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I spend a lot of time talking to leaders about the value of a customer-centric culture. Sadly, their reactions are often disheartening because it seems so obvious what the value is; instead, what I see and hear is leaders who:
- Don’t see or appreciate the connection between the employee experience and the customer experience.
- Focus on growth and acquisition, not on retention, which creates that never-ending vicious cycle (leaky bucket) because both employees and customers are constantly leaving.
- Believe the purpose of business is to maximize shareholder value. While that may be an outcome, it is not the means or the purpose.
- Focus on metrics. If you’re only measuring for the sake of the metric – and not for improving – then you’re doing it wrong.
- Need to see the ROI of putting the customer at the center of all they do.
But here’s the indisputable truth: you are, as Peter Drucker says, in business to create and to nurture customers. Without customers – and especially without employees to create your products and to serve your customers – you have no business. You are in business for the customer, because of the customer.
COMPETING PRIORITIES?
And yet, there are those executives who tout “competing priorities” as obstacles that keep them from going all in on culture transformation efforts. But wait! What competes with customers for your resources and efforts? What could possibly compete with the foundation or the purpose of your business? What business initiative could you be considering that doesn’t ultimately impact the customer?
These are the types of things that leave executives wanting to see the ROI of putting the customer at the center of all you do. Specifically, they want to know the ROI of a great customer experience.
WHAT IS THE ROI OF CUSTOMER EXPERIENCE?
When executives ask what it means for the business if they commit resources to improving the customer experience, it’s important to note that it’s not all tangible but ultimately does lead to better business outcomes. Yes, it’s important to link the work to business outcomes, but know that the ROI isn’t just about revenue and growth but also about non-financial benefits – all of which eventually translate into financial benefits and outcomes for the business. This is one of the reasons that it often takes 18 months or more to prove out the return on these improvements.
Some of the obvious financial benefits of investing in improvements that ensure you meet customer expectations and solve problems for them include increased repeat business, reduced churn, reduced acquisition costs (because customers become an extension of your sales team), increased upsell and cross-sell opportunities.
Non-financial benefits include increased word of mouth, positive brand perception, operational efficiencies (streamlined processes, reduced support costs), improved productivity, and stronger employee morale, which down the road will translate into financial benefits.
A great customer experience can positively impact a company’s bottom line by fostering customer loyalty, generating positive word-of-mouth, reducing costs, and providing valuable insights for continuous improvement and innovation. The competitive advantage gained from doing the work that others in your industry are not doing is a huge benefit, as well, and will lead to the types of outcomes your business desires.
WHAT MISTAKES ARE MADE WHEN MEASURING THE ROI?
When trying to show the ROI of CX, leaders often make mistakes that hinder the overall assessment. Some of those mistakes include the following.
TAKING A NARROW VIEW OF ROI
Some folks only focus on direct revenue generated from customer experience initiatives to make this calculation. This can be part of the equation, but the ROI of customer experience extends beyond immediate sales to factors like customer retention, lifetime value, reduced churn, and word-of-mouth referrals. These long-term benefits may not be immediately apparent but can have a significant impact on the bottom line over time. Additionally, cost savings that are introduced by doing things more efficiently and effectively are often overlooked.
FAILING TO USE ALL AVAILABLE TOOLS
It can be challenging to directly attribute financial outcomes to specific CX initiatives, especially in complex, multi-channel environments. But advances in analytics, customer data platforms, and attribution modeling have made it increasingly possible to track and measure the impact of CX efforts on key performance indicators (KPIs) such as revenue, profitability, and customer retention.
USING ONLY LIMITED METRICS
While metrics like revenue growth are important, they don’t tell the whole story of customer experience. Metrics such as customer satisfaction and NPS, as well as qualitative customer feedback provide valuable insights into the quality of the experience and identify areas for improvement. These metrics may not directly translate into financial ROI but are essential for understanding customer sentiment and loyalty. (More on metrics/measuring ROI in the next section.)
