Unlocking the ROI of CX: 2023 Guide

Return on investment (ROI) is a key metric for companies to measure and determine the success of their marketing efforts. But simply marketing to a target audience doesn’t guarantee ROI. While many factors come into play, customer experience (CX) also plays an integral role. For this reason, organisations need to establish strategies to deliver ROI and CX that have synergy to ensure corporate success.

If you’ve realised that CX isn’t contributing to ROI in your organisation, now’s the time to take matters into your own hands. Unsure of how to unlock the ROI of CX? In this guide, we share all there is to know about CX ROI, how to calculate the ROI of CX, and how exceptional customer experience has a significant impact on growing a business.

Introduction to ROI of CX

ROI is a vital element in the success of any organisation. When appropriate measures are employed and organisations set a clear strategy defining ROI, outcomes are generally more successful. Still, it’s thought that approximately 80% of businesses in the UK fail to make full use of analytic measures.

In many organisations, ROI is measured by reviewing key performance indicators that outline how marketing efforts, for example, contribute to revenue. While this is important, it’s equally as vital for businesses to measure the ROI of CX. When it comes to the ROI of CX, there are multiple factors to consider, such as who the customer is and what an organisation defines as a return. Returns could include customer acquisition, retention, sales increase, and long-term customer loyalty.

What is Customer Experience (CX)?

CX refers to the experience customers have with an organisation. How well a company knows the customer’s needs, wants, and expectations and then delivers these ultimately determine CX. An organisation that understands its customers’ pain points will have more useful knowledge of how to enable a seamless transaction that starts with product research and ends with post-purchase assistance.

But that’s not all. Organisations that pride themselves on CX are more likely to have a loyal customer base, higher customer retention, competitive advantage, and greater consumer trust. In contrast, an organisation without good CX fails to achieve an ROI of CX, with a recent report published by the UK Institute of Customer Service highlighting that resolving negative customer experiences costs organisations approximately £11.4 billion each month.

Why is Calculating the ROI of CX Important?

With customers stating that they’re likely to spend more with an organisation when they receive good customer service, calculating the ROI of CX has never been more important.

Apart from providing clarity surrounding what is performing well and where improvements can be made to enhance ROI, calculating the ROI of CX is important for several reasons.

• It can ascertain any financial gains or losses upon implementing customer experience strategies in both brick-and-mortar and digital platforms.
• Calculating the ROI of CX enables customer experience and marketing teams to seek further opportunities to maximise CX.
• Establishing the ROI of CX contributes to informed financial planning and strategic decisions.

How to Calculate the ROI of CX?

With so much technical jargon to understand, learning how to calculate the ROI of CX may leave you feeling out of your depth. But that’s where we come in. Below, we share how you can calculate customer lifetime value (CLV), churn rate, cost of support, average transaction size, and average contract value to establish the ROI of your CX efforts.

Calculating Customer Lifetime Value

Customer loyalty is one of the many measures contributing to ROI for any business. It determines how often a customer returns to the business and the impact of CX on ROI. As a rule of thumb, better CX means higher ROI.

Customer loyalty contributes to customer lifetime value, or CLV, as it’s often referred to. CLV establishes how much revenue a business obtains from each customer throughout the duration of their relationship. Like customer loyalty, the greater the CX, the better the CLV. Research indicates that organisations experience a 60% increase in CLV thanks to excellent CX.

If you want to calculate CLV, here are two simple formulas you can utilise:

• Customer value (typical purchase value x purchase rate) x average customer lifespan (number of years customer makes purchases) = customer lifetime value
• Gross margin x retention rate / (1 + discount rate – retention rate).

Calculating Churn Rate

In addition to calculating CLV, calculating the churn rate is equally important. Referring to the number of customers that stop investing in a company at any given time, the churn rate enables organisations to evaluate the lost ROI of CX over a given period.

To calculate your churn rate, divide the total amount of customers lost in an agreed period by the total number of retained customers in the same period. For example, if you had a loss of 340 customers in 2022 but retained 560, your churn rate will be 0.61.

Calculating Cost of Support

Another way to establish the ROI of CX is by reviewing how much your organisation spends supporting customers. Monitoring how much you spend on providing support to customers and comparing this against revenue generated as a result can provide insight into your current ROI of CX.

