Many studies highlight relationships between financial metrics and customer experience. However, this is difficult to measure. It’s hard to quantify the return your business can expect when investing in customer experience, and perhaps even more difficult to know when and where investments in customer experience should be made. One thing is clear though: there is significant return on investment (ROI) to providing good customer service.

The return on customer experience can be equated to the benefits received from an investment minus the cost of that investment. While you may know exactly how much you’ve spent on improving your customer experience, measuring the benefits from that effort can be difficult. Beyond finding a link between customer experience and business metrics, you must account for quantitative and qualitative factors that aren’t easy to chart.

Does an increase in customer satisfaction inherently mean an increase in revenue or profit? Will it boost market share? Customer journey analytics can help draw correlations between customer experience and improvements in earnings by identifying drivers of customer satisfaction.

A McKinsey study found that “performance on journeys is substantially more strongly correlated with customer satisfaction than performance on touchpoints—and performance on journeys is significantly more strongly correlated with business outcomes such as revenue, churn, and repeat purchase.”

  • Forrester’s report “Customer Experience Drives Revenue Growth” showed that customer experience leaders achieved compound average revenue growth of 17% over five years. The CX laggards achieved just 3% growth during the same period.
  • Research by Forrester says that 84% of firms aspire to be a CX leader, but only 1 out of 5 delivers good or great CX. In addition, the amount being invested in CX will have more than tripled over the last several years.
  • Bain & Company’s analysis in 2015 showed that customer experience leaders grow revenues 4% – 8% above their market. Bain & Company’s analysis concluded that the revenue impact of improving customer experience is because the superior experience helps to earn stronger loyalty among customers, turning them into promoters who tend to buy more, stay longer and make recommendations to their friends.
  • According to the Customer Experience statistics, it can be five times more expensive to find a new customer than to keep a current one. The probability of selling to a new prospect is 5-20%, while the probability of selling to an existing customer is 60-70% according to Marketing Metrics.
  • Murphy & Murphy estimate that a 2% increase in customer retention has the same effect on profits as cutting the costs by 10%. Therefore, for many companies, the improved customer retention often provides the most obvious rationale for making customer experience improvements.
  • McKinsey research in the US showed that enhancing the customer experience can bring significant financial benefits: “Across industries, satisfied customers spend more and stay more loyal over time. In banking, customers are seven times more likely to increase their deposits and twice as likely to open an additional account if they rate a bank as excellent rather than average. Similarly, pay-TV customers who rate their provider as excellent tend to stay with it for up to twice as long as they would a provider they rate as average or below.”
  • For example, a study by Forrester Research and Watermark Consulting found that companies with high marks in their customer experience metrics had double-digit gains even during the treacherous recession years of 2007-2012. The question is, what is the ROI of customer service, and how can it be measured?

KPIs for CX Return & CX Tips

Revenue growth A great customer experience leads to happy, loyal customers with better retention rates. Among other ways they contribute to increased revenue, happy customers are less price-sensitive, more willing to entertain offers for other products and services, and are more willing to refer new customers to your business. Forrester research suggests that the revenue of CX leaders will outgrow the revenue of companies with poor CX by five to one.

Customer Retention – The quality of your customer experience has a direct impact on increasing customer retention and reducing churn. Customers are quick to move to competitors when they have a poor experience but also reward good customer experience with continued loyalty. It’s more profitable to keep an existing customer than to acquire a new one. Loyal customers returning to a company is a good indicator of profitability. Customer loyalty can be determined easily using a CRM system. Along with increasing the lifetime value of a specific customer, the benefits already discussed such as positive word of mouth advertising also ripple out here.

Cross-sell/Upsell – Besides sticking around longer, customers who are especially satisfied or delighted with their experience may purchase additional products and services.

Cost-to-ServeThe streamlined processes that result from improving customer experience can bring efficiency boosts across the board. For instance, introducing self-service options to resolve common issues would answer the most frequently asked questions more quickly and easily while simultaneously reducing load on support staff.

Expense control – Having happy customers helps keep expenses in check. For starters, they tend to have less issues and require less support. But again, this ripples out in many ways such as the free advertising and customer referrals that help your business grow without having to allocate as much money toward advertising.

Map Customer JourneysDiscover and optimize journeys in a way that matters to your customers. Good customer journey analytics software will let you draw parallels between customer interactions and business goals in seconds while artificial intelligence can reveal high-impact journeys and predict likely behavior. Such a platform would allow you to analyze buyer journeys from start to finish, providing knowledge with how to segment and engage customers.

How much does an unhappy customer cost? While it can be easy to focus on how much of a return your company can expect from investing in customer experience, note that you’re also minimizing the number of negative customer experiences that your company has to account for. Angry customers cost time and money, not least from the expense of trying to make them happy again, but also in terms of negative reviews and feedback that discourages new customers.

What Kind of Return Can be Expected?

That also depends and good customer service means different things to different industries. Having a quality customer experience results in a greater return on investment for industries such as retail or hospitality, while it may contribute less toward overall success for industries such as utilities or medical care. Returns might manifest in a few weeks or months, or it might take a year or more for certain results to show.

Research by Avanade and Sitecore reported a $3 ROI expected for every $1 invested in the customer experience, though these results are limited to participants who were decision-makers in large corporations that were responsible for digital experiences, and the reward for successful investments has been bigger than average in digital experiences.

Niche companies who target a specific audience tend to have the happiest customers, while larger companies who serve a heterogeneous group of customers tend to have average customer service because they are addressing the needs of more people, diluting the overall experience.

According to figures from American Customer Satisfaction Index and the Medallia Institute, investments in customer experience eventually trickle down to shareholders. When comparing companies with above and below-average customer satisfaction scores, the top companies saw four times the growth in value as the bottom companies over a 10 year period.

While it will require patience to see some financial benefits of quality customer experience, it’s possible to build a customer experience program that is entirely self-funded by making affordable changes that yield major results which can be recycled into further improvements.

It should also be noted that pleasing customers more than they expect isn’t generally worthwhile. Over-delighting customers quickly results in diminishing returns. Reports have suggested that failing to meet customer expectations has twice the negative impact as delighting customers has a positive impact.

The Bottom Line: Quality CX Pays Off

It’s common for companies to mention their dedication to providing quality customer experience, but it’s difficult to measure the benefits of investing in customer experience. While making improvements to customer experience generally costs money and it isn’t easy to quantify success in these areas, there’s no arguing how crucial it is for the lifelong health of a business to have strong fundamentals when it comes to customer experience.

Companies are running out of places to drive earnings and have begun to question how they can deepen relationships with customers so they stay longer, buy more and ultimately their loyalty leads to new clients through word of mouth. Expectations are increasingly on the rise and companies who can exceed at customer satisfaction will have a competitive differentiator that’s hard to match.

When improving the customer experience that your company offers, ask what matters the most to customers – what are their pain points? Start in a small way that can be used to demonstrate positive effects and that can be scaled up after being proven successful. Efforts should have short term benefits and not just long-term goals in mind.

There’s no denying that providing a quality customer experience brings a worthwhile return on investment, even if that’s often difficult to conceptualize and calculate.