10 ways to calculate ROI on CX 💰💰

Whilst Customer Experience has become increasingly popular in the last 5 years, the largest challenge we continue to observe is the inability of CX leaders to quantify the impact that customer experience is having on an organisation.

Until this challenge is overcome, CX will not be taken seriously at a C-Suite level.

Because let's be real ... money talks!

In today's newsletter, we're going to give you a practical toolkit 🧰 to equip you with the right tools 🛠 and knowledge 🧠 to begin quantifying the financial impact that CX is having on your business 🏠.

Now, if you CBF reading the rest of the newsletter and just came for the ROI templates, we won't make you scroll. Our only request is that you SHARE the templates around and tag me on LinkedIn if you find them useful:

Now as always, let's have a laugh before we get into the nitty gritty ...

JOKE OF THE WEEK 😂

At a party, a young wife admonished her husband, “That’s the fourth time you’ve gone back for ice cream and cake. Doesn’t it embarrass you?”

“Why should it?” answered her spouse. “I keep telling them it’s for you.”

10 ways to calculate ROI on CX 💰

A little disclaimer before we get into it. CX is a broad topic. As such, attempting to explain how to calculate ROI is extremely difficult to do. Each business has different metrics that and there will inevitably be nuances in approach.

With the above being said, we still do believe that there are a few common approaches that can be used to measure the impact that CX is having on your organisation.

If any of the below recommendations pique your interest, we'd be more than happy to chat further.

PS, calculating ROI is rarely an exact science. It's highly likely that you are going to need to assume a few things when building an ROI model. This is OK, as long as you can validate your thinking with proof points. Back of the napkin calculations are acceptable 📝

#1 - Calculate impact of your increasing NPS score 🔴🟡🟢

It's likely that you're measuring customer advocacy using NPS. But are you tying the NPS score back to financial metrics within your business? Probably not ...

• Methodology: Correlate Detractor, Passive & Promoter segments to the revenue that they generate. This can be completed at a survey response level, or at an aggregate level.

• What you want to demonstrate: Promoters are more loyal & subsequently spend more compared to detractors. Therefore, an increase to the % of Promoters will have a positive financial impact on your business.

• Data you will need:

  • % of Detractors

  •  % of Passives

  •  % of Promoters

  • Financial Metric - Average Spend Per Customer, Lifetime Value, Revenue, GWP

• Assumptions:

  • Promoters spend ~10-20% more than Detractors

#2 - Quantify positive impact of customer referrals / word of mouth 📣

The cost of acquiring new customers is expensive, right? What if you had a way to demonstrate to the C-Suite how you're saving valuable marketing spend by organically growing your customer base through word of mouth & referrals ...

• Methodology: Ask a question to new customers to understand how they became a customer. Quantify the proportion of customers who have been acquired via customer referrals / word of mouth. Calculate the cost savings associated with reduced marketing spend.

• What you want to demonstrate: The cost savings you have obtained by creating an organic flywheel of growth via customer referrals / word of mouth. It will make your marketing team jealous when you can demonstrate that you're acquiring customers for FREE by producing a great customer experience.

• Data you will need:

  • Cost of acquiring new customers

  • Total customers acquired in XX period

  • Customers acquired organically (referrals / word of mouth) in XX period

N.B. Earned Growth Rate is a more sophisticated way to quantify the positive impact of organic growth. We wrote about it in a previous article and have produced an EGR calculator here.

#3 - Showcase how increasing FCR leads to less repeat callers 🔁

Customer Experience is like a flywheel. The better the experience, the more efficient your business operations. Conversely, if you provide a poor experience, this will inevitably lead to repeat work and repeat callers. First Contact Resolution (FCR) is a measurement which can be used to demonstrate how you're reducing the amount of repeat contacts into your contact centre.

• Methodology: Increasing your First Contact Resolution (FCR) metric will have an inverse correlation to the number of repeat customers coming into your call centre.

• What you want to demonstrate: Use your FCR score to quantify the estimated number of repeat callers. Associate a cost per contact to each repeat customer, demonstrating how you're saving money by reducing the amount of repeat callers coming into the business.

• Data you will need:

  • First Contact Resolution (%)

  • Cost per contact ($)

  • Total Contacts

• Assumption(s):

  • Average cost per contact is $7: see here

#4 - Demonstrate the value of retaining customers ☄️

You've likely heard the statistic that acquiring a customer is 5-7x more expensive than retaining an existing one. What if you could actually demonstrate that within your own business?

• Methodology: There is a number of different ways that you can quantify customer retention / churn (it probably warrants a standalone newsletter). In saying this, the primary purpose of a customer retention model is to demonstrate the value that your existing customers are providing to your organisation.

