Less customers can satisfy more
Prove customer satisfaction with key figures
What exactly was the ROI again?
Return on Investment -athe Business metrics par excellence. But where does this ROI come from? His name is in GermanReturn on capitalwhat no one outside of the university says.Bang for the buck one hears more often in English, so roughlyBang for the toad:
So you ask for every single euro how much return it brings, how many euros I have earned by investing the individual euro.
Let's take a closer look at the key figure in connection with customer satisfaction:
- Relevance of the ROI in marketing: In a 2010 study, 77 percent of marketing managers surveyed say ROI is a very useful metric for them.
- Company growth and CX related: Even if Customer Experience (CX) is an area in which we are often qualitatively on the move, we are also working more and more quantitatively here. Forrester Research has calculated, for example: Companies that are “experience driven” have 25% more sales growth.
- And yet: CX leaders do not always perform better in all industries. Therefore, the ROI should not be the only criterion by which you judge your CX activities. It depends on proceeding strategically, measuring correctly and communicating correctly.
And that's exactly what I'll show you below.
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Make customer satisfaction KPIs a yardstick for corporate success
The ROI is of course not the only key figure by which managers and controlling assess whether a measure was a success or a failure.
In the same way, they look at the following metrics, for example, to judge customer satisfaction:
- Number of new customers
- Customer Lifetime Value
- Number of leads
Depending on the industry and task, other key figures are added.
As a CX manager, you too can contribute essential metrics so that it becomes clear that the customer experience is crucial for the success of a company - an insight that is becoming more and more accepted.
At best, you run into open doors when you show that customer satisfaction metrics (such as NPS or CSAT) are an equal measure of corporate success. To do this, you link this with operational data such as the leads mentioned or the number of new customers.
Calculation of the ROI
Let's start at the very beginning: when calculating the ROI. This is super easy for individual measures:
ROI = (Increase in Profit - Cost) / Cost
A simple example:
In a customer survey, you find that customers don't understand how to put your product into operation. So over 50% call the service hotline. You hire a technical writer and a graphic artist and have illustrated instructions created and printed. This is included with all products delivered. Cost: 60,000 euros.
You measure again: In the next quarter, 90% fewer customers will call customer service. Increase in profit through cost savings as a result: 190,000 euros.
With a quick calculation you can determine the ROI for this measure of customer satisfaction:
(190.000 € – 60.000 €) / 60.000 € = 2,2 €
That means, for every euro you invested, you got 2.2 euros back.
Basically, the following applies to the ROI figure:
- If the ROI value is below 3 or even below 2, people who think economically are usually not satisfied - because if they invest their euros elsewhere, they may get more out of it.
- If you are over 3, you will also satisfy the controlling and skeptical colleagues.
If you are wondering where you get the basic key figures for the calculation with this supposedly simple calculation— I will go into this in the chapter "ROI Problems".
Application of the ROI
The higher up executives are in the hierarchy, the more important the ROI is to them. For example, it is often the basic key figure for the distribution of the marketing budget. Because you can spend an infinite amount of money on marketing. But you should spend the money where it has the greatest impact.
An example of how the ROI calculation has shifted a lot in the marketing budget in recent years:
Large companies often work with us todayInfluencers no longer with celebrities. This means that there are fewer million-dollar contracts for individual, well-known people such as film stars or top athletes.
For this, the marketing departments pay a lot of influencers much smaller amounts, often only a few thousand euros - or maybe they just get free products. Still, these influencers are just as well known in their circles and even more trusted than celebrities. All in all, as a company, you achieve more with less total expenditure, and the ROI of influencer marketing is higher.
As simple as the formula for ROI is, it is difficult to get the right values to use in the formula. Let's take another look at our case with the instruction manual:
In the quarter after the start of the measure, 190,000 euros less were spent on the service hotline. This statement already contains two important factors that you can turn: the time period and the savings:
- For the period: Why a quarter? If you look at half a year, the ROI is suddenly twice as high. Or you look at a whole year. Or just 2 months.
- To save: In our use case, your hotline is operated by an external company that bills according to the number of minutes worked. The calculation is not difficult. However, if the service hotline is internal, the colleagues may use the newly gained time differently:
The colleagues from customer service take more time to give the callers better advice. As a result, customers are happier and may buy more. As a result, the profit increase of your measure can be even higher.
