Marketing ROI

 

Alexey Cherkasov

It is known that the main goal of business is to make a profit. If there is no profit, the company will not be able to continue its existence. An entrepreneur must pay for labor, purchase resources, invest in promotion, provide equipment, spend money on logistics services, and much more. If you do not invest in your business, you are unlikely to get the expected result.

But despite the need for expenses, you should analyze them. We can’t just spend money and think that we did everything right, so rarely anyone adheres to such tactics. Therefore, it is necessary to track your costs and their effectiveness in order to understand what profit you will get in the future from this, how much your actions have justified themselves. Perhaps you are doing something wrong and you should think about the fact that you need to change something to get, as well as increase income. For this, the business uses the term Return on investment (abbreviated ROI).

ROI

Different formulas can be used to calculate the ROI, depending on the goals set. One of the most common formulas is the following:

Since this indicator is calculated for a certain period of time, you can add this additional value to the formula, then it will look like this:

The value can be either positive or negative. If the ROI is > 0%, then the company earns. If the ROI is <= 0%, then the company is at a loss.

ROI is used for various business lines. Today we will talk about ROI in marketing or, as it is called, ROMI (Return On Marketing Investment). Marketing ROI or ROMI shows how effective your investments in marketing activities were: marketing events, advertising, the use of individual tools, and so on. There is no single formula for success in marketing.

What works for the B2C sector is not always applicable for B2B, what is good for one enterprise in B2B will not necessarily become profitable for another, even if they produce a similar product or service. Any subtleties are important here. If 20-30 years ago marketers used some tools to attract attention and promote, now with the widespread development and use of digital technologies and the Internet, tools have adapted to a different approach, and completely new ones have appeared.

Therefore, in marketing, it is always necessary to try, try and try again. But, unfortunately, marketers do not have unlimited monetary resources for this, so they need to defend their projects, they must be responsible to the top management. And most managers are used to trust the numbers and make decisions based on them. You can show these figures using ROMI.

Marketing ROI (ROMI)

So, based on the formula by which the ROI is calculated, you can make a formula for Marketing ROI. It will look like this:

It is worth noting that for marketing, this indicator is not always easy to calculate. This is due to the fact that marketing uses a multi-channel approach, that is, to sell one type of product, it uses several types of promotion channels that have different payback periods. So you will most likely see the result of the activity from content marketing, not earlier than in six months, and maybe even later. Therefore, this formula should be adjusted to your business, and not to adjust the business to the formula, for example, you can calculate indicators for a separate type of channel or combine several channels with similar indicators.

Let’s try to figure it out with an example.

Internet Promotion ROI

Let’s imagine that Marketing Psycho is a company that produces power semiconductor devices. We need to calculate the ROMI for Internet product promotion, and we have a huge marketing budget to carry that out. To begin with, we will draw up an annual action plan and a budget for it.

Description	Approximate cost, USD.
Internet promotion
Placement of a banner on the website of industrial magazines	80 000
Placement of a banner on industrial portals	200 000
E-mail marketing	142 000
Targeted advertising in professional social networks	400 000
Total	822 000

First of all, it is necessary to count the effectiveness of banner advertising. To calculate it, you need to use an indicator such as CTR. CTR (click-through rate) is the ratio of the total number of clicks to the total number of impressions and multiplied by 100 %.

Marketing Psycho company has information that for the selected industrial portals, the average number of home page views is about 370,000 per month, that is, 4,440,000 per year. At the same time, based on research data, the minimum CTR indicator for the B2B market is 0.17%.

Thus, we get that during the year of placement of banner advertising, 7548 representatives of industrial companies will be interested in the products of Marketing Psycho (they will click on the banner). Also, taking into account the fact that the conversion rate for banner advertising on the B2B market is about 2.8%, we get that Marketing Psycho will have 211 potential consumers ready to place an order for the year due to this marketing event.

Let’s consider that the average cost per unit of Marketing Psycho products sold over the past year is $ 4,260. As a result, even if you place an order for just one product, the sales amount will be $ 898,860:

Sales amount = 211*$ 4,260= $ 898,860

Over the past year, the average marginal profit of the company’s products was about 50%, which indicates that $ 280,000 invested in banner advertising will bring the company $ 449,430 in profit. This indicates that banner advertising will be effective.

Next, let’s move on to E-mail Marketing, here you also need to take into account the conversion rate.

According to a research company in the field of E-mail Marketing, the conversion rate for industrial production companies is about 2%.

The potential customer base of Marketing Psycho is about 5,000 enterprises, which makes it possible to count on 100 future customers of the company. With a minimum unit order of $ 4,260, the total sales amount will be $ 426,000, and the total profit will be $ 213,000 with an investment in a marketing channel of $ 142,000.

Thus, E-Mail Marketing, as well as banner advertising, will be a justified choice in the company’s marketing plan.

To predict the effectiveness of targeted advertising in professional social networks, it is necessary to analyze data on the conversion of this channel for attracting customers. Based on the data of an agency specialized in this field, the minimum conversion rate of targeted advertising in professional social media is 10%, and the maximum is 20-30%.

For Marketing Psycho with a budget of $ 400,000, the approximate audience coverage will be about 500,000 employees from 2000 companies, potential consumers of power semiconductor devices.

