ROX is the new customer experience ROI.
Let’s get right into it — how customers perceive your brand can influence the success of your business more than ever before. Many brands are investing heavily in customer experience (CX) and, as we explore below, the numbers don’t lie — those allocated resources can yield some serious returns.
But what exactly is the return? Although investing heavily in customer experience can be quantified with traditional return on investment (ROI) measurements, measuring the true impact of CX resource allocation requires a new paradigm: return on experience (ROX).
“Traditional return on investment (ROI) metrics are no longer sufficient on their own to determine your company’s success. Evaluating whether your value proposition, capabilities, and portfolio of products and services will create shareholder value requires a laser focus on how well you’re meeting higher expectations around the customer experience.”
In light of this, ROX is emerging as a way for companies to measure how improving customer experience drives consumer behavior and yields measurable results. Essentially, ROX begins with mapping consumers’ purchase journeys, identifying touchpoints and factors that impact customers most, and improving those experiences for a positive business outcome.
A common misconception when building a customer experience program is that it is difficult to quantify the success of your endeavors and that the ROI is usually unclear. This couldn’t be more inaccurate.
Understanding how ROX works and the importance of mapping enhanced customer experience to your business’ operating objectives can help you present a strong case for why measuring, managing, and acting on customer insights benefit your brand in some surprising ways.
Expected Customer Experience (CX) impact on loyalty
Before explaining how to predict and measure CX ROI, let’s quickly recap why the customer experience can be such a powerful aspect of your business.
A recent study of “loyal customers” across 20 industries by the XM Institute revealed some impressive statistics. While these stats reflect a broad range of businesses, products, and services, companies, they set the stage for how impactful improving customer loyalty via customer experience can be.
The XM Institute found that:
- 88% percent of consumers who rate a company’s CX as “very good” are likely to recommend the company, compared with only 15% of those who rate a company’s CX as “very poor.”
- 87% of the consumers who gave a company a “very good” CX rating report being “very likely” to repurchase from that company, while only 18% of those who gave a company a “very poor” CX rating say the same.
- While 81% of the consumers who gave a company a “very good” CX rating say they are “very likely” to trust that company, only 15% of those who gave a company a “very poor” CX rating say the same.
- 67% of consumers are “very likely” to forgive a company for a mistake if they think it delivers “very good” CX, whereas only 15% of consumers are “very likely” to forgive a company if they think it delivers “very poor” CX.
- Of the consumers who gave a company a “very good” CX rating, 58% of them report being “very likely” to try that company’s new product or service immediately after it’s introduced. Meanwhile, only 13% of consumers who gave a company a “very poor” CX rating feel the same.
These numbers are incredibly intuitive. They demonstrate how customer experience influences customer loyalty not just from a referral and repurchase perspective, but also from an emotional perspective.
Taking this CX data and correlating it to your operational business metrics is how you’ll drive the point home.
Below, we’ll outline what’s necessary to help you articulate the ROI (ROX) of launching a CX program for your business:
- Baseline 3rd-party CX ROI metrics
- Building your own CX ROI model
- Engaging with the right stakeholders
- How easy it is to launch a CX program
Baseline ROI metrics: Customer experience by the numbers
Customer experience is both intuitive yet also statistically significant. We all know that happy, repeat customers and product satisfaction benefit the health and success of a business — but by how much?
Many companies do not have the CX or loyalty data on hand to make a case for themselves right off the bat. In that case, showing the opportunity for financial return with 3rd-party statistics like the ones below can help stakeholders see the potential of a CX program:
- Retail customers who are promoters spend 3.5-4x more than detractors across a variety of retail products and services.
- Brands managing customer experience across web, in-store, and other omnichannel approaches have higher NPS scores and their customers tend to spend 1.8-2x more.
- Rewards programs with strong NPS incite customers to spend 2.2x more.
- Increasing customer retention rates by 5% increases profits anywhere from 25% to 95%.
- 86% of consumers are willing to pay more for a better customer experience.
- It costs 6 times more to attract a new customer than it does to keep an old one.
The stats that reference a CX metric (e.g. NPS) present a unique case for a CX program in itself — how do you know if your customers are loyal without a CX program in place that measures sentiment? Our customers have found that measuring operational metrics alone isn’t enough (read the case study).
The only way to understand and quantify how customers feel about your business is to ask.
