Customer experience leaders face a perennial problem: demonstrating how their initiatives impact the bottom line.
While evidence abounds about the value of customer experience, practitioners can struggle to demonstrate return on investment, as they face skeptical executives or limited access to relevant data. Proving the importance of customer experience can mean the difference between the practice growing its budget and headcount — or seeing cuts.
“There's so much pressure to prove some kind of value,” said Maxie Schmidt, VP and principal analyst at Forrester. “Every team has that same pressure because there's only so much budget and then companies want to have very good stock prices.”
Making the financial case for customer experience also ensures CX leaders can direct investments to the right places.
“As a customer experience leader, you should also be a steward, an adviser of sorts. You're trying to understand and to help the company decide where to put money,” Schmidt said.
Schmidt provided the example of a financial services provider facing high call volumes around mortgage affordability. Making a business case for which investments are most beneficial can mean the difference between developing an online affordability calculator or investing in more training for employees in the call center to address affordability questions.
The proven connection between customer experience and ROI
There are no shortages of studies showing the link between customer experience initiatives and return on investment.
A 2024 analysis by Watermark Consulting found that companies that provide best-in-class customer experience outperformed the S&P 500. Research by Forrester released earlier this month found that improving a company’s CX Index score by just 1 point can amount to between $38 million to $1.1 billion in annual incremental revenue depending on the industry.
These findings date back years. A 2015 Bain & Company analysis found that companies that excel in customer experience grow revenues 4% to 8% above their market.
Fred Reichheld, Bain & Company fellow and the creator of the net promoter score, has linked the metric to stock value.
“The companies, when you measure that correctly, that have the highest net promoter score in their industry are just crushing their competitors and are generating stock appreciation that is very impressive,” Reichheld said.
Bad experiences also hurt a company’s bottom line. More than half of bad experiences lead customers to cut their spending with a company, Qualtrics found. As a result, it estimated that companies risk losing $3.8 trillion globally due to poor experiences.
Why CX leaders struggle to demonstrate ROI
There is a bevy of reasons why CX leaders struggle to demonstrate value: CX practitioners don’t speak the language of the C-suite, the C-suite is skeptical of CX’s value, and practitioners don’t have the data to make the ROI connection.
CX professionals who focus on the C-suite’s goals have a better chance of getting budget approval.
“I don't think that many customer experience professionals are skilled at articulating the case for customer experience investments in a way that aligns with how top executives think about running their business,” said Jon Picoult, founder and principal of Watermark Consulting. “Many of those objectives probably relate to financial measures, whether it's profitability hurdles or market share hurdles or whatnot.”
A CX professional ought to tie an endeavor they’re trying to promote to the business objectives, whether that’s how NPS gains led to revenue growth or how new contact center technology led to cost savings, Picoult said.
Of course, CX professionals need an executive to listen. One of the biggest hurdles, largely out of CX team’s control, is C-suite skepticism, according to Picoult. “It has to do with the leaders that they're trying to influence and the biases and the inherent skepticism that those leaders harbor towards customer experience,” he said.
“There are so many instances where boards of directors and top executives at companies make investments in things that have no clear ROI,” he said. “Yet they take the leap of faith and they do it because, just in their gut, they believe that it's the right thing to do.”
Yet, CX teams are faced with the charge of showing what the future return is before budget approval.
Exacerbating that is the fact that most companies don’t measure how many customers are coming back for more and referring friends. It’s an issue Reichheld has spent his career focusing on.
“Customers that come back for more and refer their friends are the economic backbone of a healthy company, a strong company that's going to grow,” Reichheld said. “The problem that I see is that most companies don't carefully measure those vital metrics: back for more and refer your friends. And because of that, they have a really hard time connecting customer experience investments.”
How CX impacts the bottom line
There are three main ways customer experience impacts the bottom line: through revenue gains, cost savings and longevity.
Reichheld pointed to high-quality meat provider Butcher Box as an example of a business that has connected good customer service to referrals, which has boosted sales.
“Ten percent of their new business comes through referrals, and they're working on it, and now it's going up to 20%,” Reichheld said.
But for many companies, it can be notoriously hard to predict sales based on new CX initiatives.
“A lot of CX professionals get wrapped up in this idea of trying to justify CX improvements through the revenue impact,” Picoult said. “There is a revenue impact, but I think that sometimes the easier path is to try to justify CX improvements with the expense reduction that they help to trigger.”
CX professionals can make the case that developing better self-service options will lower call volumes, thus saving the company money. Or, a furniture company whose products arrive with confusing assembly instructions can make the case that if they improve the instructions, they can lower return rates, allowing customers to build their furniture with ease.
Such customer experience improvement “has nothing to do with increasing sales, but boy, it's absolutely going to have an impact on profitability, because returns cost a lot for companies,” Picoult said.
Resilience and longevity take time to prove. Customer experience that inspires increased loyalty and referrals will boost the longevity of the company, as there is always return and new business coming in. But brand leadership must be willing to wait to see the results.
Businesses that treat their customers well — whether that’s providing them with an affordable mortgage or ensuring accurate reviews — can avoid backlash.
“Resilience has a longer term effect on the bottom line,” Schmidt said. “Resilience has to do with a brand image, but also, do the regulators come knocking? What's your credit risk? Those kinds have an effect on the bottom line, but not always as direct as a customer's help you and buys more.”