With the lowest conversion rate, the company can count on 200 customers, and with an average of 400. With a minimum order, the sales amount will be from $ 852,000 to $ 1,704,000, and the profit will be from $ 426,000 to $ 852,000 with an investment of $ 400,000. Based on the data obtained, the inclusion of targeted advertising in the marketing plan is justified.

To confirm the effectiveness of the proposed marketing activities, we will use the Marketing ROI calculation formula.

The total minimum revenue of the company for the selected marketing activities will be $ 1,088,430 at a cost of $ 822,000. Then, substituting the data into our formula, we get:

That is, ROMI = 32.4%, which is more than 0%, so investing in marketing for Marketing Psycho company will bring profit.

The numbers provided were fictional so you can understand the method. You can try to calculate Marketing ROI using your own data for various marketing channels.

And keep in mind that every theory has to be tested and verified. It concerns marketing activities as well.

https://www.marketing-psycho.com/

How to calculate the ROI of lead nurturing

 

ROI of lead nurturing

Lead nurturing helps you build a relationship with potential customers and accelerate their buying journey. By staying in touch regularly, you ensure that your brand comes to mind when they’re ready to buy.

Most marketing leads never convert into customers. Lack of lead nurturing is the most common cause of this poor performance.

How to Calculate the ROI of Lead Nurturing

Lead nurturing has many benefits:

• Accelerating your sales cycle
• Educating people who want to learn more but aren’t ready to buy
• Growing your revenue by reactivating cold leads and creating new sales opportunities
• Increasing awareness for your brand or product
• Increasing lead-to-customer conversion rates
• Generating more qualified leads, while driving down cost
• Despite these benefits, optimizing your first nurture journey can take some time. That’s why it’s important to start with a quantified return-on-investment (ROI) goal, against which you can measure your success.

The two main drivers of calculating expected ROI from lead nurturing are your lead-to-customer conversion rate and your average sales price (ASP).

You’ll want to forecast ROI separately for nurturing new leads and reactivating stale leads.

Calculate the ROI of nurturing new leads

The ROI of lead nurturing comes from the revenue generated from nurtured leads, compared to those who are not nurtured.

How to calculate the ROI of nurturing new leads

Calculate your current monthly revenue from new leads

Take the number of new leads you bring in each month. Multiply that number by the rate at which you convert them (currently), and then multiply that by the average amount each customer spends. It looks like this:

New Leads x Current Conversion Rate x Current ASP = Monthly Revenue from New Leads

For example, if your baseline lead-to-customer conversion rate is 10%, and you attract 500 new leads a month, that’s 50 new customers each month. With an ASP of $100 per customer, that converts to $5,000 in new revenue for that month.

Calculate the new monthly revenue generated from nurtured leads

When done well, lead nurturing should increase your conversion rate by at least 25% and your ASP by 40%.

New Leads x Increased Conversion Rate x Increased ASP = Monthly Revenue from New Nurtured Leads

Using the above example, lead nurturing should increase our conversion rate from 10% to 12.5% and our ASP from $100 to $140. If 12.5% of 500 leads convert, that’s an additional 12.5 customers for that month. At an ASP of $140 per customer, that’s $8,750 in surplus revenue.

Calculate the difference between the two

Take your estimated monthly revenue after nurture and subtract the monthly revenue you currently generate from new leads each month. The difference is your predicted lead nurturing return on investment.

In our example, we subtract $5,000 (monthly revenue from new leads) from $8,650 (monthly revenue from new nurtured leads): $8,650 – $5,000 = $3,750

Lead nurturing gives us an extra $3,750 dollars per month or $45,000 in incremental revenue per year. That’s a 75% increase in total revenue just through effective nurturing of new leads.

Calculate the ROI of reactivating old leads

What about the costly leads that are sitting idle in your database? They clearly had a relevant need or interest in your solution in the past. Yet, apart from sending them occasional newsletters, they likely haven’t heard from you in months (or even years). If you aren’t actively nurturing these leads, you’re leaving money on the table.

How to calculate the ROI of reactivating stale leads

The ROI of reactivating old leads is relatively simple. It’s the revenue that you generate from stale leads in your database, who otherwise wouldn’t have converted. Let’s walk through it.

Estimate how many leads you’ll re-engage each year

Armed with a solid nurture journey, you can conservatively expect to reactivate 2-5% of your contact database.

Let’s say you’re sitting on 50,000 cold leads. If you can reactivate just 2% of those, that’s an additional 1,000 leads per year.

Calculate how many of these leads will convert into new customers.

It may take longer for these leads to surface, but when they do, they’re likely further along in the buyer’s journey — leading to higher conversion rates. It’s safe to estimate that your nurtured leads will convert at three times your baseline.

Continuing with the example above, our conversion rate for these leads would be 30%, three times more than the 10% conversion rate we see with new leads. That’s an additional 300 customers per year.

Now multiply those new customers by the ASP

Remember: Nurtured leads spend about 40% more than new leads. With an ASP of $140, those 300 customers contribute $42,000 in additional revenue per year: 1,000 (reactivated leads) X .3 (conversion rate) X 140 (ASP) = $42,000 (revenue from reactivated revenue).

The potential ROI of lead nurturing

In the examples above, we’ve shown how a company that generates 500 leads per month, with an ASP of $100, and 50,000 contacts in their database, can generate $87,000 in revenue each year from new and reactivated leads through lead nurturing.

While this is a terrific result by itself, a less tangible (but equally valuable) outcome is that you’ve educated your customers. And nurtured leads that become customers are your best customers. They tend to extract more value from your product, purchase more often, spend more, stay customers for longer, and drive more referrals.

