Any business owner who wants to succeed and grow their brand must make the customer experience (CX) central to everything they do. But what is customer experience exactly?
Customer experience includes every interaction a customer has with a business. It refers to anyone browsing your website, reading your social media posts, or interacting with your company’s unique chatbot. The concept of customer experience is also the primary metric that your business should consider when calculating your customer experience ROI (return on investment).
Your customer experience ROI is the monetary value gained from improving your customer service processes. ROI analysis is not easy, regardless of the ROI model used. This is mainly because factors you cannot physically see are difficult to measure, like customer loyalty. However, learning how to measure customer experience is essential to understand the benefits of investing in and improving CX.
Moreover, CX is not just about feeling good about your business’s impact on customer loyalty and satisfaction. It is an all-important metric that will help you increase revenue and customer retention. You will also spend less on marketing efforts as satisfied customers automatically promote your business through word-of-mouth. Without an effective customer experience strategy or investment, you won’t enjoy this benefit or any others.
Benefits of Investing In Customer Experience
Customer experience management happens through many touchpoints, whether physical or digital. Your customer experience manager must continue to offer personalized customer experiences through several channels to stay relevant and drive brand success.
It is important to note that customer experience is not just about how potential customers see your brand. It is about how it affects their emotional state. If you have ever noticed how the big brands market their products and services, you will know that they attempt to make their customers feel something, not just buy something.
If you constantly improve your customer experience, you can change a negative perception to a positive one over time. Doing this means that even if your business did not start on the best foot, you have the means to change how prospects and existing customers feel about your brand. Doing this will result in the following benefits:
1. A Noticeable Reduction in Customer Churn
It is always going to be more expensive to gain new customers than it is to retain existing ones. By implementing regular touchpoints and working towards providing customers with valuable experiences, your business will benefit from reduced customer churn. The goal of all your customer experience efforts must be to keep your brand top of mind. Phone calls, emails, and dedicated customer events and rewards make it easier for customers to choose when it comes to repeat business.
2. Increased Customer Lifetime Value
The total sum of money a customer spends on one business’ products and services is called customer lifetime value. You should know these numbers to determine how much of your budget you want to use for retaining customers versus gaining new customers. The main benefit here is that managing your customer experience well will automatically increase those numbers.
You want to encourage repeat business to build brand loyalty. The more loyal your customers are, the better your brand’s reputation will be. You can motivate loyalty by offering popular incentives like points and rewards. Rewards programs are also integral in increasing the number of new customers your business gains over time.
3. Better Customer Retention
When customers view your brand positively and keep buying your products and services, your business increases its brand equity. This means that your business is valuable to customers. To keep building on this upward trajectory, you must ensure your business delivers on all customer promises and always offers high-quality products and services. If you let these aspects of your business slip, your positive brand equity will quickly become negative.
Have a customer experience management plan in place to prevent bad reviews of your business and ensure better customer retention. If your company excels at brand equity and reduces customer churn, you will find it easier to retain loyal customers. Always resolve complaints and concerns as a matter of urgency. Reward your customers’ loyalty. Stay connected with them throughout the year. These are the building blocks of customer experience. It will keep your customers loyal to your business and increase your conversion ROI.
4. Improved PR
When you improve your CXM (customer experience management) programs, you are well prepared for any PR disaster that may happen in the future. In a perfect world, you will never have to worry about product recalls or not meeting customer expectations. But, in reality, these are challenges that could arise without warning.
When you have built strong loyalty among your customers, they will stick with your brand even through bad times. Any setback will strengthen your customers’ trust in your brand, especially if you prove that you can resolve negative experiences quickly.
5. Cost Savings and Excellent Customer Engagement
When you use customer data and customer feedback to work through challenges and put your customers first, you will pay less for marketing services. You do not have to keep promoting your brand to customers who already trust that you have their interests at heart. Your CX team should analyze what your customers buy from you and what products they will need in the future. This will help you meet them halfway when they reach out again. This type of customer data is valuable when it comes to improving customer experiences.
Furthermore, when your CX team knows from which channels customers contact your business the most, they can meet them there. It is through social media, email, and phone calls that your team can discover what your customers need. You can also implement customer experience automation (CXA) to simplify the process. This includes chatbots and automatic email campaigns.
How To Prove the ROI of Customer Experience
So, how do you prove the ROI of customer experience? How do you determine how much of a return your business gets for all the effort you put into meeting customer expectations? And how do you convince business leaders to invest in CX?
