Proving ROI in CX: A step-by-step guide for practitioners

CX practitioners know that memorable experiences drive repeat business – but CFOs can be harder to convince. It means no CX project will see the light of day without hard facts and figures to get it off the ground.

Return on investment (ROI) is a foundation of business and in most cases, it is relatively straight forward to calculate. But a growing understanding of the impact and payback of CX has placed a new focus on the need to measure the return on experience-related investments, which is not quite so easy.

This guide explores how CX leaders can create a business case to secure the required budget for their investment, then prove the returns and targets achieved post-project.

Present the business case for ROI

Although customer centricity is the secret to long-term success, many companies remain locked into a financials-first attitude which relegates CX to the shadows of quarterly results.
The first step to securing budget for new projects or technology is to present a business case that clearly explains two key points:

Which business targets the project/investment will help to achieve or what problem needs to be solved.
Where and how the investment will make and/or save money. That is, how it will boost revenue and profit and how it will reduce operational and business costs.

Gabrijela Juel, general manager enterprise and government operations at TPG Telecom says: “A lot of CX initiatives are enablers of growth. But unlike product initiatives or setting up a new sales channel, with a CX initiative there is no clear one-to-one correlation on financial return.”

Juel says CX business cases can often lack detail on targets, deliverables and the financial impact on a business, whether that impact is a gain in revenue or profit, or a reduction in spending. A successful business case identifies what the business is trying to address – stronger revenue or employee retention – then demonstrates how the CX strategy or technology will deliver a solution or improvement.

“It comes down to how the CX initiatives will help the business flourish from supporting customers and preventing unnecessary customer support, to taking cost out of the business and ensuring the business remains competitive,” she adds.

Regardless of which target is in the crosshairs, all have an impact on customers and customer data is a key pillar of proving ROI.

Source customer data to support your business objectives

Whether establishing a baseline, an area for cost optimization or identifying pain points that require addressing, customer data is the north star of all CX projects. The customer data in question can include passive data from service and online channels, VOC, focus groups or NPS data, and it can all be used to create hard figures that link to wider targets.

According to Juel, there are many existing measures of experience, satisfaction and retention that can be used to explore and confirm how a project can support targets and resonate with customers.

Depending on the project, the measures to draw on can include:

Voice of the customer (VoC) is a key starting point and Juel says that to understand customers, practitioners must assess their needs and experiences across all VoC sources.
Customer lifetime value (LTV) and churn-rate data can be gathered from previous and existing customers, before being leveraged to benchmark and project or measure the impact of a CX program, as well as the operational efficiency of a business.
Customer feedback from NPS, Customer Satisfaction (CSAT) and even focus groups can be harnessed to confirm if churn and LTV issues can be solved through improvements to CX and business operations.
Customer retention is another key area for focus that can provide figures to act on. Juel says it can be useful to calculate how much the company would earn simply by retaining an additional five or 10 customers per month.
Other metrics can include Customer Effort Score (CES), first reply time and first contact resolution (FCR) rate.

Juel explains: “Look at the customer lifetime value and churn rate. A lot of the operational processes that are driving poor customer outcomes unfortunately do drive churn. Collect feedback from customers then use this data as a benchmark, from both existing customers and from those who have left.”

Secure organization-wide buy-in

While CX-related figures are widely available to practitioners, sourcing financial figures and projections requires collaboration with different teams and departments ahead of the big pitch. This in itself, however, brings an opportunity for CX leaders to bond with colleagues and secure support ahead of their pitch.

Yvette Mihelic, CX Network Advisory Board member and director of CX at John Holland Group, says that during this process it is possible to find out who your key supporters are in the organization and where objections and questions might come from.

She explains: “This gives you the opportunity to pre-empt obstacles and tackle concerns. Many concerns are about misunderstanding the true value of CX and the breadth of the value of CX in relation to your profit and loss. Tailor conversations to align with whatever motivates the person you are talking to. This will assist them in understanding the enormous value of CX.”

“Pre-empt obstacles and tackle concerns. Many concerns are about misunderstanding the true value of CX and the breadth of the value of CX in relation to your profit and loss.”

The scope of this work cannot be underestimated. Some CX practitioners are central to their organization, while others have never had a conversation with the finance team. Despite this, only CX practitioners have the deep understanding of CX that is required to explain a project’s benefits to the entire organization.

It isn’t just the finance team that these conversations must happen with. There are many other elements of budget pitching and project execution that require cross-department collaboration. For example, with IT, web development or the chief data officer. The same approach can be applied to all.

RELATED CONTENT: ROI calculators to keep your CX budget on track

Track the success of the project

Every business has its own way to track and share progress, but regardless of their reporting obligations, CX practitioners should track the success of their project from day one.

Using the benchmark LTV and NPS data outlined by Juel will provide almost real-time data that can inform the customers’ response to changes in operations, marketing, product or service.
Depending on the measurement period it could also be possible to incorporate elements of quarterly financial results, such as total customer numbers, revenue, profit and operational expenditure (opex).

In many cases it will be necessary to cross-reference for both types of figures to find correlations and show links.

Reports should be proactively shared with the relevant departments and decision makers on a frequent basis.

Find the figures to calculate ROI

At a set point in time after execution, CX leaders will be required to show the progress and impact of their project. This could be after a trial or short-term project concludes, or for longer-term and transformation projects, it could include a quarterly board meeting or annual general meeting (AGM).