• What you want to demonstrate:

  • Lifetime value of customers

  • The impact that customer churn has on your bottom line

  • The additional revenue that existing customers are generating i.e. NRR

  • Segmentation; the different spending behaviours of customers

  • How CX (via NPS, CES or CSAT) is having an impact on customer spend

• Data you will need:

  • Total Number of Customers

  • % of new customers

  • % of existing customers

  • YoY Revenue / Spend Per Customer

  • Demographic / Behavioural Data

#5 - Calculate the financial impact of Conversion Rate Optimisation (CRO) initiatives 🌪

As we stated at the top of article, "CX" means different things to different people. As such, when you think about ways to demonstrate ROI on CX, it doesn't necessarily have to relate to solicited customer feedback. Quantifying improvements you have made to digital conversion rate funnels is a great way to showcase ROI.

• Methodology: Highlight how you have:

  • A) Increased the volume of customers entering the conversion funnel

  • B) Made it easier for customers to navigate through the funnel

• What you want to demonstrate:

  • Additional revenue that has been generated by optimising the conversion rate funnel

  • An increase in the amount of customers who got what they needed to on the website. Try to attribute a value to this successful interaction.

• Data you will need:

  • Total website visitors

  • Average Order Value (AOV)

  • # of customers who entered the funnel at different stages

    • Awareness

    • Interest

    • Desire

    • Consideration

    • Purchase

#6 - Optimise the contact centre channel mix 💬

Contact deflection is a hot topic. In an ideal world, customers are able to self-serve via digital platforms to save the hassle (and cost) associated with speaking to a contact centre agent. But once the customer decides to speak to the contact centre, there's still benefits in trying to deflect that customer to a cheaper channel.

• Methodology: Quantify the cost savings associated with deflecting contacts from an expensive channel to a cheaper one.

• What you want to demonstrate:

  • How improved utilisation of certain contact channels has lead to cost improvements

    • E.g. Increased % of webchats has reduced overall cost to serve

• Data you will need:

  • Total Contacts - Phone, Email, Chat

  • Cost per contact - Phone, Email, Chat

  • AHT - Phone, Email, Chat

#7 - Quantifying the impact of reduced handling time (AHT) ✅

Now we aren't the biggest fan of this measure. A lower AHT does not necessarily translate into a better customer experience. Nonetheless, if you have observed improvements in AHT (even if it is across a certain disposition code), it's worth quantifying!

• Methodology: There is a cost associated with every second that a customer interacts with your brand. Use Average Handle Time (AHT) and cost per minute metrics to quantify cost savings when AHT decreases.

• What you want to demonstrate:

  • How operational efficiencies has lead to reduced handling times for certain types of contacts

• Data you will need:

  • Total Contacts - Phone, Email, Chat

  • Cost per minute - Phone, Email, Chat

  • AHT - Phone, Email, Chat

#8 - Demonstrate the benefits of improved agent retention 😎

Frontline agent attrition / churn is a HUGE problem within contact centres globally at the moment. We estimate that it costs anywhere between $11,000-$15,000 to train frontline agents. With frontline agent churn surpassing 25% at the moment, there is a huge opportunity to improve this.

• Methodology: There is an extremely high onboarding cost for any new frontline agent who starts with your company. Quantify these costs and demonstrate how certain initiatives are reducing agent churn and saving your company money.

• What you want to demonstrate:

  • An improvement in agent churn (attrition) from XX% to XX%

  • Subsequent cost savings associated with this improvement

• Data you will need:

  • Total number of agents

  • Number of agents churning

  • Recruiting costs

  • Training costs

  • Productivity losses

#9 - Identify the compliance / regulatory fines you have avoided ❌

Sometimes CX isn't about providing a great experience, but moreso focused on ensuring you adhere to certain regulations / compliance practices. One that comes to mind is ensuring customer service representatives explain the Duty of Disclosure to customers.

• Methodology: Work with QA / Compliance teams to identify the level of compliance to a certain regulation.

• What you want to demonstrate:

  • How adherence to a certain regulatory requirement has lead to avoidance of fines

• Data you will need:

  • QA results

  • Outcomes Testing i.e. Consumer Duty compliance

  • Penalties associated with non-compliance

#10 - Show benefits associated with reducing customer complaints 🥴

Every customer complaint takes time & effort to resolve. Additionally, there is an associated cost to not resolving this complaint - legally or brand reputation.

• Methodology: Identify the cost of a complaint and track the progress of complaint resolution over time

• What you want to demonstrate:

  • A reduction in complaints from XX to YY

  • A quicker time to resolution

  • Associated cost savings with improving the complaints process

• Data you will need:

  • Total number of complaints

  • Cost per complaint

  • Complaint resolution time

Graph of the Week 📈

A final shameless plug for the CX ROI calculators that I have built here.