If you haven’t done any nurturing in the past, you’ll likely see an initial spike in reactivated leads when you launch your first journey. As new leads go cold, you’ll have an ever-growing base of cold leads to reactivate — meaning the ROI of nurturing cold leads is an ongoing process.

https://bit.ly/3mi3GO8

Формула ROI: как считать и использовать в маркетинге

 

Ольга Каптиева

ROI 120% — это хорошо или плохо? На что влияет эта метрика и что делать после подсчетов? Как показатель ROI связан с прибылью и как её увеличить, учитывая эту метрику?

ROI — один из важных маркетинговых показателей наряду с LTV, CAC и NPS, поэтому подобными вопросами задаются многие предприниматели. Давайте разберёмся, как ROI помогает оценивать эффективность маркетинговых каналов и как правильно его применять, чтобы добиться успеха.

Что такое ROI

Показатель ROI (Return on Investment, возврат инвестиций) — это коэффициент рентабельности инвестиций. Простыми словами — окупаемости вложений. Этот показатель демонстрирует, насколько выгодным или невыгодным является проект или продукт.

Под инвестициями понимается вклад непосредственно в бизнес, то есть расходы на зарплаты сотрудников, аренду помещения, маркетинг, закупку сырья и материалов, покупку ПО и сервисы, необходимые для работы.

Расчет ROI необходим, когда вы хотите узнать, в каком объеме возвращаются средства, вложенные в команду, проект или рекламную кампанию. Этот показатель часто применяют для подсчета окупаемости разных видов рекламы: контекстная или баннерная, таргет в социальных сетях, раздача листовок, реклама в лифтах. Именно ROI позволяет узнать рентабельность вложений.

Пример:
Мы занимаемся производством шампуней и хотим узнать, насколько были эффективны затраты на рекламную кампанию в Facebook. В этом случае нам поможет расчет ROI: мы узнаем, насколько окупились вложения в рекламу вместе с тратами на изготовление шампуней.

Зачем считать ROI

Расчет ROI помогает принимать управленческие решения и избегать дорогостоящих ошибок, а также определять рентабельность проектов. Поэтому ROI — это одна из основных формул, с помощью которой можно сформировать направление развития бизнеса и решить, куда двигаться компании, чтобы не прогореть.

ROI, ROMI, ROAS — в чем отличия

ROI часто путают с ROMI, ROMI — с ROAS, и наоборот. Давайте разберемся, в чем главные отличия этих показателей.

ROI (Return on Investment) — это коэффициент окупаемости или же показатель возврата всех инвестиций. Этот показатель помогает определить, насколько выгоден весь проект с учетом всех вложений в него. Чтобы определить ROI, необходимо учесть все затраты на проект и доходы с него.

ROMI (Return on Marketing Investment) — показатель возврата маркетинговых инвестиций. ROMI чаще всего путают с ROI. Если ROI помогает определить возврат всех инвестиций, то ROMI учитывает только маркетинговые затраты: рекламный бюджет, полиграфию, аренду билбордов, — но не включает затраты на производство товара.

ROAS (Return on Advertising Spend) — коэффициент окупаемости затрат на рекламу. ROAS учитывает только маркетинговые траты на конкретную рекламную кампанию. Основная задача расчета — выяснить получает ли компания прибыль от используемых рекламных инструментов.

Формула расчета ROI

Существует масса разных формул ROI. Самая простая и эффективная формула следующая:

Доход — это все средства, которые получила компания за определенный период времени. Расход — это издержки и инвестиции. Если считаем коэффициент ROI для конкретного проекта, берем доход только от него. В расход включаем затраты непосредственно на этот же проект. Результаты расчетов выражаются в процентах.

ROI — это мера разницы между доходами и расходами. Как только меняется один показатель, меняется вся пропорция.

Пример:
Представим, что у вас магазин hand-made керамики. Вы только запустились, сделали красивый сайт.

Онлайн-магазин благотворительного проекта «Истории марты». Вся выручка с продажи кружек идет на помощь приюту для собак

Предположим, что у вас похожий ассортимент

Далее вы решили настроить рекламу, чтобы привлечь первых клиентов.

Вот что получилось:

Давайте разберем каждую кампанию подробно.

Начнем с чашек ручной работы.

Вы потратили на рекламу чашек 5740 р. и продали 8 чашек по 800 р. Себестоимость чашки — 300р.

ROI = (8*800 — 3530) / 3530 * 100% = 81%

ROI кампании с чашками — 81%

Рекламная кампания чашек убыточна.

По той же схеме считаем ROI кампаний для блюдечек.

ROI = (6*550 — 2760) / 2760 * 100% = 20%

ROI кампании с блюдечками — 20%

Рекламная кампания блюдечек убыточная, отключаем её.

И наконец посчитаем ROI для цветочных горшков.

ROI = (10*1500 — 5280) / 5280 * 100% = 184%

ROI кампании с горшками — 184%

Цветочные горшки рулят, и кампания полностью окупилась. Но все ли так хорошо, как кажется?

Какой показатель ROI — хороший?

ROI — это ratio-метрика, которая не показательна в отрыве от контекста. Потому что вы можете получить большой ROI при маленькой прибыли предприятия. Без знания реального дохода и расхода опираясь только на ROI, нельзя сказать, что вы получаете максимум прибыли.

