Show me the money!
You’ve identified the key customer personas, mapped their journeys, and identified pain-points. Now it’s time to prioritize the CX improvements that’ll address the pain points, and hopefully eliminate them. You gather your team, brainstorm ideas and come up with a few proposals. The team evaluates the proposals on the basis of their business benefit(s), benefit(s) to your customer, and feasibility. You have a winner. Your design team huddles to put together a prototype. Your customers give you the much needed validation. Now it’s time to implement the idea. You are pitching it to the sponsors when the finance folks in the room interrupt the presentation. ‘Show us the money!’ they ask (translation: what is the ROI of the CX improvement project?).
Qualitative & indirect benefits
Your pitch deck includes the business benefits – measured by improvements to the non-monetory metrics like the CSAT or NPS. These are indirect benefits though since they first benefit your customers (by improving their experience through effort reduction or simplification). Over time these customer benefits lead to benefits for the business in the form on reduced churn, improvements in re-purchase rate, and thus increased revenues. But the pay back to business isn’t immediate. It is hard to quantify the business benefits for this reason. Herein lies the problem. How can you come up with a ROI based on financial metrics (in dollar terms)?
You are not alone
In a 2017 Gartner survey of the organizations that saw measurable ROI for CX improvement projects, only 12% measured ROI with a dollar value. 21% measured ROI but did not define it in dollar terms, and 25% used anecdotal or informal ROI. Is it really that hard to measure ROI for CX improvement initiatives using financial metrics? If so, why?
It is hard because CX initiatives are typically x-functional in nature with multiple departments involved. Each of these departments also have other projects going on at the same time and many of these projects use the same financial metric(s) as KPI. The CX improvement initiatives have to compete with them. It makes it harder to for them to associate & quantify their contribution to the improvement in the financial metric (and the resulting business benefit). This, coupled with the fact that the benefits are usually not direct and immediate (for the business) makes it harder to come up with the ROI.
So, can we come up with the ROI?
Yes, we can. As is the case with any other project, it ultimately comes down to picking the right (CX) metric, quantifying the benefits, and estimating the costs. For example, if you picked ‘customer satisfaction’ as the metric, the associated financial benefits could be ‘reduce service requests (support cases) by X%’ or ‘reduce cost to serve by Y%.’ Assuming that there is an established baseline for these benefits, you would then come up with the ‘best case’ and ‘worst case’ scenarios. Finally you’ll need to translate the benefits into dollar amounts for your finance folks.
To estimate the cost (of ownership) you will need to take into account the direct as well as the indirect costs. Direct costs are associated with technology – software, hardware, maintenance etc. Depending on the project there could be other forms of direct costs too. Indirect costs are internal expenses – resources (full and part-time), support cost, cost to educate/ train etc.
Once you have the dollar amounts for the benefits and costs, the ROI is simply the difference ($benefits – $costs).