When calculating ROI, Mihelic says practitioners should draw on multiple traditional and non-traditional measures to establish the financial gains and savings. These can include:

Cost savings from reduced complaints or refunds.
Projected reduction in marketing spend due to increased customer loyalty.
Reductions in employee turnover.
Reductions in costs to serve.

She says: “Be prepared to think more strategically than ever before, using multiple traditional and non-traditional measures and thinking more broadly than just customer service or sales. Having hard numbers, inclusive of trending and validated forecasting where available, also helps.”

To calculate the savings from reduced complaints or refunds, a practitioner must source and assess data from service, product and operations. In presenting the business case they will have already established:

The cost of a complaint/refund for the business, scaled from average individual cost to weekly and monthly costs.
Whether customers who make a complaint or refund return for further products or services after their complaint. If complaint or refund experiences are suspected to impact loyalty, then LTV and new customer acquisition costs should also be factored in.
The reasons for refund or complaint, as confirmed by a range of customer data.

This information has already allowed the practitioner to pinpoint the source of the additional cost and confirm where investment is required to solve the problem. The next job is to prove that decision was the right one.

Post implementation or project launch, these same figures must be resourced on a weekly or monthly basis. Over time, this data will paint a clear picture on whether or not the investment has achieved its targets.

Combine metrics to measure success

Ayelet Mendel-Girin, CX Network Advisory Board member and group head of CX for Humm Group, has a formula for demonstrating ROI, which combines three separate sets of metrics.
One set should demonstrate how CX initiatives contribute to business profitability and growth; The second should demonstrate how CX supports cost optimization; and the third should draw on an established CX metric, such as NPS.

She says: “In today's economic environment, organizations are placing stronger than ever emphasis on financial stability and resilience. This often involves implementing cost-saving measures, optimizing operational efficiency, and finding ways to increase revenue and profitability. Resources become scarce, and every team is required to showcase ROI and tangible business benefits for every initiative they propose.

“Customer experience teams are not exempt from this focus, and hence, combining business and financial metrics with the ‘pure’ CX metrics, will justify further investment in CX projects,” she adds.

Here is the formula in detail:

Metric 1

This should demonstrate how CX initiatives contribute to business profitability and growth. For instance, when redesigning a website, the team should demonstrate how it will result in higher average purchase value or better conversion rates. Other useful metrics for measuring growth include LTV, churn rate, transaction volume, and subscription growth.

Metric 2

This should demonstrate how CX supports cost optimization. Medel-Girin says organizations worldwide are increasingly focused on operational efficiency. For instance, when implementing a chatbot, the team should show how it will reduce contact volume and enable the allocation of agent resources to other, more complex tasks. Additional operational metrics include cycle time or number of bugs after the release in the Agile environment, return rates and average handling time (AHT).

Metric 3

This is where the established CX metrics come into play. To demonstrate customer perceptions and satisfaction, practitioners should turn to NPS or CSAT.

Mendel-Girin explains: “Using a combination of these metrics provides a more comprehensive view of the business benefits of CX initiatives, as they address different aspects of the customer experience and the impact on the organization's financial performance. This will help CX teams to secure the necessary budget for their projects, get cross-functional buy in and ultimately, improve customer experience.”

Can ChatGPT calculate ROI for me?

Since the end of 2022, the world has been asking ChatGPT to complete all manner of tasks from writing and research, to coding and mathematics. If you’re wondering whether ChatGPT can be used to find the return on investment of a CX project, the short answer is yes.

For example, with ChatGPT it is possible – within the limitations of an organization’s data policy – to feed customer and business stats into the model and ask it to find the trends.

It can provide a step-by-step guide to the principles of proving ROI, or it can analyze specific numbers.

For example, CX Network asked ChatGPT how to calculate the return on a chatbot investment. It’s a broad question and no figures were provided, but the response concluded: “The ROI of a chatbot investment depends on the specific goals of the implementation. By measuring the impact on cost savings, revenue, customer satisfaction, error reduction, and scalability, you can prove the ROI of a chatbot investment.”

The approach is sound, but as Juel outlined, it lacks the detail required for a CX business case. If, however, you ask ChatpGPT to find the breakeven point of a chatbot investment based on real-world figures, the answer is far more useful.

ChatGPT is not the only AI tool for the job, however. There are a number of tools that can be used to find correlations between customer data and business performance, and advances in this space are making the technology more widely available.

Quantifying CX success: 5 final tips

There is no single method by which to demonstrate the return on a CX investment, but there are many ways to quantify CX success – if practitioners know where to look and which tools to use.

1. Understand what the business is trying to achieve and the role CX can play in that achievement.

2. In the pitching and pre-project phase it is important to understand the business targets and customer demands you aim to address with the CX project. Having a clear target will make the road to it much clearer.

3. To secure budget, CX practitioners must source information and figures from colleagues across the business. During these conversations they can secure buy-in as well as budget. Doing this will paint a clearer picture of the potential gains of a project while demonstrating the true value of CX to the organization.

4. Decide how and when progress will be measured and share progress updates with all relevant stakeholders on a frequent basis, outside of the obligations to share these figures for formal reporting.

5. To calculate the ROI, use multiple traditional and non-traditional measures, including financial, operational and people-related data.

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