Если вы реализуете столько товара, сколько возможно, и получаете максимум прибыли (мы не учитываем повышение цен), то настало время максимально оптимизировать каналы и повышать показатель ROI. Если нет, сначала нужно достичь этой точки максимума, то есть вкладывать в расширение рынка сбыта. Соответственно, больше денег тратить на рекламу и немного снижать ROI.

Возьмем ситуацию для примера.

У нас есть две кампании. Товар одинаковый — например, те же чашки. В первом случае ROI намного больше — 105%. Казалось бы, эта кампания успешнее. Но благодаря второй кампании реализовано больше единиц товара и прибыль почти в два раза больше.

Предположим, что максимум цветочных горшков, который вы можете произвести при нынешних мощностях за месяц, — 50. Но при этом продать столько вы не сможете, и товар будет лежать на складе. Вы можете инвестировать в рекламу больше и больше до тех пор, пока не будете продавать эти 50 горшков, при условии, что ROI > 100% и кампании не убыточные. Как только вы достигли этого максимума, можно оптимизировать расходы на рекламу и увеличивать ROI.

Когда считать ROI?

Нужно понимать, что ROI — это метрика, непосредственно указывающая на действие. Такие метрики еще называют actionable metrics. Бывают метрики, на которые можно посмотреть и порадоваться или наоборот расстроиться, но они не показывают, что конкретно не так и что стоит изменить (например, churn rate или количество подписчиков). Actionable метрики показывают, что конкретно нужно изменить.

ROI — это не формула конверсии, его не считают в фоновом режиме. ROI считают тогда, когда нужно принять какое-то управленческое решение. Например, если нужно выбрать, закупить ли оборудование или сырье, убрать или оставить рекламный канал, зарезать программу лояльности или дать ей право на существование.

При расчете нужно взять такой период времени, когда ничего глобально не менялось в рекламной кампании, способе распространения или производства.

Как рассчитать ROI: в Excel или онлайн?

При подсчете коэффициента ROI есть вероятность запутаться или не учесть важные показатели. Чтобы ничего не упустить и потратить минимум времени на вычисления, существует несколько способов рассчитать ROI автоматически: с помощью таблиц excel или специальных сервисов для расчета.

Checkroi — позволяет рассчитать не только ROI, но и другие маркетинговые показатели.

Ciox — стандартный калькулятор со всеми необходимыми переменными.

Отличие ROI от ДРР

ДРР — доля рекламных расходов или CRR (Cost Revenue Ratio). ДРР схожа с ROAS и показывает отношение затрат на рекламу к прибыли с неё. Расчет формулы помогает определить, сколько процентов от полученного дохода составляют расходы траты на рекламную кампанию.

Формула расчета ДРР:

ДРР = Затраты на рекламу/Прибыль с рекламы * 100%

Вернёмся к кружкам. Мы потратили на рекламу чашек 5740, а заработали на ней — 6400 (8 кружек по 800 рублей).

ДРР чашек: 5740 / 6400 * 100% = 89,6%

Это означает, что мы тратим 89,6% от полученного дохода с продажи чашек на их рекламу.

Показатель ДРР, в отличие от ROI, позволяет определить долю рекламных расходов от выручки с них. С помощью этого показателя мы также можем сделать выводы о рентабельности проекта или рекламной кампании. ДРР не должен быть выше 100%, иначе рекламная компания будет считаться убыточной.

Я посчитал ROI. Что дальше?

Если речь о платной рекламе — корректировать рекламные кампании, отключать неэффективные, уменьшить или увеличить бюджет на рекламу, чтобы расширять рынок сбыта без неэффективных затрат.

Если мы говорим о других расходах — проанализировать, за счет чего можно увеличить эффективность или наоборот, на что еще стоит потратить.

Экспериментируйте. Тестируйте новые идеи. Запускайте новые кампании. Корректируйте курс, как только увидите, что движетесь не в ту сторону.

Главная ценность ROI — в том, что своевременный расчет этой формулы позволяет делать дешевые ошибки. Так что совершайте ошибки, чтобы научиться и найти верный путь.

Самые частые вопросы — подводим итоги

Что такое ROI?

Показатель ROI — доход от вложений или, другими словами, возврат инвестиций в бизнес. Расчет ROI необходим, когда нам нужно узнать прибыльность проекта или оценить эффективность работы команды. Расходы на зарплаты сотрудников, аренда помещения, закупка сырья и материалов, покупка ПО и подписка на сервисы, необходимые для работы, — всё это инвестиции в бизнес, которые нужно учитывать в расчётах.

Как считать ROI?

Если считаем ROI для рекламной кампании или проекта, берем доход только от этих проектов. В расход включаем затраты непосредственно на тот проект/кампанию, окупаемость которой вы хотите рассчитать. Если мы считаем рентабельность маркетинговой кампании,то есть ROMI, то включаем затраты только на эту кампанию — например, на полиграфию и аренду билбордов, — но не включаем затраты на производство товара.

Результаты расчетов выражаются в процентах.

Формула расчета ROI

https://bit.ly/3tM5tN2

Customer Experience Planning: Do This, Not That

The annual planning cycle is an opportunity to review pluses and minuses in what’s currently in play, take a look at what’s new, and request resources to take your customer experience performance to the next level in the new year. And it’s more than that: it’s the time when you should step back and assess alignment. Make sure your approaches are aligned with what customers want, and make sure your strategy is aligned with your enterprise objectives. Be courageous to scale back or drop anything that is out of alignment. Be brutally honest in your assessment of what is helping customers help you.

