This is the third article in a series of Futurelab columns for consulting.de, focused on making the business case for Customer Experience (CX). In the first part (LINK) wetalked about why CX Managers need to prove ROI at all (reminder: it is because ROI discussions are budgeting discussions). In the second part (LINK) we gave an example of how this calculation depends on the strategic objectives of your company. In this part, we will delve a bit further into how different types of businesses need to look at different metrics and ways of calculating ROI of CX.
Show me the money.
Imagine you area CEO of a large company.You have hundreds of topics to deal with ona daily basis.Margins are under pressure, the board expects growth, your CIO is raving about a cool new tech that promises massive savings in headcount. Every decision requires budget. Investing €1 mln in new equipment will allow you to increase output by10%. More output–more sales. That’s a solid win. But then there is your CX manager talking about “managing journeys” and “reducing friction”, whatever that means. So, you ask the obvious question: “What will it return?”
Here is where the majority of CX improvements fall flat.The problem is not that we speak of happy faces in the room where only money talk is appreciated.The problem is that a conversation about CX usually brings up a problem but rarely offers a clear, simple solution. At least not in the way it is obvious to the C-level.Supposedly, we do this, and customers become happier. Then what? How much is a happy face worth?
If you’re happy and you know it, what is next?
This is why after understanding your company’s objectives (see Part 2 of the series LINK), you have to identify which behaviours of happy customers will lead to positive financial outcomes. Naturally, you should be able to measure and track these behaviours. Here are some examples: When customers are happy, they…:
- Buy more in volume and / or value
- Buy other products from you
- Stay with you longer
- Negotiate less
- Complain less
- Spend less time in service
- Prefer you to other competitors
- Recommend you to others, etc.
These are the absolute basics that you should be able to see in your CRM. However, every business is a little bit different, and every industry has its quirks.You should assess how your specific business model is operating:
1. Is it easy or difficult to switch to and from your product?
Some products are easy to switch to and from: Foods and beverages, household products, or B2C services like dry cleaning. Others may require a long decision-making process and multiple stakeholder conversations: cars, insurance plans, telecom services.The easier it is to switch, the quicker and easierit is to spot the impact of CX: good experiences will attract more customers, bad ones will lead to churn. But if your product is “sticky” (longer contracts, mutual obligations), this aspect will require a longer-term view and multiple stakeholders to talk to.
2. How strong is the competition? Are you unique or replaceable? Are there other prerequisites?
If you only have one supermarket in the neighbourhood, you will most likely stick to it, no matter what. If there are five, you will prefer the one where they treat you better. Similarly, if a business is unique or has found a way to “lock in” customers, the threat of leaving due to competition will be lower. If you are a staple or a commodity–easy to replace, with competition on par–your share of wallet will be about ease and availability.
But outperforming the competition may also not be the objective: e.g. some companies may be legally required to carry products by several competitors (healthcare, public transport, etc.).
3. Is there a natural limit on how much your product or service can be consumed?
You can imagine endless upsell but expecting a consumer to drink more than 2 l of your beverage a day is not a realistic goal. Similarly, if an internet tariff is limited to €50 a month, you can hardly expect that customer to increase their spend to €1000 becauseyou made them very happy.There are also other natural limits such as the number of potential clients in existence (this is why some big brands never make it to smaller towns).Your ROI model needs a “cap” to remain realistic.
4. Is there an upsell or cross-sell path?
Your customers can buy more from you, but only if you offer them some thing extra. Most companies have a clear strategy for it: restaurants casually offer you a dessert, a car dealer suggests a higher value package, manufacturers have mass market and premium brands within their portfolios. But there is an opposite strategy too. Some business models like utilities or other services actually count on customers to go “dormant” and not review their conditions in fear that it would make them realise there is someone cheaper or better.This is why it is a question worthy of asking: do we actively encourage our customers to buy more from us, or are we happy if they remain as they are?
5. Is longer tenure a positive for your company–or not?
This is the part where many CX managers start hurting: sometimes a company may deem a customer not valuable enough to keep. This happens in higher-net-worth services like banking or finance but can also be seen in other businesses. Knowing your company’s strategy towards different customer segments is a start to understanding whether you need to look at churn or not.