Or colleagues may use the time saved for more coffee breaks— the measure then does not change sales at all. Or it will rise again because colleagues are less stressed and are less sick. You see, the closer you look, the more difficult it becomes.
- The cost is also not clear. In the example you spent 60,000 euros on a graphic designer, editor and printing. But what about the extra time employees need to pack the instructions?
And what about the time it took you to look after the two service providers, to organize and control the pressure?
What about the customer survey? Without it, you wouldn't have figured out that the customers could need guidance. Don't you have to consider the cost of that too?
You notice: the ROI is apparently a unique number— but its calculation for individual measures is complex, somewhat subjective and error-prone.
Among other things, the following points have been criticized:
- One-dimensional key figure: Some scientists criticize the ROI as too one-dimensional. This does not take long-term effects into account, especially not on the brand or on the environment and social aspects.
- Difficult to assign measures: In the area of customer experience and marketing, we have the problem that we can hardly measure the success of our measures in isolation. Because there are almost always parallel measures.
In our case with the instructions for the customers, it may be that the web team has improved the search function of the website. Of course, this also affects the number of calls to the service hotline. Or it may be that the hotline employees have been trained and that customers can get their problem solved with one phone call if they previously needed several. Or the product itself has been improved. Or the buyer groups have changed— there are now more technically experienced users, which also reduces the number of support cases.
Benefits of the ROI
Now, if you think ROI is too difficult to determine to be useful, you are wrong. I'll show you the problems so you know what to look out for. The ROI should always be interpreted with caution. But it can offer you valuable guidance in choosing the most promising measures.
And he can help you demonstrate the value of your work to colleagues and superiors.
It's important, thatyou Holding the strings and choosing the right values to determine the ROI. The following section will help you with this.
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Hands on: Simply determine the ROI of your customer experience measures
Which operational key figures are suitable for measuring ROI?
So how do you choose which operational metrics are appropriate for your case? You ask yourself what influence your CX activities have. So what do you even want to improve:
- Do your activities lead to more new customers? Probably not, sales and marketing measures usually have a stronger influence.
- Do your activities lead to less support effort?
- To more repeat purchases?
- To customers more purchases of additional products?
- To buy more expensive products?
Typical key figures that can be considered are:
- Sales per order
- Order frequency
- Sales per customer
- Share of returns
- Share of support requests
- Cancellation rate
- Reorder rate
- Number of recommendations (e.g. customers refer customers)
- Number of positive responses in (social) media
Which CX metrics are suitable?
You will certainly find it easier to select the key figure for measuring customer satisfaction. Typically, you'll be looking at one or more of these:
Then there are a few more likeThings Gone Wrong (TGW) or Quality of Customer Interaction (QCI). If you're already collecting such more specialized metrics, they might be good candidates to match with operational data.
If not, stick with one of the three established metrics above. In the next paragraph of this article I will stick to the Net Promoter Score, show you how to calculate the NPS and use it cleverly.
Combination of operational indicators with CX metrics
Now it gets exciting, because you relate the two selected metrics step by step.
- Step: segmenting and calculating the NPS:
In general, it is always good to segment customers according to a CX metric and then see where the differences lie in the operational business metrics.
In your last customer survey, you collected the NPS for your existing customers, 10,912 answered.
So you have your segmentation: You divide the customers into promoters, indifferents and distractors.
So you have for example:
The Net Promoter Score is:
22% promoters minus 9% distractors, i.e. 13.
- Step: Measure actual referrals:
Now you can see how often the customers actually give a recommendation. The prerequisite is, of course, that you have a “customer-recommends-customer” program (B2C), or the sales staff ask new customers who recommended them (B2B).
Then you have the necessary information and can assign it:
This is already a first success: With it you can prove that the customers who say they would recommend you, actually do so.
If you cannot prove this connection and the recommendation rates are roughly the same in all groups, then it may be that something is wrong with your measured values.
Check the collection of both operational metrics and CX metrics. Also, try to see if you are more likely to succeed with other metrics— this is usually the case.