In the spirit of the best-selling eating guide — Eat This, Not That — which spells out popular misconceptions about sensible choices, here are 3 recommendations for your customer experience planning: (1) Drive significant change in order to drive significant ROI, (2) Align methodologies with what customers want, and (3) Expand shared vision for customer experience excellence enterprise-wide and beyond.

1) Drive significant change in order to drive significant ROI: most customer experience efforts start out with a technology buy, taking cues from vendors about what customer experience management entails. In truth, it boils down to making your company irresistible to customers and prospects. That can’t happen by virtue of asking more questions, incenting more purchases, enticing referrals, and other typical customer experience management practices. And it can’t happen one survey respondent at a time, or through one department’s actions at a time. Making your company irresistible to customers and prospects requires significant change. Plan for it in your new year.

DO THIS: put the majority of your effort into cross-functional collaboration that will align processes, policies, and culture with customers’ well-being.

NOT THAT: over-invest in customer listening and engagement when you haven’t yet resolved what customers have told you to fix.

2) Align methodologies with what customers want: ease of doing business, robust solutions, and good all-round value while achieving their business/life needs. It’s ironic that most customer experience management techniques are far removed from this list: they may come across as invasive, remedial, ill-timed, self-serving, or illogical. Nobody thinks when they buy something: I hope I’ll enjoy the survey they send me, or the 800-number call I would prefer to never have to make, or the offers to engage me in downloading stuff and participating in social media with them. Yet, for customer experience professionals, those things are typically what we eat, drink and sleep.

Minimize invasion by making it easy for customers to give you feedback whenever and however they want, and by requesting specific feedback only as often as you make change happen. Minimize remedial, ill-timed, self-serving, and illogical methods by focusing on becoming preferred, not just referred. Preferred companies earn that status through trust-building, doing things right the first time and every time, giving the customer a hand-in-glove feeling of “right fit” for them. Human nature takes the path of least resistance and rewards “right fit”. Plan for it in your new year.

DO THIS: focus on doing things “for” customers to earn their long-term confidence (i.e. do things “to” your company that better serve customers’ well-being).

NOT THAT: over-rely on customer experience management technologies or over-rely on doing things “to” customers (i.e. getting them to do things “for” you).

3) Expand shared vision for customer experience excellence enterprise-wide and beyond: it not only “takes a village”, but also requires upstream prevention of issues for customers and front-line staff — the most awesome customer experiences are hassle-free. And that means every functional area and every managerial level plays a role. Nobody is excused from having a ripple effect on customer experience.

Think of customer experience excellence as a managerial context, just like stewardship of people and resources is a universal managerial context. This outlook alone will get you more mileage than you ever dreamed toward becoming a preferred, irresistible company. Plan for it in your new year.

DO THIS: ask every member of the C-team to specify their contribution to customer experience excellence goals, and weave customer experience insights into everything the company does.

NOT THAT: assume the C-team is fully engaged, relinquish customer experience management to certain people, build silos into the way customer experience is managed, or allow any process or ritual to operate without a customer experience context.

Carpe diem! Seize the day for turning a new leaf in the business results your customer experience management efforts produce. This is not a plug-and-play endeavor. It’s not an assignment that a critical few can pull off. It’s not about manipulation or enticement. Customer experience excellence is a way of life. Embed it in your company through-and-through for maximum profitable growth.

Notes:

1. Customer Experience Strategy is one of the six domains in the body of knowledge advocated by the Customer Experience Professionals Association (CXPA). (ClearAction offers a CXPA officially Authorized Resource & Training CCXP Exam Prep Course.)

2. The concept of “Do This, Not That” is borrowed from the popular book “Eat This, Not That“, where the weaknesses of common practices and myths are brought to light and sensible replacements are recommended.

3. Other articles in this series:

• Customer Experience Governance, Do This, Not That
• B2B Customer Experience: Do This, Not That
• Customer Experience Strategy: Do This, Not That
• Customer-Centered Culture: Do This, Not That
• Voice of the Customer: Do This, Not That
• Customer Journey Maps: Do This, Not That

https://goo.gl/eZwnjc

Enabling Customer Experience ROI

by Lynn Hunsaker

Overview

A recent Forrester study of customer experience (CX) found that 90 percent of respondents claimed it is a top strategic priority for their firm. However, a surprising 86 percent said their companies do not expect to get much value, or return on investment, from CX.

Statistics showing that modest increases in customer retention result in lower sales costs and higher revenue have been well-known for 25 years. More recent studies illustrate similar business results for leaders versus laggards in CX performance. So why is it so hard for a company to show conclusive evidence of ROI?

Culprits of this predicament include the silo treatment of CX management, limited to a single function such as customer service or marketing; by definition, a silo is only part of the full customer experience, so it is difficult to attribute customer behavior to a silo program. Another culprit is over-emphasis on immediate revenue opportunities without sufficient attention to long-term gains or cost opportunities.

ROI has a numerator and a denominator: The numerator is revenue and the denominator is cost. Revenue divided by cost produces your return on investment. Yet too often companies seek only to increase the numerator (revenue) and miss the rich upside of decreasing the denominator (cost). This is not to be confused, however, with austerity, cost-slashing or starving CX management of funding.

