This guide will teach you how to quantify the value of your CX initiative through a step-by-step process of calculations. By the end, you’ll know how to present a strong business case and demonstrate the impact of CX across your organization.
First, why it’s hard to prove the ROI of customer experience
Although most brands agree that delivering great customer experience (CX) is important, they’re actually not very good at delivering it—only 49% of U.S. consumers say companies provide a good customer experience today.
It’s not for a lack of trying. Many companies push out customer experience programs with the genuine purpose of improving customer satisfaction.
But due to its innate complexities and the countless and oftentimes conflicting information that’s out there, launching a CX program can feel like the equivalent of throwing spaghetti on the wall and waiting to see what sticks.
That’s because although there are some universal key components to the customer experience, there isn’t one set way to succeed at it; every company is different.
On top of that, there’s the problem of providing quantitative proof that the resources and time necessary to launch and manage a customer experience program is worthwhile.
Before approving any investment, organizations want to see a clear forecast, articulated in numbers, of the return on investment (ROI) for a solid CX program.
It’s not enough to provide soft benefits. To level-up with other business programs, customer experience leaders need to show the numbers. This guide will help you do just that.
Step 1: Know the ROI formula for CX
The first step is becoming familiar with the formula for calculating the ROI of customer experience.
It’s straightforward:
Customer experience ROI = Return / Investment
For more clarity, the formula can be broken down into smaller elements, such as:
Customer experience ROI % = (Benefits – Investments) / Investments x 100
The tricky part is calculating the return and investment components.
That’s why we’ll first break down each calculation in a digestible manner, and then demonstrate how you put all of it back together to calculate the ROI.
We’ll use a made-up company named BarkTalk to better illustrate the process. We like to let our imagination run wild here at GetFeedback, so let’s say that BarkTalk is a futuristic tech company that sells a variety of pet gadgets. Their most popular product: a collar that you place around your dog’s neck that translates their barking into your preferred language.
Step 2: Calculate the benefits of CX
To calculate the return of your CX program, you need to first calculate your quantitative benefits and investments.
Here is how to calculate return:
Return = Benefit – Investment
Most CX professionals will see the words calculate and benefits in the same sentence and roll their eyes. That’s because it tends to be the hardest part of a CX ROI calculation.
Proving customer experience benefits involves taking into account quantitative and qualitative data and creating a direct link between customer experience and business metrics.
On the other hand, calculating the total investment of a CX program is fairly easy in comparison.
In this chapter, we’ll dive into the benefit element of this formula using our mock company, BarkTalk. These benefits refer to the business metrics that will be impacted the most by your program, such as customer retention, top-line revenue, etc.
For the sake of this guide, we’ll demonstrate how to calculate results for the business metrics that are most commonly influenced by a great CX program.
The investment element will be addressed in the next section.
Here we go.
Top-line revenue
When it comes to top-line revenue, there’s already insight from reputable sources that can be leveraged by CX professionals to make their point.
Forrester, for instance, is a great source.
A Forrester study found that the revenue of CX leaders outgrew the revenue of their CX laggard competitors by more than 5 to 1.
In addition, every year Forrester published a benchmark of customer experience quality among large global brands, called Forrester’s Customer Experience Index™, that is based on proprietary consumer survey data.
The index looks at various aspects, such as how effectively customers feel their needs are met and how they assess the ease and enjoyability of their experiences with a particular brand. A one-point improvement in the Forrester’s CX Index™ can result in anywhere from between 5 to 873 million dollars in revenue for the largest companies in certain industries.
The chart below shows you the dollar value of a one-point increase for popular industries. It’s worth noting that Forrester doesn’t clearly state how they calculate that one-point increase. Nevertheless, most of us don’t know how our credit score is actually calculated, but we know the number is important—it’s OK to rely on this data as a supporting point.
(Source: Forrester, “The ROI of CX Transformation”)
Customer satisfaction
Customer satisfaction goes hand in hand with great customer experience. In fact, satisfaction goes a long way—just a 10% increase in a company’s CSAT score leads to a 12% increase in trust from customers.
The trick is determining what a one-point increase in your Customer Satisfaction Score (CSAT) is worth in terms of revenue impact. Meaning, how does a one-point increase in satisfaction influence your customer retention or your upselling?
There isn’t one exact science to this, unfortunately. However, we will demonstrate one way to quantify the use of CSAT measurement and improvement.
Let’s say that BarkTalk sends out a case closed CSAT survey to 10,000 customers and receives 1,000 responses. Of those responses, 600 customers scored their experience a 4 or 5. As for the rest, 200 customers scored them a 3 and the remaining 200 scored them a 1 or 2.
The first step for BarkTalk is to calculate their CSAT score.