- Step: Calculate the value of the recommendations
But you don't stop at that one number. Rather, you now calculate what the recommendations are worth:
For that you need theaverage annual sales per customer. To put it simply, you take your profit (€ 79,298,989 in our example) and divide it by the number of customers (71,281 in our case):
79,298,989 € profit / 71,281 customers = 1,112.48 €
Since you can't yet know whether the new customers will be promoters, indifferents or distractors, you take itAverage value for all of your customers. In the example, this is the 1,112.48 euros per year calculated above— so that is the value of a new customer.
Now let's assume that your CX measures are successful and you can increase the proportion of promoters to 30%. So instead of just 294 you now have 393 new customers (with a constant recommendation rate of 12%)— that's 98 more. Doesn't sound like a lot, but it does a lotadditional profit out:
98 new customers * € 1,112.48 = € 109,415.05
- Step: Calculate the ROI of the customer satisfaction measures:
Now you put the generated turnover in relation to your measures by calculating the ROI figure. For example, if your CX measures cost 25,000 euros, the ROI of this measure is:
(109.415,05 € – 25.000 €) / 25.000€ = 3,4
This is an excellent value and probably every decision maker in the company will give you the green light for such CX measures with such numbers.
Arguments thanks to historical data
What do you do if you don't want to wait that long for your CX measures to take effect or if you don't get a budget?
Then you calculate with historical data. If we stick to our use case, you take the currently determined NPS and compare it with the NPS a year ago— With this, you link sales and customer figures from today and the corresponding values a year ago.
Four CX metric mistakes to avoid
Mistake 1: ROI of CX measures as a goal
If possible, determine the ROI at the beginning of your trip. Because with it you have a tool in hand to further advance the CX with you. You have good arguments and you can make sure that you keep getting better. You can also use it to investigate in which areas of the CX it is particularly worthwhile to make improvements.
Mistake 2: whitewashing the numbers
Caution is advised at one point: CX metrics such as the NPS or the CSAT are only meaningful if they are measured correctly. They are supposed to represent customer satisfaction— if they are artificially increased it does not help.
For example, if employees prevent dissatisfied customers from answering the NPS question, then the value of the NPS increases without you having more satisfied customers. This can happen if, for example, bonus payments are linked to the net promoter score.
Mistake 3: Just look at the win
A very important point is: Don't just ask how much more sales or profit your measure will bring to increase customer satisfaction. Rather, always ask: How much does it costsaves you guys through your CX measure?
For example, if you increase the proportion of promoters, you will get more recommendations. At the same time, you probably have more sales through more frequent purchases from satisfied customers. And, here comes the savings effect: you get fewer support requests and have to put less effort into customer recovery.
An important question is always: What costs arise if youno Perform CX measures?
Mistake 4: Only that which has an ROI pays off
What is also very important to me, as important as I find metrics: They are not everything. Just because you cannot prove an ROI for a measure does not in any way mean that it is not useful, or perhaps even vital for your company.
Because what is the basis for your company's success? That you offer products that customers buy. In order to be able to develop such products, you have to know your customers well, preferably better than they themselves and definitely better than the competition.
Getting to know customers, understanding their needs and problems is something for which a profit cannot be sensibly determined. What is the ROI of interviews with users? How much profit does a customer journey map create? Something like that cannot be quantified.
Qualitative aspects are generally difficult to measure. But that does not mean that you can neglect such things.
Bonus tip: Don't take the ROI question personally
There is a risk that, as a CX manager, the question of ROI is viewed as a disregard for one's own work. If a boss asks you to quantify your contribution to the company's success, that doesn't mean that he doesn't recognize the value of your work.
Answering the question about the ROI with general studies on the benefits of CX is of little help in such a case. The supervisor is probably only concerned with how to best use the resources in the current project or company. So specifically about the individual measures.
So see such a question as an opportunity. Maybe even more jobs will be created if you convincingly demonstrate the ROI.
Conclusion: Know the ROI of your customer satisfaction measures, that helps you and others
Any measure to increase customer satisfaction is better than none. But if you can also determine the ROI for some CX measures, then this will help you to use your strength, your time and your resources optimally.
Always ask yourself: How much can I achieve with each individual CX measure? How much is the improvement that I can achieve in the best case? How important is that to the largest number of customers?
Based on this, you will have a look at which operational metrics and which CX metrics you need to measure in order to map this.
This way, you don't just gain a tool for prioritization. But at the same time you also have a way to demonstrate the value of your work and to further advance the CX in your company.
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