Social media, online reviews, product ratings—these platforms have transformed into the customer’s soapbox, empowering them to speak freely about a brand’s strengths and faults. Organizations eventually picked up on its impact, focusing now on creating delightful customer experiences for all who walk through their doors.
As businesses strive for that competitive edge, they turn to customer experience management or CEM to better understand the customer’s perspective and improve based on these insights. Most, however, struggle to see the results they’re looking for to back up the investment, which leaves stakeholders wondering if one can actually measure the ROI of a CEM program.
Let’s take a look at why measuring your CEM program’s financial returns is important, and how to actually measure your ROI to give your organization a clear picture of what CEM can do for the business.
Here’s Why Measuring the Financial Returns of CEM Is a Necessity
In today’s customer-centric market, the customer experience is no longer just a marketing factor to consider.
With so many channels available, customers can share their feedback with just a click of a button, shaping a person’s perception of your company before they get to buy your product or interact with your team. When left unaddressed, you risk losing trust, brand loyalty, and eventually open doors for competitors to lead your customers to their storefronts.
Choosing instead to focus on creating delightful customer experiences gives you:
• A competitive advantage over other less customer-focused brands
• Increased sales
• Reduced costs
• Opportunities to improve your bottom line
That being said, proving CX’s financial gains can be difficult to do. According to Gartner analyst Ed Thompson, it’s a challenge when you’ve got hundreds of metrics to track and multiple departments to apply these metrics to.
Daunting as it sounds, Thompson affirms that CX can be proven so long as “organizations focus on managing down as well as managing up, being inclusive of all parts of an organization, and proving ROI.” More importantly, your organization can now clearly determine whether your initiatives are successfully bringing up customer engagement and sales, or if there are issues that are causing friction between you and your customers.
How to Measure a CEM Program’s Financial Returns
A CEM program’s financial ROI can be measured with this basic formula:
Return on CX Investment = (Gain from CX Investment – Cost of CX Investment)/(Cost of CX Investment)
Identifying these gains and costs is where things become more complex. To accurately measure your CEM’s ROI, you need to pay close attention to key metrics that will determine the outcome of any customer experience initiative. Sales, marketing, customer service, and product development teams can then target objectives that will lead the company to these positive outcomes.
There are three types of analysis you can use to understand customer experience data:
- Sentiment analysis – analyzing the customer’s language to determine temperament, emotions, and feelings and the drivers that created these experiences
- Impact analysis – identifying key drivers of the customer experience to better understand why a customer is loyal or disloyal to your brand
- Path analysis – creating hypothesized causal connections between sets of variables (e.g. product quality, customer service), and providing estimates of the significance and impact of those connections on the customer experience
With so much data to track and analyze, measuring customer experience ROI from the ground up can be a time-consuming process.
Breaking down the ROI journey into manageable steps is a simplified and proven approach to help you surface the results you need to backup your investment. This makes it easier to map different sets of data to specific returns, while factoring in each team’s contributions to the company’s growth.
Connecting Your CEM Goals to Financial Metrics
It’s tempting to jump right into investing time and resources on metrics that seem to be moving the needle.
In fact, traditional closed loop CEM programs often focus on increasing common survey metrics like NPS and CSAT through customer experience improvements. The typical cycle goes as follows:
• Survey customers
• Identify drivers of poor customer experiences
• Implement changes<
• Resurvey customers
• Wonder why you haven’t increased revenue.
This is because CEM needs to look at more than just what the customer is telling you.
Does decreasing the speed of wait time from five minutes to two minutes make customers more satisfied? Potentially. Does it increase their average transaction spend? Maybe not.
Before making enormous investments trying to improve elements of the customer experience, it’s critical for businesses to model the impact on the business’s finances.
Customer experience management helps businesses achieve their goals, so it’s important to tie those goals into the analysis. Contextual predictive analysis pulls in financial metrics like ARPU and LTV to prove how these initiatives align with your business goals, and how they affect your top line.
When done right, you’ll be able to capitalize on key drivers and factors that lead to better customer service and delightful experiences for new and long-term customers. This, in turn, will drive sales up, increase retention, and solidify the value of CEM within your organization.
Webinar: 14 Hacks to Fast Track Your CX Budget Approval
Want to learn more about proving ROI and getting executive team buy-in? Watch our on-demand webinar with Maxie Schmidt, Principal Analyst at Forrester, to uncover the best practices for making a busines case when it comes to CX investments.