1. Use Customer Feedback
Customer feedback is good starting point. You can use NPS (net promoter score) or CSAT (customer satisfaction) surveys to collect the required information. CSAT measures short-term customer satisfaction after a recent interaction with your business. NPS focuses on overall brand performance as it relates to customer satisfaction and loyalty. Use the NPS score (0-10) as a benchmark for customer satisfaction measurement.
2. Determine How CX Programs Impact Business Value
The next step is to discover how your brand’s CX program impacts your business value through its churn rate. Use analytics to dissect your brand’s past performance. This will help you create realistic goals based on a hypothetical customer experience and churn rate.
Your hypothesis should be aimed at improvement to benefit your brand equity. For instance, if you get a higher NPS score, your churn rate will decline. Think about how your improved customer experience program can help you sell more products or get more referrals. Consider how it will help your business retain more customers.
You should test your hypothesis by observing high NPS responses. Send an upsell opportunity promotion to customers who gave your brand a high score. When at least 100 people respond to this prompt, you will see whether your hypothesis is correct. You should always follow up on NPS surveys, whether you’re using them for a test or not. If you do not understand your brand’s NPS scores, or why they are increasingly negative, you will not be able to improve customer experience or retain customers.
3. Calculate Business Profit
Now, calculate how much your business profit will increase if you manage to retain more customers. This is the most critical step to follow when measuring CX ROI. You have already determined what improvements are needed, so now you can connect the dots between your customer experience and the revenue you want to earn.
Use a longer timeline when calculating revenue. You can use between three to ten years in your calculation. When you multiply the potential money your business can earn by a longer timeline, you can definitively prove that CX is a worthwhile investment. On the flip side, you must also figure out how much your business will lose if you do not invest in customer experience.
4. Consider Other Costs
Any projected revenue must take into consideration team salaries and software costs. The money spent on these resources should not be part of the overall profit projection. When you remove the costs, you will have a better idea of your customer experience ROI.
5. Monitoring the Right Customer Experience ROI Metrics
Let’s recap the metrics or KPIs you have explored and measured and discover additional metrics that form part of the ROI of CX measurement. NPS, CSAT, and other metrics are excellent for measuring the success of your CX program. If you want to accurately predict business impact, you must link each of these customer experience metrics to a financial metric.
For example, you must link them to customer lifetime value, churn rate, support cost, transaction size, and contract value. You now know how to calculate customer lifetime value and churn rate, but you must also consider support costs like quality assurance and customer service programs. Your customer journey relies on these components, so these costs should be compared to customer satisfaction metrics.
When calculating transaction size and contract value, you must divide the total revenue earned over a certain period by the number of sales made during the same period. You must also divide your total signed contract value by the total number of new customers your business has gained. These two calculations will help you determine which products your customers prefer and why your products appeal to some and not others.
6. Communicating the Value of CX
If you are trying to prove the value of CX programs and the overall ROI of CX to business leaders, you should emphasize the financial benefit. Do not get into the costs of these programs right off the bat, or you may instantly lose their interest. Always start with the potential earnings first, and include real figures on how much money a good CX program can save a business.
Focus on long-term cost savings and revenue gains. You must demonstrate how retaining customers for many years leads to word-of-mouth and strong profits. If you have investors interested in providing the funds for CX programs, you have to show them that they will keep getting their investment back in the form of returns over the years.
Do not lose track of your goal. If you get off-topic, you will not be able to hold business leaders’ attention long enough to impress them with your research and calculations. If you can, pitch your audience using a single sentence. Start with what you want to do, how much it will save in monetary value, and how much it will cost. Always link your estimations to a time frame so that the benefits of CX investments remain in sight.
In general, business leaders and investors look for ways to minimize spend. They do not want to give money away for initiatives if they are not a hundred percent convinced that the benefits would materialize. This is especially true during times of economic trouble. So, if you can prove that investing in customer experience will work, you will have an easier time convincing the powers that be to share your vision.
Remember the following: Customer-centric companies enjoy up to 60% more revenue than businesses that ignore CX programs. Businesses that continuously improve their customer experience offering can expect up to nearly six times more profit than their competitors (if those competitors do not invest in customer experience programs). Moreover, 84% of businesses that actively work to improve customer experience have reported a substantial earnings increase.
These statistics prove that customer experience investment can only lead to an impressive ROI. All you need to do is use the data you have collected to create an undeniably winning pitch to win over business leaders and investors.
