We know that great customer experiences lead to increased revenue. Happy customers are loyal customers, and loyal customers are more likely to share their positive experiences and recommend their favorite brands to people they know. But when it comes to making the connection between improved customer experience (CX) and revenue growth, CX pros often struggle to prove the value of their programs.
The good news is there are many ways to show the return on investment (ROI) of customer experience initiatives. With the right measurement tactics in place, a solid business case can be developed.
In this blog, we’ll discuss 16 key performance indicators (KPIs) CX professionals should be tracking to prove the ROI of customer experience initiatives.
1. Customer Lifetime Value (CLV)
Definition: CLV is a projection of the amount of revenue a single customer will generate for a business over the duration of time they remain a customer.
CLV ($) = (Avg. Sale Price per Customer × Avg. # of Times Customer Buys per Month) / Monthly Customer Churn Rate
Most businesses can agree that it’s cheaper to retain a customer than acquire a new one.
In fact, businesses with 40% repeat customers generate nearly 50% more revenue than similar businesses with 10% repeat customers.
That’s why nurturing existing customer relationships by finding ways to add value to their experiences is a critical element of increasing business revenue. In fact, improving the customer experience is said to be the best tactic for increasing customer lifetime value.
Increases in customer lifetime value lead to increased customer retention, more revenue generated per customer, and less marketing dollars spent attracting new customers.
To show the connection between revenue growth and customer experience initiatives, CX leaders need to explore the value they already have and use it as a benchmark to guide strategy by determining what tactics need to be implemented to improve customer value.
2. Customer Acquisition Cost (CAC)
Definition: CAC is the amount of money spent to acquire a new customer.
CAC ($) = Sales and Marketing Costs / # of New Customers Acquired
The most inexpensive and effective way to acquire new customers is through word-of-mouth. Delivering a great customer experience is an extremely powerful word-of-mouth tool when it comes to influencing people to try a new product or service.
A study by American Express showed that on average one happy customer could equal nine referrals for a business.
The easiest way to facilitate word-of-mouth is by making customers want to talk and share their experiences by consistently exceeding their expectations and anticipating their needs.
Take a look at Customer Acquisition Cost compared to Customer Lifetime Value. If the cost of acquisition is much higher, think about how to increase the value of the interactions that occur after a customer has been acquired, rather than the effort it takes to acquire a new one.
3. Up-Sell and Cross-Sell Rate
Definition: The percentage of people who purchase an add-on or upgrade to a product or service. An Up-Sell refers to a sale that is more expensive than the customer originally intended on purchasing, whereas a Cross-Sell refers to the sale of a different product or service to an existing customer.
Up-Sell / Cross-Sell Rate (%) = # of People Who Purchase Add-On or Upgrade / Total # of Transactions
Customers who have a better experience spend more with a company. On average, customers who have a high-quality experience are 3.6 times more likely to buy additional products and services from a brand.
4. Conversion Rate
Definition: The percentage of total visitors or prospective transactions who end up completing a sale.
Conversion Rate (%) = # of Completed Sales Transactions / Total # of Interactions Handled
When a visitor enters a brick-and-mortar retail store with the intent to purchase, but can’t find what they are looking for because the store is unorderly, or they need more information on a product but no one has offered to help, - the visitor is likely going to get frustrated and leave.
Customers want the buying experience to be easy, the more effort required on their end, the less likely they are to make a purchase.
Understanding the customer journey, identifying gaps in the customer experience, and having the right tools in place to take immediate action is critical to maintaining a healthy conversion rate.
5. Average Order Value (AOV)
Definition: AOV is the average amount a customer spends in a specific customer group when purchasing a product or service.
AOV ($) = Sales Revenue / Total # of Sales Transactions
AOV has a clear impact on the bottom line as an increase or decrease directly affects revenue and business growth. To increase AOV, businesses need to find more ways to generate valuable experiences by having a clear view of what matters most to customers.
6. Average Revenue per Customer (ARPC)
Definition: ARPC is the number of sales generated per customer during a specific period.
ARPC ($) = Sales Revenue / Total # of Customers
Similar to AOV, ARPC is a clear indicator of how much value each customer provides to a business, and how much that value is growing overtime.
7. Net Promoter Score (NPS)
Definition: NPS is a customer feedback tool that measures client satisfaction and loyalty to a brand. NPS data is gathered through a scaled survey question and measured on a scale of -100 to +100.
NPS = % of Promoters - % of Detractors
NPS is recognized worldwide as a benchmark for measuring customer experience. Companies are looking to receive a simple answer to a complex question - would you recommend our product or service?
Promoters are customers who are devoted to a brand; they are the bread and butter of a business. Passives are often happy customers but are indifferent to the products or services and less loyal than promoters. Detractors are customers who are not satisfied and will likely not remain long-term customers.
The best way to maintain a healthy NPS score is to learn about the promoters, invest in them to keep them happy and find ways to turn passives and detractors into promoters.
8. Customer Churn Rate
Definition: The percentage of customers who do not return to a company after making a purchase either by not making a repeat purchase or by canceling their service during a specific period.
Churn Rate (%) = # of Lost Customers / # of Active Customers
Customer churn can mean the percentage of customers who don’t return to a business, people who unsubsubscribe from an email list or unfollows on social media. The point is, churn is something you want to avoid as it indicates whether or not you’re meeting customer expectations.
For example, if a restaurant discontinues a popular promotion or removes an item from their menu that customers can't get enough of, churn rates will likely increase.
Monitoring the customer experience and gathering customer feedback is the best way to avoid these potentially fatal business decisions and is the key to making informed, proactive decisions, that will ultimately result in healthy customer churn.
9. Customer Retention Rate
Definition: The percentage of customers who remain with a company over a period.
Retention Rate (%) = (# of Customers at End of Period - # of Customers Acquired During Period) / Total # of Customers at Start of Period
Similar to customer churn rate, customer retention is extremely valuable for company growth. In fact, a 5% increase in customer retention can increase company revenue by 25-95%. It is still very important to drive growth through acquiring new customers, but the cost savings of building long-standing customer relationships are significant in comparison to the effort spent on acquiring new ones.
10. Customer Effort Score (CES)
Definition: CES is measured through a customer satisfaction survey to determine the amount of effort a customer required to accomplish a task. Typically measured on a defined number scale through a post-interaction survey. A CES score of 1 indicates low effort.
CES = % of Respondents Who Indicate Low Effort - % of Respondents Who Indicate High Effort
The customer effort score is a highly actionable piece of customer feedback as it provides insights into a specific event or circumstance along the customer journey.
11. Customer Satisfaction (CSAT)
Definition: CSAT is typically measured through a customer feedback survey represented on a scale of 0 to 100 percent. If the scale goes from 1 to 5, only customers who rated 4 or 5 should be included as a satisfied customer.
CSAT (%) = # of Satisfied Customers / Total # of Satisfaction Survey Responses
Measuring customer satisfaction is crucial to ensuring brand standards are aligned with customer expectations and is useful for uncovering customer pain points.
Keeping customers satisfied is the crux of achieving business success as one dissatisfied customer can lead to negative brand attention that has far greater repercussions than a happy customer.
12. Net Emotion Score (NES)
Definition: NES is the difference between positive and negative emotions associated with a product, service, or brand. Positive emotions are associated with feelings of happiness, pleasure, trust, and interest. Whereas negative emotions are associated with feelings of dissatisfaction, frustration, disappointment, and neglect.
NES = Avg. of Positive Emotions - Avg. of Negative Emotions
Measuring customer emotions and deriving business value can be difficult. But the fact is that over half of a customers experience relies on emotional values and emotions are often a key determinant of customer behavior.
For example, what drives a customer to return for a second visit to a restaurant? It is because the restaurant fulfills a basic necessity or did the customer get something more from their experience? Maybe they enjoyed the atmosphere, the people, or the food, but there are likely other elements that are not as obvious to pinpoint. These can be feelings or emotions associated with happiness, community, or trust and these feelings play a role in the decisions customers make.
The idea is to determine which emotions best reflect a brands values and represent a competitive differentiator and then use the NES to measure these emotions to determine the level of value being provided to customers.
13. Problem Resolution Time (PRT)
Definition: The average amount of interactions it takes between customer and company to resolve an issue.
PRT = Sum of All Interactions for Total Resolved Issues - Total # of Resolved Issues
60% of consumers have higher expectations for customer service now than they did just one year ago. Because of this, customer service has become a key differentiator for many companies.
Assess how many interactions are necessary to resolve a customer issue, and then compare that to the current PRT. If the amount of interactions far exceeds the appropriate amount of time, customers are likely encountering difficulty along their way.
14. First Response Time (FRT)
Definition: The average amount of time between when a customer submits a case and the time customer support responds (generally measured in minutes during business hours).
FRT = Sum of All First Response Times / Total # of Cases Resolved
50 percent of consumers give a brand only one week to respond to a question before they stop doing business with them. This is why it is critical for businesses to solve customer problems in a quick and sincere manner.
It is important to monitor this metric as a low FRT prevents problems from escalating and less time for customers to feel negatives emotions such as confusion or worry.
15. Cost per Interaction / Activity
Definition: The business cost required to process or handle a given item. Might be a call, contact, interaction, order, click, etc.
Cost per Interaction ($) = $ Invested in Each Activity (Call, Order, etc.) / Total # of Associated Activities
If the efficiency in which customer problems are handled improves, the time it takes to handle a customer problem will likely go down, and the cost associated with that interaction will also go down.
Not only is reduced cost a clear benefit to a company, but it means that the company is becoming more efficient at assisting customers, which makes customers more satisfied.
16. First Contact Resolution (FCR)
Definition: The percentage of customers whose question or request is resolved on the first attempt. Typically measured through a post-interaction survey asking the customer if their issue has been resolved.
FCR (%) = # of Resolved Incidents on First Contact / Total # of Incidents
If a customer issue is not resolved during their first attempt to receive assistance, this can lead to disappointment and potentially a lost customer. In fact, 89% of customers get frustrated because they need to repeat their issues to multiple representatives.
This is why being in touch with the customer experience, understanding their issues and problems and knowing how to address them is so important.
To gain the most ROI from customer experience, CX metrics must be used as a learning tool. When measuring the customer experience, companies should focus on the KPIs that are going to drive the most value for their businesses. Implementing an effective CX metrics program involves a lot more than defining the metrics you want to measure. CX pros need to build a program that focuses on what they want to measure, how they review those measurements, and how measurements drive action.
Is your organization looking to take their CX program to the next level? Read our blog and download our CX glossary of key terms, acronyms, and general terminology used within the customer experience industry to get started.
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