincing executives about the profitability of investing in customer experience initiatives. Unlike sales and marketing, which have clear ties to revenue growth, CX is often perceived as a "softer" aspect of the business. This article explores the top four challenges in proving the ROI of CX and presents compelling tips to overcome them.
1: The challenge of getting an equal seat at the table
CX professionals are no strangers to the challenges of driving organisational change.
Whilst sales and marketing for example can easily measure revenue and lead generation metrics, CX struggles to convince sceptical executives about the value of customer experience since CX often requires a more holistic and long-term approach to demonstrate results.
So what do sales teams usually do to be successful? They rely on quantifiable metrics like revenue growth, conversion rates, and customer acquisition costs. CX professionals can follow suit by defining metrics such as customer lifetime value and retention rates to showcase the financial impact of their initiatives. Demonstrating clear ROI, emphasising long-term value, using storytelling, and understanding stakeholders' perspectives will help CX professionals make compelling business cases for their initiatives.
For example, Jake, a former sales professional turned CX strategist at New York's SaaS startup, faced the challenge of proving the ROI of customer experience initiatives to the sceptical board. Leveraging his sales skills, Jake used quantifiable metrics to measure customer satisfaction, churn rates, and customer lifetime value. By showcasing the direct impact of a pilot CX program on retention and revenue, he crafted a compelling narrative around the long-term value of CX for sustainable growth. Addressing the board's concerns head-on, he demonstrated how CX improvements led to reduced churn and predictable revenue, aligning his case with the company's mission. Impressed by his approach, the board agreed to invest more in CX, enabling Jake to transform the company into a customer-centric organisation.
By adopting these strategies, CX can gain an equal seat at the table, create more compelling business cases, communicate the value and greatly benefit the company. According to CXpanda, research shows that organisations that invest in building better CX experience about 66% improvement in customer retention as opposed to 48% of the organisations that don’t.
2. The challenge of scepticism
I spent over ten years of my CX career leading CX functions, and never once have I stepped into an environment where a CEO was 100% convinced of the value CX could bring to their business. The challenges I’ve been presented with ranged from ‘Whatever you do, keep that satisfaction score at 92% because we get an important award for it every year’ to ‘Can you organise CX in such a way that we could reduce the headcount in the contact centre by 30% next year?’
There is a severe lack of understanding of what CX does, how it should be managed and what it could do for an organisation. According to Forrester, only a third of CX leaders were able to secure their planned CX budget in 2021, highlighting the ongoing struggle for adequate funding.
There is a severe lack of understanding of what CX does, how it should be managed and what it could do for an organisation.
CX focuses, first and foremost, on building enduring customer relationships, enhancing loyalty, and creating sustainable business growth. This is not to say, though, that you could not or should not have a convincing ROI case for every project that you initiate with CX in mind.
To help you overcome the scepticism, it is important to create clarity with a CX Program. According to a definition by CXpanda, a CX program is a roadmap consisting of various projects that contribute to improving customer experience and ultimately drive business success. It serves as a strategic guide, outlining the necessary steps and initiatives to enhance CX. By implementing this program, organisations can demonstrate a tangible and measurable impact on both customer satisfaction and overall business performance.
3. The challenge of impact
ROI in CX measures the financial impact of customer experience initiatives. It compares the costs of implementing improvements to the resulting benefits, like increased revenue and customer loyalty. By tracking these metrics, companies can gauge the overall impact of their CX initiatives on their bottom line.
It is often challenging to measure ROI for long-term CX projects as their goals are usually vaguely defined and can be too high-level. As outlined above, a solid CX Program can help assemble a puzzle of smaller initiatives that contribute meaningfully to the big picture and result in:
- Enhanced customer loyalty: By delivering exceptional customer experiences, organisations cultivate long-term customer loyalty. Loyal customers not only generate repeat business but also become brand advocates, driving new customer acquisition through positive word-of-mouth. CX alone drives over two-thirds of loyalty- more than price and brand combined.
- Reduced customer churn: CX initiatives that prioritise customer satisfaction and engagement contribute to a decline in customer churn rates. Retaining existing customers is more cost-effective than acquiring new ones, ultimately improving the bottom line.66% of businesses that prioritise CX see increased retention.
- Increased customer lifetime value (CLV): A focus on CX helps organisations unlock the full potential of each customer by increasing their lifetime value. By nurturing relationships and delivering value at every touchpoint, organisations can maximise revenue from each customer over their lifetime. About 60% of businesses that prioritise CX see an increase in customer lifetime value.
- Competitive differentiation: In an increasingly crowded marketplace, a customer-centric approach becomes a powerful differentiator. By providing superior experiences, organisations can stand out from competitors and establish a unique position in the market.
- Employee engagement and productivity: Investing in CX not only benefit customers but also positively impacts employee morale and productivity. Engaged employees are more likely to deliver exceptional service and contribute to the overall success of the organization.49% of Experience-driven businesses see improved employee productivity as opposed to 34% of businesses that don’t prioritise CX.
4. The challenge of calculations
The formula for determining the ROI of CX is straightforward yet powerful:
ROI of CX = (Total Revenue Increase - Total CX Investment) / Total CX Investment.
This formula allows organisations to quantify the financial impact of their CX interventions. By comparing the costs associated with implementing customer experience improvements to the financial benefits resulting from those improvements, businesses can gauge the overall effectiveness of their CX initiatives.
Let's consider an example to illustrate the calculation.
A manufacturer of healthcare equipment, let’s call them VitaTech Solutions for the purpose of this article, identified a gap in their welcome journey and initiated a project to review the onboarding process. The aim of this project is to reduce customer churn in the first 30 days by 15%.
The main customer pain points in the onboarding journey were: lack of functionality understanding, the frustration of having to ‘figure it all out’ and limited access to account managers.
VitaTech Solutions invested $150,000 in the first year to redesign installation manuals, FAQs, content and sequence of onboarding emails and hire additional account managers. This CX project ensured they had 30% of customers cancelling within the first 30 days by the end of year one. This secured $100,000 USD in revenue in year one and $450,000 in year two.
Applying the formula, we have:
ROI of CX = ($550,000 - $150,000) / $150,000 = 2.67
In this scenario, the ROI of CX is 2.67, indicating that for every dollar invested in CX, the company received $2.67 in return. This calculation demonstrates the positive impact that CX initiatives can have on an organisation's bottom line.
CX professionals must align their CX initiatives with specific business goals and metrics to establish a clear link between customer-focused initiatives and financial growth.
CX professionals must align their CX initiatives with specific business goals and metrics to establish a clear link between customer-focused initiatives and financial growth. This alignment allows them to build a compelling case for CX investments and secure the necessary resources and support from executives and stakeholders.
While CX professionals continue facing challenges in securing CX investments, CX maturity is improving, and successful CX projects are gaining pace. By utilising best practices across industries, non-CX roles and CX science, CX professionals can ensure short-term and long-term success for their organisations in the ever-challenging competitive environment. With patience and a comprehensive approach, organisations can harness the power of CX to drive sustainable growth, profitability, and customer value.
Olga Potaptseva is the Founding Director and CEO for the European Customer Consultancy that specialises in Agile CX Implementation. Her unique CX Implementation Toolkit allows clients across the world to launch and progress their CX efforts 3-4 times faster, by combining best practice in project management with deep expertise in customer...