But the situation may not even beas dramatic. We used to work for an automotive company which proudly made very reliable, sturdy cars. Calculating Customer Lifetime Value for them in some countries presented a challenge, because the happiest customers were showing the opposite of a positive financial behaviour. Their car never broke down, so they never had to buy another one.
6. Are negotiations and discounts perceived as good or bad?
The answer can beyes or no, depending on the business model, the industry, the geography. High net worth goods and services will never make any special offers or discounts because this will devalue their brand. Sometimes, negotiation is a necessary and required part of business: most B2B relationships will require a review after the term is complete or even during the term. It is the percentage of the margin given away that will decide whether this account has a high value after all. Still the majority of businesses would see it as a necessary evil and will try to avoid it.
7. Are your customers actually discussing you?
The answer is most likely yes; at least we haven’t seen a product that would not be up for a conversation yet, and we have seen a few, from funeral insurances to plastic bottle closures.These conversations are the biggest non-monetary value that a happy customer creates (and a reason we measure NPS). Good will and good word of mouth have long-term financial impact. Happy customers tell others about their positive experiences. They explain away your faults. They bring their friends. They leave positive reviews online. Luckily, in our time and day these things are easy to track through surveys and social listening.
This looks like a long list of behaviours to track. But you should keep in mind that not all of these parameters will be present in your case.You will need to look at your business and check which parameters make sense–and what numbers are actually available.
Measure what matters
Perhaps you noticed that the parameters which we consider for the ROI model heavily depend on whether we are talking about a B2B or a B2C company. It is true that B2C and B2B customers demonstrate different buying and retention behaviours. Here are just some differences in Customer Experience that can play a role in your ROI calculation:
| Business-to-Consumer | Business-to-Business |
| Person-based | Account-based |
| One or few stakeholders with similar interests | Many stakeholders with various interests |
| Simpler journeys | More complex journeys |
| Higher risk of churn, but lower losses | Lower risk of churn, but high losses |
| Interaction-based | Relationship-based |
Still, you should be able to find the right number within your organisation. Here are some examples of the metrics you coulduse:
| Customer Behaviour | Example Metrics (B2C) | Example Metrics (B2B) |
| Customer Happiness | Net Promoter Score (NPS) or CSat | Net Promoter Score or CSat (contact level) |
| Customer Happiness | Net Promoter Score (NPS) or CSat | Net Promoter Score or CSat (contact level) |
| Ease of going through a transaction | Ease of doing business | |
| Meeting customer expectations | Meeting businessexpectations | |
| Buy more in volume and / or value | Average Basket / Transaction Size | Average Order Value |
| Purchase Frequency | Annual Spend per Client | |
| Revenue per Customer | Repeat Contract Volume | |
| Stay with you longer | Customer Retention Rate | Contract Renewal Rate |
| Churn Rate | Client Tenure | |
| Subscription Renewal | Average Years as Customer | |
| Upsell / Cross-sell | % of Customers Buying Add-ons , Nr of SKUs sold | Products / Services per Account |
| Attach Rate | Expansion Revenue | |
| Product Penetration | Acceptance Rate | |
| Negotiate less | Discount Rate | Average Discount Granted |
| Full-Price Purchase Rate | Deal Closure Margin | |
| Complain less | Complaint Volume | Escalation Rate |
| Negative Feedback Ratio | Support Ticket Volume per Account | |
| CSAT in contact center | Issue Recurrence | |
| Spend less time in service | Cost to serve | Service Hours per Client |
| Self-Service Adoption | First Contact Resolution | |
| Contact Rate per Customer | Number of Support Interactions | |
| Competitive preference | Share of Wallet / Spend | Share of Wallet / Portfolio |
| Recommend you to others | Net Promoter Score (NPS) | NPS (Account-Level) |
| Review Volume / Rating | Referral Pipeline | |
| Referral Conversion | Case Study Willingness |
Please remember that you do not need to start with all of these data. Choose the first metrics for the model based on what is available, relevant, and easy to explain. Perfection is the enemy of progress.Your first model should be something everyone in the business can understand and use.Whatever the goal you have set for this exercise, the ultimate objective is that the organization understands what you are trying to do and aligns your vision.When everyone knows how CX creates value, better decisions follow. In the final Part of this series, we will give you several good examples of calculations, and talk about how to make your story so punchy, no CEO will say no to that CX investment you offer.