Calculating Average Transaction Size

Average transaction size (ATS) demonstrates the average amount your customers spend per transaction. Like many metrics, a higher average transaction size indicates greater CX ROI.

To calculate ATS, you’ll need to divide your total revenue for a specific time frame by the number of transactions made in the same period. For example, if in 2022, your total revenue was £350,000 from 900 transactions, your ATS will be £388.89.

Calculating Average Contract Value

Last but not least is average contract value (ACV). Unlike some calculations that can be used to determine CX ROI when no contract is present, ACV is predominantly employed as a calculation tool when an organisation has a contract, such as a subscription.

Calculating ACV requires you to divide your contract value by the number of years that a contract is in place. So if a client has signed a contract for 3 years, that is worth £3,500, your ACV will be £1,166.67.

Segmenting Your Customer Base

Customers can vary a great deal, which is why segmenting your customers is vital if you’re to improve your CX ROI. In addition to enabling categorisation of customers, segmenting your customer base offers insight that can guide you when it comes to offering unique customer experiences.

Failure to segment your customer base has the potential to reduce CX ROI significantly. Jason Roos, CEO of Cirrus, says: “Organisations must segment their customer base to increase their CX ROI. Without doing so, many will find it also impossible to target customers with certain products and/or services. This will result in decreased sales, lower customer loyalty, reduced acquisition and retention, as well as poor CX ROI.”

When segmenting your customer base, consider:

• Age
• Gender
• Location
• Education
• Purchasing behaviour and history
• Income
• Profession
• Customer loyalty
• Usage.

Using Text Analytics to Review Qualitative Data

While most organisations rely heavily on quantitative data that enables them to calculate the ROI of CX, technological advances mean that this alone is not enough. Instead, organisations must consider qualitative data, such as customer feedback, to drive enhanced ROI. Thanks to artificial intelligence (AI) technology, this can be done with text analytics or conversation analytics.

As a form of AI, text analytics support organisations in understanding customer reviews and conversation history gathered from sources such as social media, email and contact centres.

Text analytics like our own provide the opportunity to unlock insights into customer data that may otherwise go overlooked. By evaluating qualitative data in this way, AI supports organisations in reviewing positive customer experiences, as well as pain points that require improvement.

In addition to offering real-time insight, text analytics has several other advantages. This software can reduce business overheads, and provide consistently accurate data, minimising the risk of error.

Another advantage of text analytics is that it makes it easier for organisations to resolve customer complaints effectively and efficiently. With data shared instantly, organisations can address issues almost immediately, contributing to the ROI of CX.

Identifying Opportunities for Maximum Impact

With an understanding of how to calculate the ROI of CX, why this is important, and how text analytics can assist you, the next step is to identify opportunities for maximum impact. To do so, you’ll need to review data previously gathered that highlights customer data through the methods outlined above.

Reviewing this data will offer insights into areas for improvement, such as providing extra support to customers when they need it to increase competitive advantage. It’ll also enable you to ascertain what you’re doing well and how you can continue serving customers for long-term CX ROI.

Customer Experience ROI Example

As customer needs change, brands across the globe have adopted strategies to enhance customer experience ROI. One of the most popular transport platforms, Uber has seen a significant boost to revenue, making £3.4 billion in profit in 2022 in the UK.

By making it easy to book and offering real-time insight into the location of cars in the local area, waiting times, and prices, customers aren’t left guessing how much their fares will be, nor how long they’ll have to wait.

Growing A Business With Customer Experience

With more than 80% of customers saying great service is one of the most important aspects of making buying decisions, CX has the ability to contribute significantly to business growth. Businesses hoping to grow in the next few years must prioritise strategies that contribute to CX to generate ROI. This will not only increase customer loyalty but boost profits and customer acquisition.

Without exceptional CX, businesses risk losing customers to competitors, resulting in lower ROI and potential cash flow problems. To avoid this, using an ROI of CX calculator like our own can assist you.

Conclusion

If you’re ready to take your ROI of CX to the next level, it’s time to invest in AI features that can support you in doing just that. With our conversation analytics solutions for contact centres, you’ll better understand what your customers are saying, what they need, and their pain points. But don’t just take our word for it. Try it yourself by requesting a live demo with us today.