The formula is: (Total 4-5 responses) / (Total responses) x 100 = CSAT score
So, for this case, the math would be: 600 / 1,000 x 100 = 60%
Next, BarkTalk needs to estimate the potential revenue that could be saved if they implement new CX initiatives and improve their CSAT score by just one point. For the sake of this example, let’s assume the average spend per customer is $500 (if you’re a B2B business, this is the equivalent to your average deal size).
The calculation below is based on the average churn rate we’ve derived via research.
200 customers who rated 1-2 (92% will churn) | 184 customers will churn |
200 customers who rated 3 (80% will churn) | 160 will churn |
Total revenue lost ($500 x 184 + 160) | $172,000 |
The math above reveals that BarkTalk lost 344 customers. That’s 344 customers who could have returned and, in total, would have spent $172,000 per year.
But let’s say that there is a trend with the customers who rated BarkTalk a 1 or 2: the majority noted in the survey that the wait on customer service live chat was too long.
So BarkTalk takes the necessary measures to optimize their live chat services. Enough so that when they send out their new batch of the case closed CSAT survey, they see their 1-2 rating decreased, while their 4-5 increased.
Here are the new scores:
Total responses: 1,000
Customers rating 4-5: 700
Customers rating 3: 200
Customers rating 1-2: 100
Their CSAT score has increased to 70%.
Let’s apply the same calculation above to the new data to see the impact of a 10% increase in their CSAT score.
100 customers who rated 1-2 (92% will churn) | 92 customers will churn |
200 customers who rated 3 (80% will churn) | 160 will churn |
Total revenue lost ($500 x 160 + 92) | $126,000 |
Total revenue that is saved by 10% increase | $46,000 ($172,000-$126,000) |
By increasing their CSAT score by just 10%, BarkTalk could have saved $46,000 per year.
If you don’t feel like doing all of this work by hand, you can use our free interactive CSAT calculator. It’ll also provide you with recommendations on how you can improve your CSAT score.
Customer retention
There is a clear correlation between customer experience and retention rates. If customers are unhappy with your brand, they’ll most likely switch to one of your competitors.
In fact, 59% of customers say they will walk away after several bad experiences and 17% will walk away after just one.
That’s why poor customer experience is costing U.S. companies $136.8 billion per year due to avoidable churn.
Aside from the obvious revenue impact, companies should care about retention for two reasons:
It’s easier to sell to existing customers than generating new business.
Loyal customers spend 67% more than new ones.
So how do you quantify the value of a CX program that increases customer retention?
This is where our favorite company, BarkTalk, comes in to demonstrate.
Let’s say that BarkTalk wants to increase customer retention by 10% by way of improving customer experience across the organization within two years.
For the sake of simplicity, let’s also assume that BarkTalk will not acquire any new customers in years 1 and 2 of this experiment.
The workflow below shows how to prove that a retention increase of 10% can result in a revenue increase of $60 million for the company.
Number of customers in year 1 | 1,000,000 |
Average revenue per customer | $1,000 |
Retention rate | 60% |
Number of customers at the start of year 2 (at 60% retention rate) | 600,000 (60% of 1,000,000) |
Number of customers at the end of year 2 (at 60% retention rate) | 360,000 (60% of 600,000) |
Number of customers at the end of year 2 if the retention rate increased by 10% | 420,000 (70% of 600,000) |
Additional revenue in year 2 due to an increase in customer retention | $60,000,000 ($1,000 x (420,000-360,000)) |
For more talking points on customer retention, check out this article.
Cross-sell and upsell
Another benefit of great customer experience is you’ll see an increase in cross-selling and upselling. If customers are satisfied with your brand, they’ll spend more on it.
Upselling refers to encouraging customers to purchase a comparable higher-end product than the one in question. On the other hand, cross-selling invites customers to buy related or complementary items.
Let’s say that the CX leader at BarkTalk wants to show how an increase in upselling and cross-selling will boost revenue by year 2 of their CX program. They also estimate that by the second year, BarkTalk will see that 10% of their total customers have made one extra purchase valuing at $500 each.
Here is how to demonstrate the impact.
Number of customers | 1,000,000 |
Average number of products per customer | 2 |
Average revenue per customer | $1,000 |
Revenue from an additional product | $500 |
Percentage of customers who will buy an additional product by year 2 | 10% |
Additional revenue from upsell/cross-sell | $50,000,000 ($500 x (10% of 1,000,000)) |
Cost-to-serve
To improve customer experience, you should optimize processes across the company to be more efficient and streamlined.
One does this by mapping out the customer’s journey, collecting data, and identifying those cost-saving areas that are also negatively impacting the experience.
So, let’s say that BarkTalk does the due diligence of mapping out its key customer experience journeys. The team then collects and analyzes the Voice of the Customer (VoC) data, and realizes that it has a big problem: 20% of the customer service emails are about a problem that could be easily resolved via customer self-service on the website.
