If you want to start measuring return on experience, look no further! This guide will show you how to quantify the business impact of customer experience improvements, including example calculations, pro tips, and ideas for addressing the most common hurdles.
I’ve said this a lot recently, but there has never been a more crucial time for business leaders to get serious about demonstrating the tangible business impact of customer-centricity. As a profession, CX practitioners have benefited from the goodwill of CEOs who understood that happy customers are good for business, but when leadership changes, budgets get tight or strategic objectives shift, we need to be ready with the proof points that demonstrate how customer experience supports business performance. Whether we like it or not, quantifying return on experience should be at the top of every CX leader’s priorities.
The good news is that you can get started measuring the return on customer experience (aka “ROX”) almost immediately. As compared to other CX ROI methodologies, this approach is quick, agile and can be used to quantify impact in the near term. I find that leadership teams love the tangibility of ROX, and it’s a great way to demonstrate traction if you’ve recently implemented journey improvements.
When to use the ROX methodology
This CX ROI approach measures the business impact of specific enhancements to the customer journey where there is a clear cause/effect relationship between the CX intervention and business outcomes. This can include product, people, process or technology investments that directly impact the customer experience. (Changes made deep behind the scenes with a fuzzier causal relationship are a slightly different beast. More on that soon.) If you are looking to measure the holistic impact of your CX efforts, you may want to explore linking your CX metrics to business metrics. There are a number of different ways to measure the ROI of customer experience. Before you get started, make sure you select the methodology that matches your objectives.
As part of their journey management efforts, CX teams often find themselves with a “hit list” of CX improvements or innovations to enhance customer experiences. As these improvements are rolled out, the impact can be measured, reported and attributed to the CX efforts that prompted the change. The key is to identify how the resulting changes in business operations, customer behavior, or both, translate into better business profitability.
How to measure return on experience
To get started, identify the experience improvement or CX intervention that you would like to measure. You will need to know when the changes were implemented and have access to related data before and after the interventions went live. Interrogate how the change to the journey might impact business profitability through efficiency gains and/or increased revenue. Evaluate how the changes impact customer behavior and the business operating model, keeping an eye out for outcomes that you can clearly link to profitability. Things like:
- Improved conversion rates → higher revenue
- Larger basket size → higher revenue
- Improved cross-sell or up-sell → higher revenue and improves CLV
- Likelihood to repurchase → higher CLV
- Reduction in churn or better retention → higher CLV
- Reduction in manual tasks → lower cost to serve
- Lower error rates → lower cost to serve
- Automation → lower cost to serve
- Improvements that save employee time or effort → FTE savings or freeing up capacity for revenue-generating activities
Once you’ve ring-fenced your journey improvement and identified how the changes influence customer behavior and business operations, the next step is to measure the magnitude of change and the resulting value of the financial impact.
Example: an internet service provider implements an improved online journey for new account sign-ups. The previous user experience was slow and clunky, with nearly 15% of prospective customers abandoning the process before completing the purchase of their new subscription. The old process also required a member of the sales team to manually verify new user details, which delayed new account activations by an average of a week per customer and required about 2 hours per week for each salesperson in the team. The new and improved journey has brought new account abandonment down to only 5% and automated the verification step, meaning that accounts can be activated immediately without manual review by the sales team. The web development and launch cost $120,000.
There are 3 clear angles for measuring business impact:
- Improved overall conversion rate as a result of fewer abandoned sign-ups. This can be measured as a conversion rate with the impact quantified via higher monthly sales through the online channel.
- Faster account activation means that the business can start charging monthly subscription fees and average of one week sooner. This should translate into a direct increase in revenue (# of new online sign-ups per month X 1 additional week of fee revenue in their first month).
- The removal of a manual task creates efficiency gains for the sales team. This could translate into an FTE savings. It could also translate into additional sales revenue if the change opens up capacity for the team to sell more. The former could be quantified as a monthly cost-savings. The latter could be quantified as a monthly revenue increase.
In this example, the three opportunities to measure business impact should be immediate and can probably be tracked on a monthly basis, enabling the CX team to quickly demonstrate benefits. Once the cadence for tracking has been established (e.g. monthly, quarterly), one can amortize the costs over an appropriate period. In this example it might make sense to amortize the web development cost over a 12-month period, subtracting $12,000 from the monthly profitability gains to calculate the net return on experience.
Common stumbling blocks
Sounds pretty simple, right? So why do many CX professionals struggle to get started? This is what I hear and how I advise business leaders:
I’m struggling to get the right data! You are not alone. I have yet to work for a business where data wasn’t hiding in the far corners of the organization. This is never going to arrive at your doorstep on a silver platter. Prepare yourself for a bit of legwork to identify the right data, find the sources and get your hands on the information. With this level of effort in mind, I recommend choosing your proof points for return on experience carefully (more on that below). I will say that it gets easier as teams become more skilled at identifying the right information and as they establish collaborative rapport with the teams who maintain the data infrastructure.
This approach is so manual, it will take forever. Unfortunately, each ROX calculation is bespoke to the operational/experience change at hand, so the calculation will need to be custom built. It is impractical to measure return on experience for every change to the journey. This becomes easier as teams get the hang of building the calculations, and you may be able to leverage some data across more than one ROX measurement, but you will need to pick your examples carefully.
I’m worried that my calculations won’t be right or precise enough. Perfection is the enemy of progress. Assumptions are OK if you are forthcoming and back them up with logic. Identify your potential naysayers and request their input early in the process. Or reach out to a respected voice from the finance team to collaborate with you.
How will I know that the outcomes are the result of the changes I’m trying to measure and not something else? It’s difficult to determine this with 100% accuracy. Other factors will influence the same customer behavior and business operations that you are hoping to measure. In the example above, improved sales results from the sales team might be due to market conditions or other promotional activity. The longer you track the impact of your change, the easier it will be to weed out the noise and see the trends over time.
I’m struggling to find a strong cause/effect relationship. ROX might not be the right methodology for your situation. There are other approaches that you can explore.
The pros and cons
As mentioned above, the return on experience approach to CX ROI doesn’t have great economies of scale. The calculations are customized the situation and it can be challenging to source the right data. This is not a practical way to measure the holistic business impact of all the organization’s CX efforts. For that, I recommend linking your headline CX metrics to financial results.
ROX is the ideal choice for demonstrating the traction of quick wins or for quantifying the impact of a few “big ticket” changes to the customer journey. Other CX ROI methodologies rely on lagging indicators and can take time, but return on experience can often be measured as soon as changes are implemented. The ROX approach is highly manual, but it’s also very tangible. The calculations themselves demonstrate the power of customer-centricity, so reporting on ROX can be a powerful tactic for leadership change management.
If you’re just getting your CX ROI competency up and running, ROX is a great place to start. This first step is often the hardest, but you have to start somewhere.
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.