FAILING TO CONSIDER THE COST OF A POOR EXPERIENCE
While measuring the ROI of CX initiatives can be challenging, the cost of ignoring customer experience can be even greater. Poor customer experiences can lead to increased customer churn, negative word-of-mouth, damage to brand reputation, and lost revenue opportunities. By investing in CX, organizations can mitigate these risks and avoid the potentially higher costs associated with poor customer satisfaction.
FOCUSING ON THE SHORT TERM
Customer experience is an investment in building long-term relationships with customers rather than just maximizing short-term profits. While it may be more difficult to quantify the ROI of CX initiatives in the short term, the long-term value of satisfied, loyal customers who advocate for your brand can be immeasurable.
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Overall, while proving the ROI of customer experience initiatives may present challenges, it’s absolutely possible with the right approach, tools, and metrics. Organizations that prioritize customer experience (and, hence, the employee experience!) and invest in delivering exceptional customer experiences are likely to see tangible benefits in terms of revenue growth, customer loyalty, and brand reputation over time.
WHAT ARE SOME PRACTICES LIMITING THE ROI CALCULATION?
And there’s more. A lot of folks struggle to quantify the financial impact of their customer experience efforts, leading some to believe that ROI cannot be reliably measured or that it’s not worth the investment. Here are a few (similar/additional) practices that limit or short-change the ability to properly calculate ROI.
NOT SPECIFYING SUCCESS METRICS
Any work that you’re going to do, any initiative you’re going to implement, you’ve always go to start with objectives and success metrics. Why are you doing it? What are you trying to achieve? What are the desired outcomes? And how will you measure those achievements? You’re not setting yourself up for success, and you’re certainly limiting your ability to correctly calculate the ROI if you’re not starting here.
ONLY FOCUSING ON SHORT-TERM METRICS
I talked about only focusing on the short term above, so similarly concentrating only on immediate, short-term metrics (e.g., quarterly revenue) without considering the long-term impact of customer experience on customer lifetime value and loyalty leads to underestimating the true value of positive customer experiences over time.
NEGLECTING CUSTOMER FEEDBACK
Ignoring or undervaluing customer feedback results in a lack of understanding of customer perceptions and expectations; this, in turn, leads to missed opportunities for improvement and a failure to address issues that impact satisfaction and loyalty, thus impacting ROI over time.
OVER-EMPHASIZING VANITY METRICS
It happens too often where brands rely too heavily on superficial metrics (e.g., social media likes, website traffic) that may not directly correlate with actual business outcomes. These vanity metrics can provide a misleading picture of customer experience success and may not align with true ROI.
NOT CONSIDERING THE END-TO-END CUSTOMER JOURNEY
Solely focusing on individual or isolated touchpoints rather than considering the entire customer journey leads to an incomplete understanding of the journey and results in overlooking critical moments that significantly impact customer satisfaction and loyalty and, hence, ROI.
FAILURE TO ATTRIBUTE OUTCOMES TO CUSTOMER EXPERIENCE INITIATIVES
Companies struggle to accurately attribute specific outcomes and demonstrate a direct link between their customer experience initiatives and measurable business results, making it challenging to justify investments.
IGNORING THE EMPLOYEE EXPERIENCE
Too many companies disregard or discount the impact of the employee experience on the customer experience. Unhappy or disengaged employees negatively influence customer interactions and satisfaction, affecting the overall customer experience and, consequently, ROI.
IN CLOSING
To mitigate the mistakes and the limitations, leaders must adopt a holistic and long-term approach to measuring customer experience ROI, incorporating a combination of quantitative and qualitative metrics, customer feedback, employee engagement assessments, and a comprehensive understanding of the entire customer journey.
Measuring return on investment, though it seems as simple as benefit divided by cost, is more detailed than that. Understanding the benefits, understanding the costs, and understanding all that impacts both components is critical to getting a true assessment of ROI.
To see a return, you must first invest. ~ Unknown
Related: How AI is Transforming Employee and Customer Experiences