The denominator upside of CX ROI lies in company practices that are standing in the way of customers’ ease-of-doing business with the company. Each of these practices represent a "cost" because they result in lost revenue, and these costs should be included in the denominator for calculating ROI.

The reason is simple: Customers gravitate to the company that makes it easiest to do business. This is true among all the companies perpetually appearing on lists of best-loved companies. Stand out from the crowd in ease-of-doing business, and your revenue stream (the numerator) is allowed to grow more-naturally.

To address the other culprit – silos – think of CX management as a sequential flow. Like any other living system, all the components need to work in tandem in order to produce optimal results:

Continuity across the CX system is the silver bullet for maximizing ROI. There is no off-the-shelf, one-and-done solution. The CX system starts with customer feedback, which informs improvements and innovations, which earn customer trust and engagement. 

Companies have the opportunity to maximize their customer experience ROI through taking the following steps:

• Discover how big are "bad costs" caused by obstacles to customers' ease-of-doing-business.
• Compare ROI of tackling bad costs versus ROI from customer loyalty enticements.
• Collaborate cross-organizationally to end bad costs.
• Motivate everyone to proactively manage their ripple effect on customers.
• Inspire creativity broadly for novel ways to add mutual value.
• Weave customer experience excellence into everything your company does.
• Treat CX management as a flowing, integrated system within your company.

Common Problems

Many companies do not follow through on customer feedback to drive genuine improvements.

If you recognize customers as the source of salaries and budgets, then you must listen to them and follow through in preventing recurrence of ease-of-doing-business issues. Online surveys with desktop dashboards are often the starting point of customer experience initiatives, without upfront planning on how to maximize use of the data throughout the company. 

·         Voice-of-the-customer (market research) managers are usually overwhelmed with program coordination and data analysis, and have little time or capability to drive action.

·         Executives tend to focus on ratings and indexes rather than prescriptive comments from customers.

·         Managers who take action on customer feedback typically address the issues within their own domain or seek technology fixes to bigger problems in place of zeroing in on root issues that span multiple organizations and then driving process- and people-transformation that prevents recurrence.

·         Survey questions are usually not phrased to be of significant use to stimulate breakthrough innovations, nor to be of value for strategic planning, nor to be insightful to managers and employees in their reviews of processes and policies.

·         Customer feedback ratings are sometimes used as bonus criteria, but this often leads to cooking-the-books rather than preventing occurrence or recurrence of issues for customers.

Front-line, customer-facing employees are expected to bear the entire burden of ensuring customer experience excellence.

When companies try to improve their customer experience management they immediately think of their front-line employees: salespeople, customer service reps, call center reps, etc. But many of the problems that impede superb customer experiences emanate from manufacturing, engineering, finance or other "back-office" functions. The decisions made by back office functions have an impact on overall customer experience either directly or through the influence that their policies or actions have on the customer-facing functions.

Customer experience management is not merely an issue for your customer-facing people but for the organization as a whole. Do not be surprised to find high-value levers for improving customer experiences among functions that appear to have very little contact with paying customers.

Contact centers are very important to retaining customers, but contact volume is often a symptom of poor customer experience management in the rest of the company.

Contact centers are an important source of pure customer feedback, describing what customers are trying to do and obstacles they're facing. Most companies use service comments primarily for training agents who deal directly with customers. They don't use text/voice mining of customer comments from the contact center to educate the rest of the company.

There is a huge opportunity to stream pure customer feedback to the groups throughout the company who could use the feedback to create breakthrough innovations or who originated the obstacles; to increase their capability to anticipate their ripple effect on customers, and to hold them accountable to prevent recurrence. Service people who are liberated from solving tedious, avoidable problems caused by other parts of the company can focus on creating more value for the company and the customer.

As customer retention statistics demonstrate greater value over customer acquisition, companies that are excelling in customer experience have broken from traditional practices in hiring and compensation plans for contact centers.

Companies rely on enticing customers to re-buy and recommend rather focusing on superior ease-of-doing-business and creating mutual value to compel loyalty.

While timely and relevant marketing and sales are essential to a company's growth, the most-loved companies have mastered operational alignment with customers' preferences so that they enable rather than entice customers to love them.

Gains reaped from sizzle without sufficient substance are short-lived, and often require resource investments that erode the gains. While customer experience management is rooted in the total quality movement in the early 1990s, the excitement of customer relationship management (CRM) technologies, experiential marketing, Net Promoter®, social media, digital marketing, and other technologies has obscured the necessity of good old-fashioned process improvement.

Many managers of customer experience efforts are unaware of improvement tools such as fishbone diagrams, Pareto charts, systems thinking, change management and the like. These tools are essential for making full use of customer insights and differentiating a company's customer experience profitably. Customers are more interested in pursuing their own needs rather than the supplying company's needs. They have already paid fair market value (plus unexpected time, stress, and effort all too often), so additional mutual value is required for profitable customer engagement.  Executives expecting immediate revenue growth from customer experience efforts are causing undue pressure on managers with unintended ironic effects (such as customer satisfaction surveys that aren't convenient or satisfying to participate in, subscription renewal campaigns that start too early and nag too often, etc.) on customer experience.

Companies represent themselves as several silos rather than building trust through consistent, predictable performance across brands, locations, departments and time.

