Proving ROI: The Holy Grail of CX

In October 2022, a Forrester report stated that 54% of CX programs could not prove the ROI of their projects and efforts. The report went on to predict that 1-in-5 CX programs would disappear in 2023 due to this inability to prove their contribution to corporate success.

We intuitively understand that a better customer experience should yield better business performance. But investors and boards demand a return on investment and corporate funds available for projects are not unlimited. CX projects are competing with other investment priorities, and it’s also fair that if you can’t prove the value of what you are working on, then perhaps it shouldn’t exist.

As I’ve written about before, linkage models, specifically key driver models or predictive models that link survey and/or operational metrics to business outcome measures, are not ROI models. They are useful exercises to help identify and prioritize best actions to improve your customer experience scores and business outcomes, but they do not—or should not—hold muster with your finance team as they are not actual, verifiable results.

So let me steer you toward proving the ROI of your CX improvement efforts. Ultimately, what you are working on must impact at least one of these core pillars of business success:

1. Acquiring more customers

2. Retaining more of your existing customers

3. Driving additional sales to existing customers via cross-selling or upselling them

4. Reducing the cost to sell or cost to serve your customers

People often talk about extending customer lifetime value (CLV) as a way to prove ROI. I agree with that notion, but don’t include it here for two reasons:

• Extending CLV is really a function of the items above—retaining your customers (#2 above) means selling to them for a longer period of time and selling more and different things to them (#3 above) both extend CLV

• Most companies have a very difficult time actually measuring their customers’ lifetime value on an individual basis. So let’s not complicate our ROI calculation by having to climb that mountain as well.

I’ve also previously discussed a third way of extending CLV—measuring customer referrals. This is the basis of the Earned Growth metric created by Fred Reichheld, Darci Darnell, and Maureen Burns in their Net Promoter 3.0 article and the subsequent Winning on Purpose book by Reichheld and Darnell. Again, very few companies do this, and do it effectively, so hopefully the push from the book and new metric will get more companies measuring the impact of referrals.

Metrics for Measuring ROI

I am a huge fan and follower of Jeanne Bliss. One of her five core competencies for driving customer growth is Managing Customers as an Asset, essentially items 1 and 2 above. If your CX is driving growth for your business, as it must be, then your total number of customers has to be growing. That happens by gaining more customers (#1 above) and retaining more of them as well (#2 above), i.e., plugging the “leaky bucket.”

But let’s look at some other internal metrics that most businesses can and do measure that will help you calculate an ROI for your CX efforts.

*One benefit of referrals and referral economics is that you could reduce your marketing and sales spend because your customers have become your best marketing or sales engine.

There are, of course, other metrics, but if you can reasonably take credit for improvement in any of the ones mentioned here, you can build an ROI argument for your CX improvement efforts. And yes, there is shared accountability and credit in these actions. Marketing or operations or the digital team or the process excellence team also have legitimate claims for credit on many of these. But CX is a team sport, and teams win and lose together. As former president Harry S. Truman famously said: “It is amazing what you can accomplish if you do not care who gets the credit.”

Now that I have given you some suggestions on how to measure and demonstrate the ROI from your CX improvement efforts, let me give you a few lessons learned because I know from experience that it is easier said than done.

1. Partner with your finance team. You need them as a partner so they’re aware of what you’re doing, can validate assumptions you’re making, and provide necessary data or support for your calculations. They often know their way around the inner workings of the company’s data better than anyone. Having them as a partner gives visibility to your efforts and can ultimately provide the seal of approval on your ROI calculations.

2. Don’t boil the ocean. Often collecting the data and demonstrating the cause and effect is hard enough without trying to build an overly complicated model that takes credit for everything you have done. Follow the KISS principle: Keep It Simple. Start by focusing on a single program or project rather than all your activities. Build up your cumulative ROI project by project rather than trying to define it in its entirety.

Your finance team knows what a point of retention is worth and knows the value of labor; use that knowledge. Your call center finance team knows what every second or minute on the phone is worth. Focus your calculations on each of these discretely.

For example, at one of the travel companies where I led CX, the #2 reason for calls to our call center was people wanting a copy of their receipt. We partnered with the digital and loyalty teams to make this available on a self-serve basis on the website and in the app, and, as a result, we could easily count the number of reduced calls. The finance team knew what an average call cost us, so it was a simple calculation and it saved us millions of dollars.

Many regulated industries have mandatory disclosures that must be read to customers when they call. A colleague of mine worked with his legal team to shorten the script of those disclosures, which subsequently reduced the length of each call by 12 seconds. Using the cost per minute of a call to their call center, he was able to calculate the savings. And you know, customers appreciated having to listen to a shorter mandatory disclosure.

3. Be conservative in your estimates. Everyone wants to have the biggest impact they can and take credit for the most revenue growth or dollars saved. But the more conservative you are in your estimates, the more credibility they have.

Let me give you an example. This example is more of a business case than a true ROI calculation, but it highlights the principle of conservative estimates. The customer value data is not real, but you can see the simplicity of the model and calculation.

By estimating that we could save just one customer per month, it made our assumptions both conservative and realistic, and yet, it still led to a much bigger savings than the cost of the program. And there were two more upsides: a) the model doesn’t account for the LTV of those saved customers—just a year 1 return—so the real return is certainly much higher than that. And b), because saving only one customer per location per month is so conservative, there is tremendous upside to the savings if we saved more than one customer.

CONCLUSION

There are certainly intangible or difficult-to-quantify benefits of a CX program as well—things such as improvements in culture and employee experience. But while your CEO and CFO may acknowledge these, when they ask you about the value of your program, they want hard numbers, real $$$. By using the shortcuts I’ve outlined and thinking in new ways about how to demonstrate the impact your CX program is really having on your business success, you will be better equipped to prove how your CX function and efforts substantially affect the company’s bottom line and growth.

To discuss how I can help your company’s VOC or CX efforts or to arrange speaking engagements, please schedule time with me here.

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