Show Me the Money: Predicting the Return on Investment for Customer Experience

Posted On October 16, 2017
By David Nash

Most companies agree that having an exceptional customer experience is a good thing. Customer experience transformations can produce benefits such as more loyal and satisfied customers; improved sales, marketing, and service capabilities; and increased employee engagement. But, oftentimes, firms struggle to forecast and measure the true economic value of such programs. They forgo quantifying the financial benefits of improving customer experience but have obvious known costs of such initiatives.

Much of the customer experience ROI research and methodologies developed thus far only focus on the statistical relationship between customer experience and financial benefits.  But there is a solution that looks at component and initiative-specific financial benefits and cost. Building such an ROI-based value case can not only help to obtain C-level and other executive buy-in—including financial approval of such programs— but it can also demonstrate a self-funding mechanism to deliver ongoing value. Additionally, early quick wins can demonstrate value that will continue to gain buy-in and finance more impactful mediums and longer-term infrastructural and organizational investment. It allows one to respond effectively when the CEO or CFO asks, “An improved customer experience is great—but show me the money.”

 Sample CX ROI Discounted Cash Flow Chart

Strativity has a methodology, which it has used with clients, to determine the financial return on investment (ROI) for customer experience initiatives and programs using a fact-based approach. This approach forecasts estimated revenue enhancement, cost reduction, cost avoidance and labor, and other efficiencies. Furthermore, it can tie improvements in the customer journey to financial value drivers.

Sample Customer Journey-Value Driver Graphic

The objective of our approach is to determine an expected ROI framework for a portfolio of customer experience-related initiatives or transformation program. Steps include:

  • Inventorying the initiatives and components of the customer experience program, and examining the organization, process, and technology-enabling components of each.
  • Projecting the expected value drivers from a revenue enhancement, cost reduction, cost avoidance, and labor and other efficiencies perspective based upon rigorous analysis of industry knowledge and insights gained from customer journey mapping
  • Using a data and fact-based approach as well as reasonable assumptions, develop input-based calculations to forecast the financial and operational benefits from customer Some examples could include: improved cross-over/cross-sell synergies, improved retention, enabling pricing premiums, increased Customer Lifetime Value, and facilitating digital migration
  • Developing or evaluating existing cost estimates for customer experience initiatives and ongoing capabilities for organization, process, and technology transformation
  • Developing a cash flow-based ROI framework to include Net Present Value, Internal Rate of Return, or other firm-specific measurements (e.g., breakeven, EVA) for not only the duration of the transformation but also expected duration of the ongoing benefits

 

Sample ROI Roll Up

The benefits of such an approach are threefold:

  • Impactful – the ability to tie a customer experience program directly to value derived
  • Quantifiable – forecasting and measuring the financial impact, including costs/investment, benefits (revenue enhancement, cost reduction/avoidance, and labor efficiencies) as well as ROI (NPV, IRR, other)
  • Flexible – providing an input driven model that allows one to run various assumption based scenarios and sensitivities in order to optimize the value derived/ROI

Then one can respond confidently when the CFO asks, “Show me the money— from exceptional customer experience.”

Also, please join us for our webinar on Customer Experience ROI on Thursday, November 2, 2017 from 1:00 to 2:00 PM EDT, “Show Me the Money: Predicting the ROI of Customer Experience.”  Register Here

For more information on how you can predict and measure the ROI of customer experience please contact David Nash, Senior Director-Customer Strategy & Analytics, at david@strativity.com.