How to Quantify CX ROI

Quantifying CX ROI has been a top challenge, but it’s amazingly simple when you take the right approach.

Imagine a CX issue that is chronically at the top of every CX report in Service, surveys, churn, and so on. [This example uses small numbers for Service, such as a small manufacturing business, to prove the point of huge ROI potential for your much larger costs to serve.]

• This CX issue costs 20 hours weekly for Customer Service reps
• 4 hours weekly are spent on escalations and paperwork associated with returns, refunds, etc.
• Your CX team has met with engineers who helped determine the root cause of this prevalent issue. They estimate that the root cause can be permanently stopped in 9 months by working on it together for 30 hours total per week.

What will the ROI be?

Your CX team doesn’t have access to all the data for this issue, but this past month, this issue caused these costs:

• $30K returns, $12K credits, $8K discounts, $6K loyalty incentives, $4K technologies to address it, and $80K lost sales.
• For the hours mentioned above, average salary plus fringe benefits of these people is estimated at $90K per year, which is $43 per hour.

To determine the ROI of permanently resolving this chronic issue, you calculate:

• $1.68M per year to serve this issue (sum of costs for remedies, tech, churn)
• plus $54K per year (hourly salary x hours to resolve each instance) = $1.73K
• $50.6K one-time investment to stop this issue forever (hours x salary)
• 9,708% ROI to stop this issue: [($50,625 – $1,734,000) / $1,734,000] x -100

Wow! That’s ROI that clobbers everyone over the head. It’s simple logic: of course, everyone wants to invest in stopping recurrence of this prevalent issue.

Actually, this ROI is extremely understated! The true ROI is much, much higher:

• $1.734M cost of this issue is a single year: without eradicating its root cause, $1.734M in your budget will be tied up next year, 5 years from now, etc.
• In upcoming years, this figure is likely to expand as you add more customers.
• Many other costs of this issue were not included in our quick calculation:
  • Longer sales cycle and lower conversion rate due to doubts among prospective buyers from negative word-of-mouth of customers affected by this issue.
  • Lower productivity due to ongoing internal correspondence about this issue to a lot of managers.
  • Staff burnout and turnover, etc.
• Re-allocate this $1.734M+ to high-value opportunities, and your ROI will continue to snowball (blossom) year after year.

When you quantify CX ROI, your goal is simply to inspire your audience’s response as “That can’t stand!” or “We need to act on this!”.

This is is why incomplete data, estimates, and extrapolations are perfectly fine when you quantify CX ROI. Be transparent with your audience about the source of your data and its limitations. Tell them, “These are the puzzle pieces we could readily access, for illustration purposes” and “Of course, this is the tip of the iceberg”. You’ll be amazed at how well your audience accepts your findings when you quantify CX ROI to reveal an obvious gain that was previously hidden in day-to-day operations. I learned this when I was in Strategic Planning early in my career, presenting puzzle pieces of competitor analyses, acquisition candidates, and so on. Experiment with this technique boldly yet humbly, and you’ll gain confidence in it.

Yes, some issues will require a lot more to resolve. Here’s how to be creative and accurate when you quantify CX ROI:

1. Collect customer comments associated with the issue. (or you can use operational data from ERP, CRM, etc.)
2. Rank order the quantity of comments by theme in a bar chart (Pareto).
3. Select the themes representing 80% of the total comments (80/20 rule).
4. Arrange a half-day workshop with a 6-8 representatives from different business areas to review a sampling of comments for each top theme.
5. Give the group 2 hours to read through comments (symptoms of the issue) and put sticky notes on the wall for (1) why are we allowing customers to have this symptom? (2) why are we allowing THAT? (3) why are we allowing THAT? and so on until you get to the 5th why.
6. Create a single-page action plan to address the 5th why. Typically, the 5th why is the actual root cause. When it is eradicated, the symptom will not happen anymore. Therefore, customers’ experience is free of this issue, your budgets and talent are freed-up from this issue, and doubts disappear.

I’ve used this method with many dozens of groups around the world and in every functional area. We used it a bit differently: all 50+ groups got their own correlation analysis to identify key drivers of loyalty that they affected. Every work group got their own workshop, and they each made 2 action plans. Therefore, we had 100+ CX improvement action plans underway every year. This is a glimpse of the savings we generated for customers and for ourselves:

The whole point of customer experience work is to ensure a 1-to-1 ratio between what customers expect from your value proposition and what you deliver. All CX techniques are optional. As long as you meet or exceed expectations, it’s a good experience. So, the keys are (a) understanding expectations, (b) managing expectations to be realistic, and (c) driving performance accordingly.

Your CEO has learned how to do this for the investor community. You can learn how to do it for customer experience, partner experience, and employee experience, too. It’s the key to minimizing tremendous waste and maximizing sales, productivity, creativity, and prosperity for everyone.