One of the big challenges you face when establishing a CX Program that is supposed to last is getting the funding over time. You can sell CX as a nice idea to management in the first place, because it sounds like the right thing to do, but perhaps a year passes and you may not have concrete achievements, then the funding dwindles or gets stopped completely. It is the challenge of the CX profession, ending too often as a set of one-off exercises instead of a built to last Program running in cycles that generate continuous measurable business value.
I would like to use this article to expose the CX monetization model that I believe companies should adopt in their path to become more customer centric. A CX Program that doesn’t measure each and every initiative’s outcome will quickly face organizational barriers and risk being seen at best as “a nice to have” activity or at worst as something to stop, as stated in the last Forrester research that forecasts 20% of CX Programs are at risk of closing in the coming year!
WHAT IS A RETURN ON INVESTMENT IN CX?
ROI is a generic term that is not specifically related to CX, but to any type of initiative that has on the one hand an investment in terms of resources and budget, and on the other hand, a business outcome which is mostly translated into money. It is of course possible to run an initiative without looking at the business outcome or measuring ROI, but then it risks ending at some point of time when the organization will need to make priorities and decide where to invest its energy. In the end, organizations will always prefer to put their money where it generates proven business value.
My career experience in senior management positions has taught me that you can use your organizational credentials to initiate something new, that entails monetary investment, as the Management trusts you; but if you want to progress with this initiative, you will need to eventually make sense of it in terms of income or cost effectiveness.
If you don’t want to base your CX Program on just your organizational reputation, the test would be that the ordinary employee sees value in it, that you are able to show concrete numbers and that the way the ROI is calculated has a clear explanation behind.
DEFINING BUSINESS VALUE IN CX
Value can be defined in different ways. For companies, that would mainly mean something that generates revenue, increases profitability, reduces cost or improves its brand positioning on the market. There could be also other things we could associate with value-generation, but these are the main ones that are common to most companies operating on a competitive landscape with a customer base that has freedom of choice.
When it comes to Customer Experience, the idea of generating value is no different. Senior Management doesn’t measure the initiative with a different perspective just because it is called CX.
Yes, in CX we also look at the value generated for the customer by improving their experience across the journey, but that is not something telling to a CEO. Everyone gets the idea that a happier customer is good for the business, but if this is not translated into business value it is hard to measure it versus other initiatives that are running in parallel. Remember, there are always lots of things an organization needs to do to evolve, and there is always a lack of resources, time, management attention and money to execute them.
So bottom line (pun intended), your CX Program is competing against a bunch of other initiatives led by other senior managers who all think their Program is the holy grail that will bring prosperity. If you are not present in this playground you will end up as a one-off exercise, consigned to the history books.
HOW TO MEASURE CUSTOMER EXPERIENCE ROI
It is a classic question that everyone struggles with, but I found that it is not that difficult to express an initiative in financial terms. A simple thought process backed with some data can give you the numbers. Maybe the amounts wouldn’t be 100% accurate at first, but they give an estimation that is good enough to measure the return on investment and express it in a meaningful way. They also show you what processes need to be in place in order to measure and analyze in your systems as you go.
Examples:
1/ Software company sending late renewal notifications to customers about to expire
The yearly recurring revenues are $15M. The churn rate is 5%. It is believed that 20% of the customers are leaving because their subscription expired and they cannot login anymore, so they abandon the software. This is 1% of yearly churn which is equal to $150K of revenue. Sending notifications on time will save 30% of these subscriptions = $50K of additional annual revenue.
2/ Pharma company that doesn’t provide substitute product recommendations when out of stock
Customers are performing 2,000 searches every month for products that happen to be out of stock. 25% of the products searched had substitute products, which means that 500 recommendations could have been provided. We know that average conversion of search to acquisition is 5%, meaning 500 recommendations could have resulted with 25 sales. The average cart value is $2,500, meaning a yearly income of $750,000.
3/ Bank sending credit cards with errors
5% of the cards produced by the bank contain mistakes in the name, type of card, delivery address, etc. Showing a visual preview of the card with these details to the customer, including the delivery address, will reduce the errors by 40%. The bank issues 4,000 cards every month, which means 200 cards are returned to sender. The delivery, treatment of the issue by a service agent and the reissuing of a new card costs the bank $50 per card, meaning a yearly cost saving of $100,000 + the revenue that will be generated from the transactions the customers will make while they have the correct card.
