The ROI of Customer Experience Programs

Highlights

  • Customer Experience growth strategies are only sustainable if they deliver a significant and sustained profit to the company.
  • Research from Forrester, McKinsey, Bain and others show a clear correlation between improved customer experiences and significant revenue growth.
  • Similar research shows the revenue impact less the required investment delivers a substantive customer experience return on investment (ROI).
Johnny Grow Revenue Growth Consulting

The Link between CX and Revenue Growth

Business growth methods must demonstrate revenue growth and profitability to be sustainable.

To understand the link between Customer Experience (CX) and revenue growth I've curated several analyst research findings.

  • Forrester published a report titled, "Customer Experience Drives Revenue Growth" that showed CX leaders achieved average revenue growth of 17 percent over five years whereas CX laggards achieved just 3 percent growth during the same period. That's an impressive 1X revenue growth increase. Forrester research also found that customers who report excellent experiences are 4.5X more willing to pay a price premium¬†as compared to customers reporting poor experiences.
  • In some additional research, Forrester said in its report titled Winning on the Battleground of CX, "Customer Experience is no longer just a discipline; it is the basic ingredient for growth."
    In this research report the analyst firm explored whether CX directly contributes to revenue growth. Over multiple successive years they compared the CX index results and financial outcomes of companies across five major industries. Without exception, they found that the CX leaders outperformed CX laggards in every industry. In fact, CX leaders achieved a 14% higher growth rate compared to CX laggards. Their research demonstrated that CX drives revenue growth for businesses that deliver differentiated CXs.
  • Another study was performed by Medallia Analysis and published in Harvard Business Review. After removing factors other than CX, the research found that customers with the best past experiences grew 140% more compared to those who had poor past experiences.
Customer Experience Revenue Impact
Customer Experience Revenue Impact Research Results

This research also found that delivering successful experiences reduced the cost to serve customers. It cited something we all know anecdotally, and that is that unhappy customers are the most expensive customers. For example, they consume the most support and return the most products. Systematically fixing the sources of dissatisfaction drives down operational cost.

  • Bain & Company performed analysis that showed CX leaders grew revenues 4 to 8 percent above their markets. The research went on to advise that the revenue growth from improved CX is due to stronger loyalty among customers who buy more, stay longer and make recommendations to their friends.
  • Research from McKinsey surfaced similar results. Their study advised that improving the CX brings significant financial benefits and that "Satisfied customers spend more and stay more loyal over time."
  • A study by Dimension Data found that companies that improved CX realized a 92 percent increase in customer loyalty, an 84 percent uplift in revenue, and a 79 percent cost savings.
  • Johnny Grow's customer experience research also sought to find the ROI of customer experience investments. The data revealed that for every $1 invested into a customer experience program the company yielded $3.56 in additional revenues.
Customer Experience ROI
Customer Experience ROI | source: Customer Experience Research Report

See the research that shows every dollar invested into a customer experience program nets the company more than 3 dollars in additional revenues.

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The Customer Experience ROI Formula

Using Customer Experience to increase revenues (link to Growth CX Strategy.docx) is a clear business growth strategy, but it comes at a cost so ROI must also be considered.

There is no one size fits all customer experience ROI calculation, but there are many proven and extensible data points which can be extrapolated.

Increased revenues are primarily the result of more purchases and price premiums.

In addition to the previously described Forrester study that found CX leaders grew revenue 5 times more than CX laggards the analyst firm also published the CX Index, which is a benchmark of CX revenue impact across industries.

Customer Experience Revenue Impact
Customer Experience Revenue Impact by Industry | Source: Forrester

These research findings provide a starting point to calculate revenue gains derived from CX improvements. The figures may not be an exact match for your business, but they provide a good starting point and can be adjusted as you make progress in your journey.

Once you have identified relevant revenue growth figures you will need to deduct the investment, which we find is allocated into four areas.

  1. Staff training. CX training for employee and cross training for managers is a required investment. Rather than a piecemeal approach which attempts to provide standardized training for most use cases or scenarios, a better approach is to train on the corporate culture and its link to CXs, and let staff figure out how to achieve their contribution to the results. This approach shifts from training on activities to training for outcomes.
  2. Business Process Improvement (BPI). The top customer frustrations stem from broken business processes. Customers may get frustrated with the order process, the return process, an email campaign, the mobile app, customer support or a myriad of other causes. Whatever it is, it needs to be fixed. If you are unsure of which processes are costing you the most or offer the biggest financial upside impact, apply industry benchmarks to identify the lowest hanging fruit and areas most in need of improvement.
  3. Business applications. Technology is needed for business process automation, information reporting and scale. System automation accelerates process cycles, reduces errors, increases efficiencies, improves service levels, reduces costs and supports growth. Our mantra at Johnny Grow is that everything that gets repeated gets automated. Highly efficient and repeatable processes that satisfy customers become your intellectual property.
  4. Business intelligence. Analytics or information reporting are needed to identify failed customer interactions in real-time. Our experience shows that dashboards, often in the CRM system, are the best tool to put a spotlight on the variances that need fixing.

Our client projects show that the total customer experience investment for the four above areas is generally in the range of .06 to 1 percent of revenues. Due to economies of scale, small companies will spend a larger percentage of revenues while larger companies will spend less.

Calculating customer experience ROI is not an exact science and every company and program is a bit different. However, the consistencies in the research findings show clear directional impact and significant benefits. As you make progress in your program you can connect the data to quantify your exact impact and results.