CX leaders need to be able to demonstrate how customer experience impacts the business bottom line. This is often not a simple task, but it can be done! I have consolidated best-practice guidance on how to measure the ROI of customer experience, including an overview of the main approaches to CX ROI, the pros and cons of each, as well as links to additional resources.
Earlier this year, I attended a CX industry event where one of the keynote speakers proclaimed that “CX is intangible!” I just about fell out of my chair. Not only is this blatantly incorrect, it sends the wrong message to CX leaders and the broader business community. If anything, CX practitioners need to be doubling-down on their ability to demonstrate tangible business impact. While many CX teams got their start with executive buy-in founded on the premise that “what’s good for customers is good for the business”, this strategic goodwill only lasts so long. As CX teams grow, so will their budget requirements. When CX objectives become permanent fixtures within business strategy, leaders will also need to vouch for these amid the inevitable ups and downs of economic cycles. There has never been a more important time to demonstrate the business value of customer experience.
The 2024 South African Customer Experience Report, which I co-authored with my colleagues Charlie Stewart and Amanda Reekie, revealed that 59% of business leaders were under pressure to demonstrate the ROI of customer experience, but that the vast majority (63%) were unable to do so. I know from my work with clients in the US and Europe, and engagement with fellow CX practitioners around the world, that these statistics are similar in other markets. So, if you are under pressure to prove the financial impact of CX, but struggling to do so, please know that you are not alone!
59% of business leaders are under pressure to demonstrate the ROI of customer experience, yet 63% are unable to do so
The maturation of customer-centricity within the business world is a great thing. To keep the momentum going, CX leaders need to get serious about speaking the language of the CFO and demonstrating the ROI of customer experience. So let’s get down to business!
From my experience assisting clients and collaborating with CX practitioners around the world, I see 3 main opportunities for CX ROI measurement:
Linking headline CX metrics to business results
You can quantify CX ROI by establishing a relationship between a CX metric and a business metric, so that you can track the business impact over time. As the CX metric increases as a result of CX management efforts, the relationship between the two metrics allows you to extrapolate the financial impact, essentially reporting on the aggregate ROI of the organization’s customer experience efforts.
Example: If you know that happy customers, with a higher CSAT scores, are more likely to repurchase and have a larger basket size, you can establish the link between these metrics and extrapolate the financial impact of CX as satisfaction improves. Start by understanding the exact correlation. E.g. each 1-point increase in CSAT correlates with a 1.5X increase in average basket size and 20% higher likelihood to repurchase within a month. You are then able to quantify the business impact of a higher CSAT score.
This is the approach that many CX leaders turn to first because CX metrics such as CSAT, NPS and CES are often well-socialized among business leaders. As lot of organizations track CX metrics on an ongoing basis, the data is also available and ready to use. This method offers a plethora of possibilities, since headline CX metrics can be linked to nearly any category of business results, as long as a statistically sound relationship can be established.
Customer Lifetime Value (CLV) is a great business result metric to use, either linked to a headline CX metric or even as a standalone business impact metric. CLV frames customers as assets and puts a quantifiable value on loyalty. One of the most prominent and respected thought leaders in the field of customer experience, Jeanne Bliss, is an advocate of CLV as the holy grail of business impact metrics. Check out Episode 22 of my podcast for more information about leveraging CLV to demonstrate the ROI of customer experience.
Linking headline CX metrics to business results is not without its challenges. For starters, it can be difficult to get access to the right business performance data, let alone test the correlations between CX metrics and business performance. Another consideration is that many factors beyond the scope of CX management (e.g. public relations, product pricing, macroeconomic conditions, regulatory changes) can influence headline CX metrics like satisfaction or likelihood to recommend. For example, a PR blunder might damage people’s perception of a brand, influencing their overall sentiment. It can be difficult to remove this “noise” to isolate the impact of CX management efforts. CX metrics are also lagging indicators, meaning it can take some time to see measurable change. Executives can get impatient with the timelines required to see change.
This approach is most effective as a high-level aggregate tracker of customer experience ROI. And it needs to be reported at the right cadence to see results and minimize other noise (i.e. not more frequently than a quarterly basis). It is more likely to be accepted by executives if strong relationships between the metrics are established, and leadership expectations are managed. In my opinion, it is best paired with ROX measures (more on that later) which are quick and punchy.
Pros
- Uses CX metrics that are often already tracked on an ongoing basis
- Leadership teams are usually familiar with the headline CX metrics and expect reporting on these
- Once correlations are established, it is easy to keep tracking and reporting the ROI of CX this way
Cons
- Change may be slow to see
- Many factors influence headline CX metrics
- It can be challenging to get the right data and establish the correlations
Quantify return on experience (ROX)
At the other end of the spectrum, we have Return on Experience (aka “ROX”) calculations. This approach to measuring the ROI of customer experience relies on capturing the business impact of specific enhancements to the customer journey. It could also include the financial impact of changes to business operations that are implemented in pursuit of better customer outcomes (e.g. a new IVR system to reduce customer wait times).
When a journey or business process is modified, it catalyzes changes to customer behavior and/or business operations. These can lead to measurable change in business profitability. This is the basis of ROX. The key is to look for instances where specific CX changes lead to an efficiency gain, increased revenue, or both.
