Your customers are happy. Congratulations! You rank well on your Customer Satisfaction Score (CSAT) and Net Promoter Score (NPS). But what does that actually mean? How does it translate to improving your bottom line?
We are told that providing excellent customer experience is essential. According to some studies, your business could enjoy five times more revenue growth than your competitors.
But while that sounds amazing, calculating the ROI of providing good customer experiences is difficult. While essential to strategy and decision-making, it requires your company to connect customer satisfaction with revenue, which can take rethinking and reorganizing.
So, let’s dive into customer experience ROI: what it is, why it’s important, and how to calculate it.
Providing exceptional customer experiences isn’t quick or simple. You have to identify gaps in your customer service, find solutions for customers quickly, and make your customers happy. This requires a large investment into how you interact with customers on a daily basis.
Brands that do this:
Great customer experiences are priceless, which is why it’s not easy to measure and regularly optimize your efforts. A purely metric-driven approach won’t get you what you want. The customer experience differs along the customer journey, which means you have to capture qualitative and quantitative data depending on the customers’ touchpoints and interactions.
That’s why 49 percent of CX leaders revealed in a recent survey that they are not satisfied with their ability to quantify the impact of the customer experience on business metrics and outcomes. So how do you quantitatively prove its impact on the profitability of your business?
The idea of customer experience itself is complex and, occasionally, conflicting. It’s about “delighting” customers and developing customer loyalty, and that can mean different things to different companies.
To understand the ROI of customer experience, you have to connect customer satisfaction metrics to your finances. You also need to be able to link customer spend data with customer satisfaction to determine how well it’s working. There’s a simple ROI formula that you can use to get started.
Customer Experience ROI = (Benefits – Investments) / Investments
The question then is, what metrics fall under customer experience ROI benefits and investments? You have to take into account both quantitative and qualitative data to create a direct link between customer experience and business metrics.
We list some common KPIs for customer experience ROI below.
Obviously, customer satisfaction goes hand-in-hand with customer experience—a 10% increase in a company’s CSAT score equates to a 12% increase in customer trust. First, calculate your CSAT score by following this formula: (Total 4-5 responses) / (total responses) x 100
The difficulty is determining how much revenue a one-point increase in CSAT is worth. To do this, you’ll need to know: average spend per customer and customer churn rate.
From there, derive the number of customers who churn at low CSAT scores. For example, let’s say you’ll lose about 92% of customers who rate you 1-2 (100 customers), and you’ll lose 80% of customers who rate you a 3 (80 customers). If you lose 180 customers at these low scores and they are each worth around $500, that’s $90,000 in lost revenue.
Now, you can see the impact of a 10% improvement in your CSAT score by looking at how many people you move from a customer rating of 1-2 or 3 and then showing the revenue saved. For example, now only 90 customers rate you 1-2, and 72 customers rate you a 3. That’s total lost revenue of $81,000, and savings of $9,000.
Customer lifetime value explains how much money a single customer can be expected to spend on your company’s products or services. To calculate this, you’ll need to multiply customer value by the average customer lifespan.
How many customers will cancel or leave your business over a certain period? To calculate this, you’ll need to divide the number of customers who leave by the number of customers gained.
HubSpot offers a quick and easy churn rate calculator you can use here.
To get an idea of how your customers shop and how much they spend, you need to know your average transaction size. Calculate this by dividing your total revenue by the total number of sales made during the same period.
If you’re a subscription-based company, you can use this same formula for average contract value. Just divide the total value of your contracts by the total number of new customers acquired.
Your Net Promoter Score® (NPS) tells you how likely a customer is to recommend your brand. This helps you identify promoters, passives, and detractors.
There are more costs to keeping your customers than production or service delivery. You also need to calculate the cost of your customer support team, call center, quality assurance programs, and other customer service costs. Adding up all of these costs will give you the best idea of your investments.
The benefits of customer experience ROI cannot be overstated. There is a lot of compelling evidence that links consistently high levels of customer satisfaction with superior financial performance. But financial benefits should not be your only concern when it comes to ROI in the call center. There are also returns in terms of customer experience outcomes, employee engagement, and reputation, which are just as important.
To truly demonstrate the ROI of your call center, you need to look at everything that impacts the quality of your call center interactions. For example:
The key to measuring customer experience and customer happiness on every interaction and converting that to ROI is successful metric tracking with openness, trust, and transparency. You have to provide data that matches this qualitative insight and then use that to improve customer loyalty, satisfaction, and agent effectiveness. This will ultimately lead to decreased agent turnover and costs, which will be how you demonstrate ROI.
With an internal quality assurance process and software, such as Scorebuddy (which we’ll talk more about later), you can drill down into patterns and trends across your call center. This allows you to determine what adjustments are needed and where and gives you a starting point for improvement.
You can then use the analytics suite to deep dive into various KPIs and insights to better understand your performance. You can then tie certain data points (first call resolution, emotional intelligence, average handling time, etc.) to your business’s strategic objectives and goals. From there, you can match specific scores to customer spend, loyalty, and other actions for ROI.
ROI for quality assessment tools can be achieved in different ways:
The basic formula for calculating ROI:
Gains acquired from the investment - Costs associated with investment = ROI
To identify the gains from the investment, there are several questions you can ask, which can be compared to what you were using before the investment. It’s best to customize the set of questions so that they are suitable to your needs and priorities.
For an additional 27 questions used to identify exceptional quality assurance software, check out our blog on this topic.
To convert your gains to a monetary value, associate the cost per staff type per hour. For example, 3 minutes are gained per score and there are 100 scores per month; therefore, 300 minutes per month are saved. 300 minutes is equal to 50 hours. If the loaded cost of a team leader per hour is $20, then $1,000 will be gained each month on this element.
Gains could also be converted to monetary value by an associated benefit. For example: if 2% in quality score increases customer satisfaction by 1%, you could apply the value associated with increasing C-SAT by 1% to every 2% increase in quality score.
To calculate the costs of the investment, include the following three items:
“Immediately, we received a return on investment on Scorebuddy. What used to take us 8 days now takes 8 hours”. - Louise Fairman, People & Development Manager, Aktiv Kapital
Example of hard benefits reported by Scorebuddy clients:
Example soft benefits reported by Scorebuddy clients: