How to Tie CX to Revenue

Companies obsessed with customer experience (CX) enjoy lower acquisition costs, deeper customer loyalty, reduced sales cycles, higher revenues, and many more benefits than their unobsessed counterparts.

But not every company achieves rockstar status by investing in CX.

Why not?

Some companies apply CX principles too sporadically to be effective. But the main reason is most companies simply fail to rigorously measure CX.

According to Forrester Research, more than 50% of companies don’t currently tie CX activities to revenue.

CX leaders consistently demonstrate the direct relationship between their CX efforts and revenue growth. CX laggards don’t.

So, how do you tie CX activities to revenue?

  • Is there a direct correlation between CX activities and revenue growth?
  • Is your CX improving over time?
  • How does your CX compare to your direct competitors or overall industry?
  • Where are your biggest CX gaps and pain points?

Unfortunately, there isn’t a single CX measure that answers all these questions. Different instruments will answer different questions.

Let’s tackle the first and most difficult question in the above list.

What are some ways to correlate CX to revenue? There are 2 ways to go at this: top line (gross revenue) and bottom line (net revenue).

Top Line Revenue

What are the factors that make up your company’s top line revenue?

  • Market Share — Are you effectively stealing market share from competitors and are you strategically positioned against becoming a victim of customer theft?
  • Customer Lifetime Value — What’s the total average amount each customer will spend with your organization over their lifetime? Is that number going up or down?

Bottom Line Revenue

What factors eat away at your profit that can be solved with a better customer experience?

Here are 3 ideas to get you started:

  • Customer Service — How much does it cost to service unhappy customers? How long does it take to service each call?
  • Customer Churn — How often do you need to replace customers because you lose them? What’s the cost of retaining customers?
  • Employee Engagement — How much productivity is lost due to low employee engagement? (Hint: it’s not free snacks and air hockey. There’s high correlation between CX and employee engagement.)

How to measure CX

Believing CX is the right and strategic thing to do isn’t enough. There are standard metrics companies use to measure and tie CX efforts to outcomes.

Market Share

To measure the impact of CX activities on market share, there are several questions to answer:

  • Why do customers choose you and not your competitors, and vice versa?
  • Who are the CX leaders in your industry?
  • Who is improving over time? Who is falling behind?
  • What are the CX superstars doing differently?

Ways to measure market share:

There are almost endless ways to dig into market share gains or losses: talk to your sales reps, talk to customers, conduct mystery shopping, measure advocacy, social listening, etc.

To track overall CX performance in your field, I recommend the Forrester CX Index. According to their 2015 report (paid report), a one-point improvement resulted in $15MM to $175MM additional revenue, depending on the industry. Forrester writes and talks extensively how CX leaders consistently outperform CX laggards.

Customer Lifetime Value

First, calculate your customer lifetime value (CLV).

Increasing CLV doesn’t just mean optimizing retention, average order value, frequency, upsells, and cross-sells. Also consider price elasticity — the higher the perceived value, the higher the price — as a driver of CLV and an outcome of better CX.

Ways to measure CLV:

Segmentation! Which groups of customers are the most valuable and generate the most revenue? What do these groups need that you’re not currently providing?

Apply CX research methods to uncover actionable insights about your top customers.

Customer Service

Consider taking a holistic look at customer service beyond your call center or tech support, but all customer touchpoints — checkout, wayfinding, store cleanliness, employee attitude, delivery time, etc.

Ways to measure customer service:

  • Customer Effort (CES) — How much effort do customers put into completing their task?
  • Customer Satisfaction (CSAT) — How do customers rate a specific customer experience (e.g., resolving a tech support issue)?
  • Average Support Time — How long does it take to resolve a customer support interaction?
  • SUPR-Q — How does your website’s performance compare to competitors’ sites?
  • True Intent — How effectively does your website help customers complete their tasks?

This list isn’t exhaustive by any means. Your organization will have its own unique measures. For example, Zendesk tracks a “self-service score” — the number of users who solve their own issues, rather than create a support ticket.

Wait, isn’t NPS (Net Promoter Score) missing from this list? Nope. NPS doesn’t make the cut for 2 important reasons: it’s not actionable and it doesn’t measure actual customer behavior. Instead, NPS asks people to predict their future behavior — yikes.

Customer Churn

What is the percentage of customers who did not make a repeat purchase?

Ways to measure customer churn:

Divide the number of lost customers by number of active customers. Then, interview or survey recently departed customers to find out why they left.

Employee Engagement

As a big proponent of Gallup’s Q12 employee engagement survey and ongoing research, I think it’s clear that happy employees equals happier customers.

Forrester also is interested in the topic of correlating employee engagement with customer experience. Their research shows that stellar CX isn’t possible without highly engaged employees.

Ways to measure employee engagement:

If you’re not familiar with Gallup Q12, I recommend reading the methodology that went into constructing the right questions and how they connect employee engagement to revenue. (Note: requires contact information.)

Next Steps

Now that you are armed with CX metrics, the next challenge will be to prioritize them.

  • Where are the biggest fires?
  • Which opportunities have the biggest revenue upside?
  • Which ones are the easiest wins?

If you don’t have an executive CX steering committee or experience analysts, look for champions within your organization to help you connect CX metrics with top line and bottom line revenue.

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Author: Kristine Remer

Kristine Remer is an independent UX researcher & strategist in Minneapolis. Connect on Twitter @kristineremer