Customer service via email accounts for a big piece of the company’s total expenditure. Therefore, it makes sense for BarkTalk’s CX team to improve the experience by providing more self-service options whilst decreasing the amount of customer service emails. Thus, substantially reducing the cost-to-service.
See below for how BarkTalk can demonstrate this return.
Number of emails sent to customer service annually | 8,000,000 |
Cost per email response | $4 |
The expected reduction in emails | 20% |
Total cost savings | $6,400,000 ($4 x (20% of 8,000,000)) |
For more on this topic, read our article: 5 Support Tools to Improve CX.
At this point, it’s good to stop and revisit the return formula from the beginning of this chapter.
Return = Benefit – Investment
We just covered how to derive the first half of this calculation. Next, to demonstrate the return of your program you’ll need to identify the assumed investment value.
But before moving on, you should compile all of your data assumptions made in this chapter into one chart. This way, you won’t lose sight of key information that will impact the return on investment.
To illustrate, we’ll use our hypothetical examples of BarkTalk.
Baseline number of customers in year 1 | 1,000,000 |
Average revenue per customer | $1,000 |
Average number of products per customer | 2 |
Average revenue from an additional product | $500 |
Baseline retention rate (no CX program) | 60% |
Retention lift | 10% |
Percentage of customers who buy one additional product per year | 10% |
Percentage of CSAT score lift | 10% |
Total number of customer service emails annually | 8,000,000 |
Average cost per email response | $4 |
Average reduction in emails peron year | 20% |
Lastly, we’ll calculate the estimate of the total benefits.
CSAT score increase | $44,000 |
Customer retention | $60,000,000 |
Cross-sell and upsell lift | $50,000,000 |
Cost-to-serve | $6,400,000 |
Total benefits | $116,444,000 |
Step 3: Determine the CX investments
Now that you know how to calculate the benefits of a successful customer experience program, you’ve got to measure how much it will cost (investment) to achieve these benefits.
To do so, you’ll need to identify the investments that are required to achieve each of your assumed benefits listed above. Each company is different, but we’ll go over a list of common investments for most enterprises.
Employee training
It’s impossible to improve customer experience without training your existing and new employees.
The type of training will vary by department. For instance, you could train the customer service team on how to use new technology and tools or re-train them on how to tackle a significant customer problem.
The Customer Success team might need to be educated on a new product or service that was created as a result of customer feedback.
And because CX is a collective effort within a company, you must take into account cross-training. Leaders on every team must understand the functions of other departments so they are better equipped to tackle a problem when it arises.
New technology and tools
You can’t scale a CX program without technology and smart tools. For some companies, this might mean upgrading their entire technology infrastructure. This could include a customer feedback and analytics solution, a CRM system, self-service channel integrations and much more.
Automation is key here. The goal is to collect, measure and act on customer data as quickly as possible. And you’ll want to make sure all stakeholders in your company have access to that data in a single dashboard, if possible.
Operational costs
Operational costs vary, but they could include re-building your website, creating new applications, or revamping your feedback program.
It also includes costs for pivoting the company toward a more customer-centric mentality, as well as reward programs like raises and bonuses.
Step 4: Calculate your total investment
Let’s pretend that the list of investments from Chapter 3 belongs to BarkTalk. The next step would be to build cost estimates for each investment and calculate the total.
The easiest approach to this is choosing the vendors or partners that the team would like to leverage and then asking for a cost estimate.
The calculation is simple. See below.
Investment | Cost |
Employee training | $10,000,000 |
New technology and tools | $5,000,000 |
Operational costs | $4,500,000 |
Total investment | $19,500,000 |
Step 5: Calculate the return on CX
Now we know both the benefits and investments, we can calculate the return of the customer experience program for our company, BarkTalk.
Here it is, the movement we’ve been waiting for…
Return = $116,446,000 – $19,500,000
Return = $96,946,000
This means that if BarkTalk’s CX program is successful, its CX team can estimate that they will receive a return of $96,946,000 by the end of year 2.
Step 6: Calculate the ROI of your program
Now we have all the data necessary to calculate the ROI of BarkTalk’s customer experience program.
We just need to fill in the placeholders of the ROI formula from Chapter 1:
Customer experience ROI % = ($$96,946,000 / $19,500,000) x 100
The calculation above results in a return on investment of 497% for BarkTalk. This proves that although CX programs take time and require a solid budget, the result is well worth it.
Conclusion
Although these steps will help you prove the worth of a successful CX program, it’s important to keep in mind that there are many elements that come into play and that this is not an exact science but a starting point.
Every CX program is different. And you’ll find that by launching and optimizing your program over time, you’ll eventually grasp the metrics and revenue impact as it pertains to your specific company.
Like many new projects, getting started tends to be the hardest part. This guide was developed to set up the first step of many in your customer experience venture. If you’re looking for more insight on launching a CX program, check out An Article on Customer Experience That Actually Makes Sense. For more CX-related resources in your inbox, sign up for our CX newsletter.
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