4/ Retailer not allowing the return of damaged products in-store, only through the call center
The process of returning a damaged product involves calling the service center, coordinating a pickup by one of the delivery agencies, examining the defective product in a lab, going back to the customer with the inspection results and issuing a new product back to the customer or the existing one fixed. The process costs the company $130 for every RMA case. The retailer has 300 returns every month, which means a cost of $39,000. The solution to implement service tablets in-store to allow customers to replace the product on the spot or wait for a new one that will arrive in a couple of days on-site, saves the company 40% of the cost, meaning a yearly saving of $187,200.
Through these 4 examples I wanted to illustrate the thought process behind each case, showing it is feasible to get to numbers that make sense, even if you do not go down to the small details. If you are looking for 100% accuracy you will get stuck in a complicated exercise and miss the point of focusing on execution.
Doing this type of opportunity-spotting as part of your customer journey mapping exercises not only shows the value the Program brings to the organization, but also helps transform the organizational culture to a customer-centric one, encouraging everyone to work this way.
WHAT ABOUT THE IMPLEMENTATION COST?
Measuring the ROI should take into account both the money the Program generates or the costs it saves, as well as the effort the organization will have to put in place to implement each initiative.
The costs we are looking for are the ones that are in addition to those pre-existing recurring expenses. It is this supplementary amount that should be included in the measurement, because the rest is a matter of internal prioritization.
In my experience, there is so much you can improve with the existing organizational resources before turning to extra investments, that the Program actually doesn’t add much cost. It always surprises me to see how the improvement of Customer Experience firstly enhances operational efficiency, just by focusing on real priorities to be worked on, creating better work relations between silos and generating happier customers.
So costs are definitely something to take into consideration as part of the prioritization model of the initiatives you choose to put into play, but afterwards the cost should be considered as an investment which the organization purposefully carries out.
THE ROI BOARD
A useful technique I found, that helps me keep Senior Management engaged with the CX Program, is managing a ROI board that lists all the opportunities that were ideated during the journey mapping sessions and other sources. Each opportunity shows the financial value they generate for the company (revenue generation and/or cost reduction).
This way of presenting CX initiatives is compelling to Senior Management because it speaks the business language with which they are familiar. The engagement of a manager with an initiative comes when it is understood. CX today means many things to many people, translating it to numbers turns it into something clear and comprehensible. Suddenly it all makes sense, we run a CX Program not only because we want to have happier customers, but mainly because it helps the organization reach its goals. If it was only about smiley faces the profession wouldn’t exist.
HOW CAN YOU ASSOCIATE A BUSINESS OUTCOME TO A CX INITIATIVE?
You can’t be 100% sure the results you obtained are related directly to a specific CX initiative. What I can tell you is that when you work at scale the method works, as long as you run a CX Program and that your business obtains positive results you know that you are doing something right.
To put more concrete words to strengthen this assumption, by linking every CX initiative to a business case that includes business and financial levers, it assures that you can forecast the outcomes, meaning action A à leads to Business value B. If measurement confirms that this is what happened, you have a firm point from which you can start building the rest of the model. As I said this method works at scale, so as long as you are able to prove the link and see it is working, you can be confident you are doing the right thing going forward.
SUMMARY
A return on investment is a must-have for any CX initiative that wants to last. The problem may not be encountered at the beginning of the initiative, but it’s definitely something that starts to play out as you move forward and need to show results to the organization.
I believe that people are more at ease connecting with tangible targets rather than amorphic concepts, even if they sound nice and make sense to us. The key to turning the Customer Experience activity in an organization to a centerpiece, is by translating the related activities into money. When you show the business value you bring to the whole organization, they will want to continue and invest in this activity, knowing it is a contributor to the effort everyone makes.
We know we live in an era where speed and preferences change very fast, encouraging leaders to prefer the short term over the long term. Being dynamic doesn’t mean being short sighted, if you want your CX Program to last you need to plan it as such and connect the CX metrics to the organization’s own business objectives.
Source: https://www.linkedin.com/pulse/built-last-cx-programs-focus-monetization-eytan-hattem-ccxp/