Intro

Understanding the return on investment for customer and employee experience is crucial for businesses looking to justify and measure their efforts. BUT, it can feel hard to quantify the impact.

In this edition, I’m going to share some quick ways to measure the value through metrics like conversion, retention, and efficiency.

Make sure to read to the end to grab a copy of my free Experience ROI Calculator, which should make it easier to get started.

Getting started

There are four primary steps to estimate the potential ROI by improving the experience for your customers or employees: 

• Step 1 - Determine the metrics you will use to measure improvements.

• Step 2 - Gather current data for these metrics to establish a baseline.

• Step 3 - Develop your hypotheses and assumptions to improve. Ideally this is based on real feedback from your customers and employees (see my last newsletter for more on that).

• Step 4 - Model the potential ROI using your hypotheses and assumptions.

Starting out, it can be tough to come up with hypotheses and assumptions. Here are a few quick examples to get you started:

• Enhancing the website experience will increase conversion by 10%.

• Improving customer support response times will reduce churn by 5%.

• Introducing personalized messaging will increase average transaction size by 15%.

• Introducing a new internal tool will save employees 5 hrs/wk at an average rate of $30/hr.

• Implementing a new training program will improve customer satisfaction by 10% and decrease employee turnover by 15%.

Three ways to estimate CX impact

Let’s go a bit deeper with some specific examples you can use to estimate the impact of investing in your customer experience (CX).

1. Incremental Sales

Enhancing your customer experience can significantly improve your ability to attract new customers. By enhancing the journey, streamlining processes, and providing exceptional service, businesses can see growth in incremental sales.

Start by estimating the additional sales generated from improved customer experience initiatives. Look at current sales conversion rates and estimate what you think a reasonable improvement is after implementing changes. Then calculate the increase in sales. For example, if a company improves its website experience, leading to a 10% increase in conversion, and gains 1,000 new customers with an average transaction value of $100, the incremental sales would be $10,000.

2. Customer Retention

A better customer experience leads to higher customer satisfaction, which reduces churn. Retaining existing customers is often more cost-effective than acquiring new ones.

Start by measuring the revenue retained by reducing customer churn. Look at the current churn rate and estimate the new rate after implementing experience improvements. Then calculate the financial impact of retaining more customers. For example, if an enhanced customer support system decreases churn by 5%, and the business has 2,000 customers with an average revenue per customer of $200, the retained revenue would be $200,000.

3. Customer Lifetime Value (CLV)

Improving customer experience can increase CLV by enhancing satisfaction and loyalty. This leads to both higher repeat purchases and reduced churn.

Start by measuring the increase in CLV by improving the customer experience. Look at the current CLV, come up with a projected increase, and calculate the financial impact. For example, if the average transaction value increases from $50 to $55, purchase frequency increases from 4 to 5 times per year, and churn rate decreases from 20% to 15%, with 1,000 customers, the incremental CLV would be $833.33.

Estimating EX impact

Now, let’s dig into some examples for estimating the impact of investing in your employee experience (EX).

Employee efficiency & productivity

Improving the employee experience can lead to improved efficiency and productivity. When employees have the tools and resources they need to perform their jobs effectively, it translates into cost savings and better service for customers. This can include reduced training time, fewer errors, and faster service delivery.

Start by assessing the time and resources saved by making it easier for employees to do their jobs. Get a baseline of the time needed to do a task today, then estimate a reasonable improvement to calculate total savings per year, per employee. For example, if implementing a new internal communication tool saves 5 hours per week for 50 employees with an average hourly rate of $30, the estimated annual savings would be $390,000.

Here’s another example. Let’s say the hours per week reduce from 40 to 35 for 100 employees with an hourly rate of $25. The estimated annual savings would be $650,000.

Wrapping Up

Investing in customer and employee experiences pays off by boosting customer acquisition, retention, and operational efficiency. This can improve both sales and savings.

By estimating the potential impact before making investments, business leaders can ensure they are making informed decisions that drive growth and profitability. Ready to take your customer experience to the next level? Start by analyzing your current processes, gathering feedback, and implementing strategic changes. Measure the results, iterate, and watch your results improve.

To help you get started, I’ve created an ROI Calculator to estimate potential savings and sales by improving the experience for your customers and employees.

Onward & upward!

Drew

P.s. If we haven’t met yet, hello! I’m Drew Burdick, a leader in Customer Experience (CX). For over 15 years I’ve worked with organizations of all sizes to enhance their CX and design solutions that drive business results. Have a question? Send me an email or reach out on LinkedIn.