Managers tend to see the customer experience in terms of their own internal chimneys. Surveys and journey mapping, data systems and policies, messaging and servicing are often unique to numerous groups across a company. These siloed activities not only duplicate effort and increase costs to the company, they cause a lot of confusion and require extra effort for customers.

Customers simply want what you're selling so they can smoothly live their lives or run their businesses, so these complications detract from the overall goal of ease-of-doing-business. Customer experience efforts that are designed as silos prevent management from gaining a big-picture perspective of what is experienced. They sub-optimize potential business results by design. The key to engagement is trust, which is earned through consistency, reliability and predictability. Mastery of these trust elements is the reason why certain discount brands have outperformed luxury brands in popularity and financial performance.

Key Trends

Customer experience business results are a strong concern among executives.

In a conference attended by customer experience managers, the breakout topic of ROI had five times as many attendees as any other topic. Some companies have disbanded their customer experience staff due to executives' frustrations about the value reaped. Others are deploying customer experience in a piecemeal fashion rather than a coherent system, hesitant to put their money where their mouth is, or impatient, or discounting the eagerness (and feasibility) of all employees to contribute to customer experience success.

Most customer experience efforts are aimed at near-term revenue growth: surveys, service, social media, references, loyalty programs and so forth. In fact, the push for ROI is so strong that in many cases the customer experience effort actually creates discomfort for customers and in reality serves the company more than the customer's well-being.

Customer experience ROI is often elusive due to overemphasis on silos rather than continuity and on revenue growth rather than prevention of bad costs. It is also elusive due to incorrect metric selection: lagging indicators are typically relied upon to predict other lagging indicators. A lagging indicator is something stakeholders already see, whereas a leading indicator is something a manager can see before its result is visible to stakeholders. One of the reasons why leading indicators are sparse is that customer experience efforts are frequently deployed without planning internal actionability and accountability.

ROI has been proven by numerous studies, and for companies that rise above these common pitfalls, they're seeing strong business results such as differentiation, market share growth, and increased profitability.

Popular technologies and techniques often obscure the full picture of customer experience management.

While new technologies and techniques increase opportunities for real-time insights and value creation, caution is warranted in assuming that customer experience business results can be significant and enduring with a narrow or silo focus. Some of the most popular today are customer journey mapping, digital marketing, social media, content marketing, self-service, and survey indexes such as Net Promoter®.

As an example, close inspection of the "customer experience strategy" offerings of some leading consulting agencies reveals a limitation to digital customer experience. This may be central to a digital business, yet the vast majority of companies' digital experience is certainly a mere fraction of the full customer experience. Another example is the claim of "full service offerings" by customer experience vendors: They offer full service for what they do, but probably not full service for what the buying company needs to fully manage their customers' experience.

Marketers at customer experience vendors frequently misuse customer experience terms, deviating from long-standing use of those terms by practitioners and business books and creating confusion and ultimately, skepticism and disillusion for the field as a whole. Customer experience conferences are often focused on a certain functional area, such as contact centers or user experience or digital marketing, giving newcomers to the customer experience role a narrow and inaccurate view of what's truly needed by their customers.

Employee engagement is recognized as a key to customer experience business results.

There is widespread agreement that unhappy employees do not allow happy customers. And as customer experience technologies have been deployed, managers are realizing the need for customer-focused culture, employees taking ownership for customer experience, and cross-organizational collaboration to resolve issues in customers' ease-of-doing-business.

Some managers believe that employee engagement per se is what's needed: being productive on the job, taking an interest in the company's success, recommending the company to potential job applicants, or participating in gamification, such as earning points for downloading customer experience webcasts. To grow customer experience business results, all of these engagement levels are necessary, yet insufficient.

Since salaries and budgets are made possible by customers, it stands to reason that the most profitable employee engagement is centered on improving customers' well-being. Hence, employee engagement in customer experience means that employees understand and proactively manage their personal and collective ripple effect on customers. It means that customer experience criteria – actionable at the employee level – are woven into job descriptions, performance reviews, training, team recognition, staff meetings, ops reviews, all-hands meetings, and executive messages, decision-making, and behaviors.

Wide recognition of six core competencies for customer experience management is driving more holistic strategies for business results.

There is a growing awareness of six core competencies that are emphasized in the Customer Experience Professionals Association certification exam. These competencies include:

·         Customer-centric culture

·         Organizational adoption and accountability

·         VoC, customer insight and understanding

·         Experience design, improvement and innovation

·         Metrics, measurement and ROI

·         Customer experience strategy

These competencies represent the full system needed to achieve enduring business results in the ongoing quest for customer experience excellence. While the CXPA and a recent book written by Forrester analysts have popularized these competencies, they are not new. The 1991 book by Richard Whiteley, "The Customer-Driven Company," also emphasized these six competencies, including an extensive self-assessment and worksheets for deployment.

The key to excelling in all six competencies is to view them as a sequential flow, with VoC driving strategy, culture, and experience design. Organizational adoption and metrics are involved in deployment of each of these competencies. The growing number of people achieving CXPA certification is a sign that the field is transitioning in the near future to embrace what's required for optimal customer experience ROI.

Companies are appreciating the need to make business process improvements for customer experience excellence.

The use of change management, systems thinking, Lean Six Sigma, teamwork, and similar management tools is recognized by companies that are seeing greater business results through customer experience management. These business process improvement methods direct employees in systematic (step-by-step) analysis and resolution of customers’ issues. And they encourage systemic (holistic, cross-organizational) treatment of issues to fix weaknesses once and for all. In addition, these methods are being used to make customer-centered thinking and doing a way of life, and to create new value for customers and the company’s future growth.

