Calculating ROI Down To The Last Penny!
The importance of calculating your customer experience ROI cannot be overstated—how will you Measure, Act and Improve your customer experience efforts if you don’t know the return on your CX investments?
Despite a plethora of qualitative benefits, Customer experience leaders often face hurdles in budgetary approvals because customer experience ROI has not been forecasted or quantitatively expressed. All the time and effort spent in designing a modern, responsive customer experience program can go to waste if you are not able to articulate in numbers the value that it will bring to your organization.
The following guide will help you calculate the ROI of your CX investments down to the last penny.
Before we begin the ROI calculation, keep a calculator, Pen, Paper and the following numbers about your business handy:
- Net Revenue
- Total Number Of Customers (Annual)
- Average Number Of Products Per Customer
- Current Customer Retention Rate
- Total Number Of Calls To The Contact Centre Every Day
- Average Cost Per Call To The Contact Centre
Every industry is different, every business is different and every customer is different. With that thought in mind, we now make certain assumptions:
- Increase in the current retention rate by 10%. On a bare minimum, implementing a CEM solution and close-looping with detractors will show an increase in the retention rates of a minimum of 10%. The better the utilisation of insights, the higher the percentage goes.
- Number of customers that show an increase in the cart size = 1% (could either be through more number of products purchased or increase in the average ticket size of the purchase) This is however not an absolute value. Depending on the industry this value can range anything from 1% to 70%. Please pick the value that best suits your industry. In most cases, higher the ticket value, lower the number of customers who show an increase in the cart size.
- Average reduction in the number of call to the contact centre = 15%. These values range anything from 5% to 100%. We have seen our clients completely shut down their contact centre operations, but depending on the criticality of the contact centre operations to the business we assume a minuscule 15% reduction. If you are confident on your investment in the digital transformation initiative, feel free to get ambitious with 25% or even more.
- The total cost of technology of a CEM solution = ‘TCT’. Since it is not possible to have an absolute cost of technology (or even an estimate), we leave that as a variable. This variable can be estimated post evaluation of technology providers, internal requirements, implementation time, execution costs, so on and so forth… (You get the gist).
Calculating The Quantifiable ROI:
The final ROI of a CEM solution implementation is equal to the total inflow of funds (minus) the total outflow of funds.
ROI Of CEM Investment = Total Inflow (Minus) Total Outflow
Total Inflow Of Funds:
The total inflow of funds depends on 3 major pillars i.e. Additional revenue due to increased retention (after 1 year), Additional revenue from cross-selling & up-selling, and total savings from the reduction in calls to customer care.
- Additional revenue due to increased retention (After 1 year)
The biggest differentiator between close competitors in any industry is the overall experience and the loyalty index of customers is highly dependent on that. Listening to customers and responding to them can create a major impact on the number of repeat purchases and eventually the bottom-line revenue of the brands. Additional revenue gained due to the reduction in customer churn is calculated as:
Additional Revenue Due To Increased Retention = Increase In Current Retention Rate * Number Of Customers (Annual) * Average Revenue Per Customer
Where ‘Increase in retention rate’ is 10% as assumed above and ‘Average revenue per customer’ is the (Total revenue)/(Total Number of Customers(Annual))
- Additional Revenue from Cross-Selling & Up-Selling
A CEM Solution helps in capturing actionable insights, which eventually converts detractors to promoters and promoters to advocates. These advocates often show definitive signs of increased lifetime-value and increased cart value.
Additional Revenue From Cross-Selling & Up-Selling = Percentage Of Customers That Show An Increase In The Cart Size * Total Number Of Customers (Annual) * Average Price Of The Product/Service
In the above formula, the percentage of customers that show an increased cart size is assumed earlier in point number 2 (subject to industry-specific cases), and the average price of the product/service is calculated as (Average revenue per customer)/(Average number of products per customer).
- Total cost savings through a reduction in calls to the contact centre
Various factors such as FTEs, Technology, General Operations, Infrastructure among many others contribute to higher costs per call to the contact centre. Reduction in the number of calls can save substantial dollars for your business that you can use to grow your business. A CEM solution actually helps in reducing the number of calls while improving the customer query redressal KPIs.
Total Cost Savings Through Reduction In Calls = Percentage Of Reduction In Calls * Total Number Of Calls Per Year * Average Cost Per Call
In the above calculation, the percentage reduction in calls is assumed at 15%, and the total number of calls is calculated as the average number of calls per day * 365.
Having calculated the 3 pillars individually, the Total Inflow of Funds can be calculated as the summation of all the three pillars.
Total Inflow = Revenue Due To Increased Retention + Revenue From Cross-Selling & Up-Selling + Total Cost Savings Through Contact Centres
Total Outflow Of Funds:
The total outflow essentially is the investment on which you want to calculate the ROI. This is the investment in technology and the associated costs of project success. The total cost of technology includes the platform and technology charges based on multiple parameters and the internal costs associated with additional resources, change management, internal branding and so on… Based on our experience, the biggest and the most successful CX initiatives incur a 2x cost on success activities over the cost of the technology.
Total Outflow = 3x of Total Cost of Technology
Plug these numbers back to the original ROI equation and you have yourself an undeniable case with definite approvals for implementing CEM solutions within your organization.
While this is purely quantitative, there a plethora of qualitative benefits of implementing a CEM solution. Read all about it here!
Feeling overwhelmed with the calculations? Connect with us and we’ll do the calculations for you!