Build your own CX ROI model
Although we understand that not all businesses looking to launch their CX program have the data needed to follow these steps completely, we do feel it’s beneficial to share for 3 reasons:
- It shows how you can very easily measure ROX with commonly tracked metrics.
- It demonstrates that ROX is tangible and your efforts to improve customer experience can be tracked.
- It provides a framework/roadmap for what type of data can be uncovered after a program is put in place.
Here are the basic steps for calculating the ROI of CX. Your goal is to be able to fill in the blanks for this statement:
“An increase in [CX metric by number of points] will result in an [X%] change in [core operational business metric], which will drive an increase of [$Y] in revenue and/or a reduction of [$Z] in costs, for an investment of [expense of CX program].”
Step 1: Agree on the customer experience metric(s) you’ll track.
Experiential metrics such as Net Promoter Score (NPS), Customer Satisfaction Score (CSAT), and Customer Effort Score (CES) are industry standards for quantifying customer sentiment for various customer experience touchpoints. To build your case, we recommend starting with one core metric.
To decide which is best for you, check out our NPS vs CSAT vs CES guide.
Step 2: Agree on core operational metrics to monitor.
Decide which of your operational metrics (renewal rate, churn rate, lifetime value, basket size, etc.) have the greatest impact on your business or initiative. For example, if you’re running a customer service team, your operational metric goal could be decreasing cost to serve.
By tying your chosen experiential metric from Step 1 to the operational metrics that matter to your key stakeholders, you’ll be better equipped to make a compelling case. You’ll also be able to show the cost of inaction.
Here are common customer experience and business metrics to monitor.
Step 3: Segment customers based on how they rated your customer experience.
Group customers based on their CX score. It could be as simple as those who are happy, and those who are not. The NPS system automatically segments customers into three groups: promoters (ratings 9-10), passives (ratings 7-8), or detractors (ratings 0-6).
To surface deeper insights, segment by customer data as well, e.g. the product purchased, location visited, etc. Check out this post for more tips on maximizing customer feedback analysis.
Step 4: Average your core operational metric for each customer experience rating.
This step estimates the financial value of your customer base by sentiment: for example, the renewal rate of your promoters, passives, and detractors.
If you’re testing which customer experience metric correlates best to your business KPIs, use a regression analysis. Here’s a simple way to run a regression analysis in Excel.
Step 5: Calculate the value of improving your CX metric.
Now that you have the estimated value of a happy customer, calculate the financial impact of a shift in your proportion of happy versus unhappy customers (promoters versus detractors), i.e. the result of improving the customer experience.
Step 6: Calculate the operating costs of your CX program.
Include the cost of your CX management platform you’re considering, and the team required to run the program.
Engage with the right stakeholders to present your case for CX ROI
Ok — your case for implementing a measurable CX program is gaining some substantial momentum. Now it’s time to have a serious conversation about customer experience with key stakeholders to get the ball rolling.
For smaller organizations, like startups, pitching the need for a CX program probably requires engagement from the stakeholders who will take action based on your CX insights, possibly including:
- Company founder
- Business planner(s)
- Marketing (growth)
- Support/Customer success
Larger organizations may need to engage with the aforementioned plus the C-suite (CFO, VP of Support, CMO, etc.) and key members from their respective teams. In each case, we’ve found from our own conversations with customers and prospects that the methods listed below can be powerful when asking for stakeholder commitment.
- Create your own CX ROI model with the method listed in the prior section.
- Get your CFO (finance leader at a smaller org) on board first to ensure all finance and budgeting questions have been answered.
- Use existing metrics to identify areas of improvement needed.
- Keep projected CX metrics and improvement goals achievable yet scalable.
- Present the technical requirements of a CX tool in detail — add an estimated time-to-deploy for total transparency.
A world-class CX program can be launched in minutes
You have a model, you have the stats — so what obstacles are left to get a final sign off on launching a CX program?
Ease of deployment.
As with the launch of almost any internal programs, systems, or technologies, time spent on tool deployment and employee training must be considered. Fortunately, Delighted has helped some of the largest brands kickstart their CX program in a matter of minutes.
Delighted enables your business to request, collect, and distill customer feedback into trackable metrics and actionable insights. With easy to deploy API calls and dozens of integrations, Delighted is a great way to begin measuring and acting on customer feedback at every stage of your customer’s lifecycle.
Learn more about Delighted’s core features with a free trial.