The Maximum ROI of Customer Experience

The 13th part of Customer Experience series focuses on getting the maximum return on investment (ROI) from investments made on delivering customer experience.

Many are seeing a return on their CX investments that is much lower than expected. The secret to maximizing CX ROI is to create the most experience value for those customers that will create the most business value for the company (now and in the future).

Two Key Areas — CLV and CAC

There are two key areas where a great customer experience has been shown to deliver a positive return on investment:

  1. Customer lifetime value (CLV)
  • LTV is an important number because it represents an upper limit on spending to acquire new customers. It is an important element in calculating payback of advertising spent in marketing mix modeling.
  • In the book Marketing Metrics, the authors share a fascinating finding from their research:

“The probability of selling to a new prospect is 5–20%. The probability of selling to an existing customer is 60–70%.”Consumers will stick with your brand when you offer them value.

  • Higher satisfaction drives repeat business, hence higher customer lifetime value. One can build, measure, and continuously optimize the best customer engagement possible through mapping the customer journey. Repeat business is something you can measure. Next, bracket the business improvement through better customer understanding with a best-case and worst-case analysis.

2. Customer acquisition costs (CAC)

  • CAC metric is important to two parties: companies and investors. Investors can determine a company’s profitability by looking at the difference between how much money can be extracted from customers and the costs of extracting it.
  • The other party interested is the marketing specialists who use it to optimize the return on their advertising investments. In other words, if the costs to extract money from customers can be reduced, the company’s profit margin improves and it makes a larger profit.
  • Higher adoption drives referrals, hence lower customer acquisition costs. However, referrals are a side benefit, not an investment driver.

That leaves us with two hard metrics: higher adoption and higher satisfaction resulting in more repeat business. You can calculate both.

Improving Approach to CX

Companies need to improve their approach to CX in four key ways:

  1. Clearly understand the value of CX from both the business and customer perspective. In addition, marketers should look at a customer’s past and current value in order to predict its future value (also with investments).
  2. Know which customers drive the most value and what they care about. Marketers need to adopt a more precise approach that reflects both perspectives — starting with demographic segments and then adding on a value layer to create micro-segments.
  3. Invest in the moments that matter to customers. A more comprehensive view of CX value, combined with a more precise view of customer segments, will enable marketers to focus their investments where they will have the biggest impact on a customer’s overall experience.
  4. Measure the total value being created by CX investments and adjust the CX strategy accordingly. Many companies struggle to quantify the value created by their CX investments.

Enabling these four key steps will need marketers to integrate data across their ecosystems. Filling up the existent technology gaps, one then strategically design systems to enable a comprehensive customer-centric view and break down organizational silos.

(References: UserTesting, Forbes, AdageIndia)