If you are like other CX pros, at some point in your career you’ll encounter the “money question.” Your CEO will ask you: “What’s an improvement in our customers’ experience worth in dollars and cents?” And it’s likely that you won’t have a (good enough) answer. I say that because I know that 50% of CX pros Forrester surveyed have not modeled how CX quality influences customer behavior.
To make the case for CX investments, you need a more nuanced and sophisticated understanding of how improving CX drives your firm’s revenue. So we used data from our Forrester Customer Experience Index (CX Index™) and modeled the revenue impact of improving CX. To do that, we asked three questions:
1. What is a customer’s loyalty (retention, enrichment and advocacy) worth in revenue dollars?
2. Is there a relationship between CX quality and loyalty-based revenue?
3. How does the relationship between CX and revenue potential differ by industry?
Our models gave us nuanced insights into the relationship between CX and revenue. Here are some of our discoveries:
- Advocacy loyalty is a small share of the overall revenue impact. That’s because not every recommendation will result in net new customers. For one thing, if the recipient of a recommendation is already a customer, then the recommendation is moot. Therefore, the higher a company’s market share, the lower the chance that a recommendation will reach someone who isn’t a customer already and result in a net new relationship. Additionally, the recipient must need the services that were recommended. For example, Amazon offers easy access to a broad range of products — more than 250 million in all. In contrast, Etsy offers about 40 million products, many of them “vintage goods and craft supplies.” That makes the likelihood that a customer can find something she wants on Amazon higher than on Etsy.
- CX and revenue potential don’t always move in lockstep. In some industries – like banks – the revenue upside gets progressively bigger with higher CX scores. In others – like wireless service providers – the opposite is true!
- Results and implications differ by industry. Take, for example, wireless service providers. Because revenue potential tapers off at high levels of CX, wireless service providers should improve the worst experiences instead of refining already good experiences. This should be a great incentive for most large wireless service providers, which – according to our CX Index – each have about a third of their customers who say they have very poor experiences.
What does this mean for you? If you are a CX pro trying to make the case for CX investments, you can use insights like the ones above as guidance. But to sharpen your argument, you must also:
- Size the opportunity for your brand specifically
- Give executives a timeline for when to expect revenue gains. Not all projects will deliver a CX improvement right away
- Bolster your case by adding the non-revenue benefits of improving CX – think reduced cost to serve, less pressure from regulators, etc.
- Add rigor by monitoring competitive CX moves. Benefits form improving CX only occur if you differentiate your CX from that of your competitors
- Stay alert for signs of impending disruption. Even if your firm gets away with mediocre CX because your customers are trapped, this might change faster than you think. Remember what Uber did to the taxi market. That market only now – after being disrupted – started to work on improving the experience of its customers CX)
I’d love to hear any comments you have. And if you are interested to read more, you can find a report called “Drive Revenue With Great Customer Experience, 2017” on Forrester.com that I just published with my colleagues Dylan Czarnecki and Laura Garvin Tramm.