Business Services, Thought Leaders

How to Measure the ROI of Customer Experience

June 19, 2019

by Jon Berbaum

President, Highland Solutions

Not all customer experience initiatives are created equal, and the best are ones that both meet and move customer expectations.

This week, I reviewed yet another PowerPoint deck from a passionate customer experience (CX) practitioner. This person wants to collaborate with my company ­– Highland Solutions – on her organization’s approach to customer experience and digital transformation.

Highland is a customer experience and digital innovation agency. We help companies like the one in this example take smart risks and understand their customers through a mix of CX strategy, design, and digital solutions. 

This practitioner was convinced that CX is critical to her company’s long-term competitive advantage. She showed me a deck that included eight slides of well-formatted charts and data from analysts and researchers. This deck had stock market performance comparisons of companies with great and terrible CX. It was a good and compelling presentation seeking to justify an investment in customer experience.

And I’m positive that when she shows that presentation to leadership at her company, they’ll do nothing.


Data Show That Investing in CX Is a Good Idea (Sort of)

A quick trip around the internet will show you that there is evidence of the ROI of CX at a macro level:

  • Forrester Research – which named today’s competitive conditions as “The Age of The Customer” – found that “experience-driven businesses” that prioritize CX see more than 25% faster revenue growth compared to their competitors.
  • Watermark Consulting has performed a ROI of CX study for nine years, with data that shows that “customer experience leaders outperformed the broader market, generating a total return that was 45 points higher than the S&P 500 Index.”

Sounds fantastic! At this point, you may be ready – like so many other CX practitioners – to create a slide deck with impressive bar charts.

But Forrester itself has several very important cautions:

  • “The brand-by-brand correlation between stock performance and CX is weak.”
  • “The leader category contains different industries than the laggard category.”
  • “Within a single industry, leaders don’t always outperform laggards.”

In short, there is a strong correlation between CX and revenue growth across the market, a noticeable correlation between CX and revenue growth within an industry, and a very weak correlation between CX and performance at the company level. And there is no evidence of a causal relationship at all.

How Do We Measure the ROI of CX?

If the bad news is that we can’t make broad justifications at the macro level, then the good news is that we can make realistic justifications at the micro level.

So let’s throw away our market performance pitch decks. Instead, let’s follow a few simple steps that will help us give a targeted, honest assessment of possible ROI for specific CX initiatives.

1. Understand the Kind of CX Initiative You Are Proposing

CX is a very broad term. Different types of initiatives need different justifications and will have different ROI.

At Highland, we divide CX initiatives into three major buckets:

  1. Those designed to meet customer expectations
  2. Those designed to move customer expectations
  3. Those designed to understand the customer

Meeting customer expectations means handling the customer journey at the “table-stakes” level assumed by your customers. This level isn’t static; in fact, it goes up on a regular basis. Most of these initiatives fall into the customer service part of the journey, where something has gone out of equilibrium for your customer, and they want it restored as soon as possible.

For example, when a car rental company runs a CX initiative to enable customers to extend their rental via their mobile phone in addition to calling the local branch, it is meeting customer expectations. These kinds of initiatives are typically low-risk and the easiest to justify and launch.

Moving customer expectations means introducing new products, services, or experiences that create meaningful moments and – you hope – a competitive advantage. These initiatives fall all over the customer journey and seek to create something new and meaningful.

For example, when a hotel runs a CX initiative that enables guests to skip the check-in desk, go directly to their room, and use their phone as a key, they are seeking to move customer expectations. These kinds of initiatives are much higher risk and are harder to justify and launch.

Understanding your customer typically means engaging in qualitative research resulting in customer journey maps or Jobs to Be Done analysis.

These initiatives are crucial to truly understand which initiatives are likely to have an impact, but they are also the hardest to justify and launch because they have no direct ROI in and of themselves. Any potential ROI is from the initiatives the research helps create, meaning subsequent investment will be necessary.

2. Pick a Few Appropriate Metrics

There are no go-to metrics for CX initiatives, but you can fairly easily locate the best metrics to track by asking yourself this question:

What do we hope to make better for our customers, and how do we hope they respond to us?

If your initiative focuses on meeting or moving customer expectations, you should be able to pick fairly classic measurements you expect to impact. These include:

  • Repeat purchases/loyalty
  • Increased acquisition rate
  • Reduced support costs
  • Reduced complaints/returns

Each metric should be a leading indicator, a behavior or activity that your experience tells you leads to more revenue and profit. These are the levers you are seeking to move.

If your initiative is about understanding your customers, be up front that there is no direct ROI. This kind of CX work is still incredibly valuable, as it creates the outside-in perspective that allows an organization to focus its investments on the most meaningful initiatives.

There is always a temptation to target NPS or CSAT scores, but don’t make those your only ROI metric. These abstracted metrics can’t be directly tied to organizational outcomes.

3. Create a Weekly Scorecard

Now, use your metrics to create a simple CX Scorecard that will help you track ROI. A good CX Scorecard:

  • Includes no more than four metrics (in addition to revenue and profit margin)
  • Is measured on a weekly basis
  • Tracks revenue and profit margin for the part of the business you are seeking to impact

A simple spreadsheet is best. Don’t dig into complex business intelligence tools (yet). You only have a few metrics to track.

Put your metrics as rows, and make the columns weeks. Start measuring for several weeks before you make any change, then continue to measure throughout your work.

A basic scorecard would look like this:

Weekly scorecard

To help you get started, we’ve created a CX Scorecard Template that you can download here.

Example: Thrivent Student Resources

Thrivent Financial wanted to help college-bound students better understand the real cost of higher education so that they could minimize – or avoid – student loan debt.

The company created a digital platform called Thrivent Student Resources to share this information. This CX initiative fell a bit between meeting and moving customer expectations because the audience expected digital-first tools, while the financial lending industry typically provided in-person services.

Thrivent Student Resources

When Thrivent Student Resources launched, Thrivent created a scorecard with a heavy focus on early engagement metrics as leading indicators. It tracked metrics such as:

  • Total sessions
  • Total time on site
  • Most popular pages/tools
  • Total registered users

The company also compared data between registered and non-registered users so that it could track differences between these two audiences over time.

Because the Thrivent team reviewed this scorecard at least once a week, they could measure and adjust. They identified which resources students spent the most time with before registering for the site. This allowed Thrivent to make changes to the design of the site that made the most engaging resources more visible.

The result? Thrivent surpassed its initial registered user goal by 400%. (Pretty good ROI!)

Measuring the Impact of CX

Not all CX initiatives are created equal. Some have firm metrics that can be measured for ROI, while others provide the research to help teams make informed decisions about where to invest their resources in the first place (like when you’re trying to understand customer expectations).

If your CX initiatives are focused on meeting or moving customer expectations, you can collect some simple information that will help show leadership that a CX investment is worth it. Ditch your market-performance pitch deck (or stop worrying about perfecting it for now), and opt for a simple scorecard instead. Keep it simple: No more than four metrics in a simple spreadsheet scorecard that measures on a week-by-week basis.

By understanding what kind of CX work you are doing, tracking metrics in a simple scorecard, and making data-driven adjustments to your CX initiatives, CX can become a true competitive advantage for your organization.

Are you currently engaged in CX work and tracking its ROI? I’d be interested to hear more about your journey. What approaches to measurement have worked from you? What obstacles are you facing? You can email me here or connect with me on LinkedIn.

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