Examples emphasizing business process improvement were evident in a study of best practices for business-to-business customer experience management conducted by ClearAction. Companies with best financial performance showed more commitment to centering employees and the business on customers. Their best-in-class differentiators stemmed from:

·         Presenting customer feedback to all employees.

·         Expecting corrective action follow-through among the owners of key issues revealed by customer feedback.

·         Coordinating efforts among managers of various customer experience efforts.

·         Encouraging cross-organizational collaboration.

·         Prioritizing efforts by customer lifetime value.

·         Viewing customer experience as a key determinant of corporate strategy.

Target Audience

Target Audience:

Vice president of customer experience; chief customer officer; chief marketing officer; vice president of quality; directors of customer experience, excellence, retention, loyalty, insights, intelligence, advocacy, relationship, success, marketing, quality.

Stakeholders:

To solve systemic problems in ease of doing business, the non-front-line functions such as manufacturing, engineering, IT, finance, HR, and safety need to be involved as much as front-line employees. Everyone who is in charge of creating processes, policies, products and services are stakeholders who have a ripple effect on customers.

Industries Covered

Business services; professional services; manufacturing; construction; computer hardware & software; semiconductors; networking equipment; retail; insurance; transportation; health care; government. This topic is applicable to any organization that depends upon creating excellent customer experiences.

Target Company Size

From $100-$200M businesses to the Fortune 50. The size is not as important as the desire to differentiate customer experience as a core strategy for the company.

Risks & Opportunities

Risks

Shallow implementations of customer experience management run the following risks:

• Concentrating on the re-buy might produce short term gains, but in the long term it's not as valuable as concentrating on producing mutual value with customers.
• Companies become over-dependent on their front line, customer service people who aren't receiving what they need from the back offices.
• If you're not looking company-wide at the way you manage customer experiences, then you're allowing each division, functional area or region to manage the customer using their own ad hoc methods,  and probably confusing customers in the meantime.
• Inconsistency can erode customer trust or prevent it from taking root. 

Opportunities

Companies that create excellent customer experiences enjoy the following opportunities: 

• Cost savings through removing or revising parts of processes and policies that aren't serving you or your customer.
• By addressing those costs once and for all, you prevent them from playing into your financial statements quarter after quarter. 
• Happier employees, which makes happier customers. 
• Less turnover and lower costs associated with employee and customer on-boarding. 
• Positive word of mouth.

Skills

At the organizational level, key corporate capabilities for enabling ROI from customer experience include:

• Superb change management skills.
• Strong cross-organizational collaboration.
• The ability to see from multiple angles and to form a systemic view of the company, which enables management to see the ripple effect of its decision-making on stakeholders.
• Ability to engender creativity across all organizations, fostering innovation regarding the customer experience across all functions.
• Superb research and analytic skills.

Defined Terms

Agile innovation methodology

Rapid development of a novel idea through an iterative series of short prototyping and customer evaluation processes. Everything is kept as small and lean as possible (idea, prototype, time intervals) to reach success faster.

Co-innovation

Joint product development efforts with customers.

Customer experience

All interactions people have with or about a solution; includes messages, people, processes, policies, prices, products and service.

Customer experience journey map

A pictorial representation of a customer’s thoughts and actions while shopping for or using a product or service.

Customer experience management

The discipline of treating your customer relationships as assets with the goal of engaging customers as brand advocates.

Customer touch points

Customer touch points represent all of the opportunities that customers have to interact with the solution provider or that provider's messages, products and services.

Ease of doing business

Customers' perception of nuisance-free processes to select, get and use a solution for their life or business.

Internal branding

An understanding by each employee, supplier, and alliance partner regarding their specific impact on external customer experience.

Leading indicators vs. lagging indicators

A leading indicator is an internal process metric that can be tracked by a manager before stakeholders (customers/bosses/public) see its results. A lagging indicator is any metric that can be seen by stakeholders. The performance of leading indicators is predictive of lagging indicators.

Net promoter score

A way of summarizing voice-of-the-customer; defined as the percentage of customers who would recommend a brand minus the percentage who would not.

One-sided vs. mutual value creation

Mutual value creation is value that is appreciated by both parties of a transaction. One-sided value creation means one party benefits while another party does not.

User experience

Intuitive and inviting environment for customers’ use of the product or service, or for exploration and purchase of the product or service, e.g. retail store or website.

Resources

Websites recommended by this Expert:

• Lynn Hunsaker at ClearAction

https://clearactioncx.com/

• Monthly B2B CX Column on CustomerThink

http://customerthink.com/tag/column-lynn-hunsaker/

• "Model for Customer Experience Management Strategy" by Lynn Hunsaker (Inside CXM)

http://www.insidecxm.com/author/lynn-hunsaker/

• Lynn Hunsaker on IBM's The Big Data and Analytics Hub

http://www.ibmbigdatahub.com/blog/author/lynn-hunsaker

• Customer Experience Presentations on Slideshare

http://www.slideshare.net/clearaction

• "Metrics for Customer Experience Management" by Lynn Hunsaker (CXPA Community Blog)

http://community.cxpa.org/blogs/lynn-hunsaker/2014/11/18/metrics-for-customer-experience-management

• Marketing Operation Partners (Consultants)

http://mopartners.com/