Example: Imagine that a retailer implements a new queuing system to reduce wait times in the checkout line. The new system moves customers through the line twice as fast, addressing a known pain point and reducing the number of abandoned carts by 3%. The new system also improves checkout efficiency at peak times, resulting in a weekly reduction of 0.5 FTE for each store. In this case, the ROX measure would be the value of the non-abandoned carts, plus the operational savings of FTE reduction, minus the cost of the new queue management system (spread out over a determined period).
ROX calculations are a highly granular, yet equally tangible, way to measure the ROI of customer experience. This is an excellent way to measure quick wins and changes to the journey that address known pain points, because results can be immediate. I find that executives love the tangibility of ROX results, even if the business impact is small in the grand scheme of things. This is a great way to demonstrate traction and show that CX teams can deliver results.
The downside is that the ROX calculations are extremely manual. Unfortunately, there are few economies of scale here. All of the calculations are tailored for the specific changes to the journey. It can be difficult to identify the cause/effect relationship, not to mention painstaking to gather all of the right data from the far corners of an organization. This is not a set-it-and-forget-it approach.
Quantifying return on experience can be highly effective for teams that want to quickly demonstrate their ability to deliver results. It isn’t feasible to do ROX calculations for every change to the journey, but it can be a powerful approach if used selectively.
Pros
- Very tangible, leaders love this
- Great option for measuring “quick wins”, sometimes impact can even be measured immediately
- Effective way to prove that CX teams can drive change
Cons
- Calculations are extremely manual
- It can be difficult to source the right data
- Ongoing tracking can be tedious
- It’s not feasible to track ROX for all journey enhancements, choose wisely
Measuring the ripple effect of CX enablers
Not all investments in CX are prompted by specific journey changes. Anyone who has mapped a service blueprint will know that behind-the-scenes enablers like employee engagement, technology infrastructure and CX strategy are all cornerstones of organizational customer-centricity. Measuring the return on investment for these enablers is the most challenging of all CX ROI categories.
The best way is to link these CX enablers to tangible change – be that operational change or change in customer actions – that leads to a quantifiable financial impact. When a business integrates a CX enabling function, it causes a ripple effect. The ROI of customer experience in this instance is the measurement of the ripples that reach the business bottom line. The first step is to identify how the CX enabler impacts business operations and/or customer outcomes, then link this to a business profitability result.
Example: Suppose that an employee engagement program targeting back-office support staff at a mortgage lending company results in faster turnaround times to frontline sales staff, who are then able to originate loans to customers an average of 5 days faster. Not only does this improve customer satisfaction, it also enables the company to start earning interest and fees 5 days sooner, while opening up capacity for sales staff to focus more of their attention on selling. There is a clear and measurable revenue benefit. Additionally, the employee engagement program may have a positive impact on employee satisfaction and retention, thus reducing staff turnover and avoiding costs associated with talent acquisition. Sometimes, you have to follow the “ripple effect” 2 or 3 degrees to find the business impact, but it is almost always there.
A less desirable option for measuring the ROI of customer experience enablers is to track how the change impacts CX headline metrics, and then extrapolate the impact on business metrics, as mentioned in the first section. For example, if the implementation of a VOC platform is a core enabler of CX management, one could measure the long-term financial impact of an organization’s CX efforts via changes in NPS, CSAT, etc., flagging the VOC platform as an essential dependency for success. This approach faces all of the same challenges mentioned earlier in the first section of this guide, plus it is less concrete. My advice is to first seek out a tangible ripple effect, as this is much more straightforward.
Measuring the ripple effect of CX enablers is a good option if you want to quantify the business impact of behind-the-scenes changes to people, systems or processes that affect an organization’s customer experience management capabilities. These calculations are often complex, but worthwhile to demonstrate the value of large CX investments.
Pros
- Only real way to quantify the ROI of customer experience related to enabling/supporting business functions
- Helps teams and leaders understand how all aspects of an operating model affect customer outcomes
- Key assumptions related to operational costs (e.g. cost of talent acquisition) can be used for other CX ROI calculations once established
Cons
- Calculations are complex, sometimes relying on a string of causal relationships that can be difficult to identify and quantify
- Calculations are manual, making ongoing tracking difficult
- Sourcing all of the right data can be a bottleneck
- Calculations may require assumptions, be prepared for pushback on these
Start measuring the ROI of customer experience…now
If all of this sounds a bit daunting, don’t worry. My advice is to pick one area – perhaps a ROX calculation – and start there. The hardest part is getting started. Once you gain confidence and proficiency measuring the ROI of customer experience, leadership support will quickly follow and you’ll never look back.
If you have questions or need assistance getting your CX ROI competency up and running, please don’t hesitate to reach out. I’m happy to explore how I can help.
Julia Ahlfeldt is a customer experience strategist, speaker and business advisor. She is a Certified Customer Experience Professional and one of the top experts in customer experience management. To find out more about how Julia can help your business achieve its CX goals, check out her customer experience consulting services (including journey mapping, CX strategy development, experience innovation, leadership workshops and CX ROI measurement) or get in contact via email.
