A satisfied customer is the best business strategy of all.

Michael LeBouef, Author of How to win Customers and Keep Them for Life

Customer satisfaction is the key metric to measure your customer happiness. A happy customer not only generates revenue for your business but also encourages others to buy your products or services. Providing quality customer service and making them happy can set you apart from other competitors and help you build your brand image.

Most business leaders believe that customer experience (CX) is essential for companies to grow and move forward. That is why businesses spend money to set up in-house call centers or outsource a call center. So that they can provide the best customer service and make their customer’s experience better. This is called investment in customer experience.

While delivering a great customer experience, your business should also pay attention to the money spent. Monitoring your business spending on handling these delivering resources helps you to achieve higher output with reduced expenses. To ensure that you are not spending too much money on the customer service support team, you need to calculate your customer experience (CX) return on investment (ROI).

What is customer experience ROI?

When a company gains financial benefits from investing in improving the overall customer service and experience it is called customer experience ROI. Investing in customer experience helps you to identify the inefficient areas in your business operations. It gives a clear understanding of business processes that need improvements, directly from your customer.

For example, when you do a great job of keeping customers satisfied, those customers are more likely to stay loyal and continue buying from you. They might also recommend your products or services to others through word of mouth. This not only helps you to make more money but also brings down your advertising costs resulting in increasing ROI of customer experience.

So, when you work on enhancing your customer experience, it’s not just a benefit for them, it’s a benefit for you as well.

Benefits of investing in customer experience

If you make a sale, you make a living. If you make an investment of time and good service in a customer, you can make a fortune.

Jim Rohn, Entrepreneur & Motivational Speaker

Investing in customer experience can benefit your business in numerous ways. Let’s understand some key benefits of CX one by one.

Increase customer loyalty and repeat business

As a business owner, you understand that your customers are the lifeblood of your enterprise. It’s crucial to prioritize their needs in every aspect of your operations, as they form the foundation of your business.

While acquiring new customers is important, retaining existing ones holds even greater significance. Repeat customers not only provide consistent revenue but also serve as valuable brand advocates, attracting new business and strengthening our baseline.

By investing in enhancing customer experience (CX), you can boost satisfaction and cultivate loyalty among your clientele. For example, sending personalized birthday messages with special deals demonstrates your commitment to customer care. Loyal customers make repeat purchases, resulting in higher retention rates and increased revenue growth.

A cornerstone of customer loyalty lies in the emotional bond between customers and your brand’s personalized customer service. This trust and satisfaction develops over time through consistent positive interactions and experiences, leading customers to recommend your brand to others, uplift their moods, and ensuring easy retention.

roi of customer experience-customer loyalty data
Customer loyalty data by yotpo.

Word-of-mouth marketing 

Have you ever found yourself enthusiastically recommending a restaurant or enthusiastically reciting the tagline of your favorite food brand after experiencing the delicious taste you were anticipating? If so, you inherently grasp the essence of word-of-mouth marketing and its potent influence.

Word-of-mouth marketing (or WOM marketing) occurs when a consumer’s enthusiasm for a company’s product or service is reflected in their everyday conversations. Essentially, it represents one of the most cost-effective advertising channels available, as it is initiated by positive customer experiences.

Untapped and relatively inexpensive, word-of-mouth marketing occurs when a brand impresses a customer to the extent that they feel compelled to share their satisfaction with family and friends. Although these conversations may appear beyond a business’s direct control, they often serve as a powerful endorsement.

Delivering exceptional customer experiences can transform satisfied customers into brand advocates. These advocates willingly share their positive experiences with their social circles, leading to organic word-of-mouth marketing that attracts new customers to your business without incurring additional marketing expenses.

For instance, below are two examples illustrating how providing exceptional customer experiences can turn customers into brand advocates.

Positive customer reviews work as word-of-mouth marketing.

Reduce customer acquisition costs

Acquiring new customers without spending too much money is always a challenge for companies like yours. Every day, you spend resources and time on different lead generation channels and trying to get new customers, so it’s important to know if your marketing strategies are working well and not costing too much. Lowering the cost of getting new customers is a big goal for you. Studies show that most people trust recommendations from friends and family the most.

Reducing this cost can help your company make more money. But it’s tricky because every company’s costs are different, depending on what they sell. For example, it might cost more to get business customers than individual ones.

Customer Acquisition Costs (CAC) are all the costs you need to pay to get a new customer. This includes salaries for sales and marketing people, money spent on ads, and other marketing costs. Understanding your CAC can help you see where you might be able to save money.

Getting new customers takes both time and money. But if you have happy customers, they can bring in new customers for you without you having to spend more money. So, focusing on keeping your customers happy can help you grow without spending a lot on getting new customers.

Enhance customer lifetime value (CLV)

Customer lifetime value (CLV) is one of the key stats to track as part of a customer experience program. Customer lifetime value is a measurement of how valuable a customer is to your company, not just on a purchase-by-purchase basis but across entire customer relationships. Learn how to calculate customer lifetime value and increase your customer ROI with our guide.

Better customer service can make your customer happy and increase the lifetime value of a customer. This means they contribute more to your business revenue by making additional purchases or upgrading to higher-priced products or services. Also, investing in CX keeps your customers loyal over the long term.

Amazon’s customer service with a customer service BPO partner
Providing great CX can improve your business growth in the long run – Amazon.

Do you know the online shopping giant, amazon? They’re really good at keeping customers happy and making money in the long run.

They’ve figured out that it’s okay to spend a bit more to expand CLV because if they provide great service and perks like fast shipping and lots of entertainment options through Amazon Prime, customers stick around and keep shopping.

They implement a smart way to do business and show how taking care of customers can make a big difference in the long run.

Differentiation from competitors

In today’s competitive market, nearly every company provides substitutes for some other company’s products or services.

For instance, in the coffee industry, numerous cafes offer similar blends and brewing methods. However, it’s the customer service that becomes a key differentiating factor. Take for example, Starbucks, which not only serves excellent coffee but also goes the extra mile by remembering customers’ names, preferences, and offering personalized recommendations.

By investing in customer service, Starbucks sets itself ahead of competitors and captures a large market share.

The only real way to differentiate yourself from the competition is through service.

Jonathan Tisch, CEO of Loews Hotels

One of the biggest challenges that businesses face is calculating the investment in customer service. Compared to things like sales and marketing, customer experience is hard to measure.

Sales can be directly measured by revenue growth and marketing can be measured by the number of leads converted into customers. But how to measure ROI of customer experience. Well to measure CX ROI, you will need to monitor ROI metrics.

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Customer experience ROI metrics

Being a business owner, you might perform some calculations regarding ROI in your business. ROI helps you evaluate the effectiveness of your strategies and ensure that your efforts yield profitable results. When it comes to calculating the ROI of customer experience, there are various important metrics that can help you figure out how good your relationships with your customers are.

Furthermore, exploring opportunities to save money through outsourcing can significantly impact your ROI, allowing you to allocate resources more efficiently and enhance overall profitability.

Customer satisfaction (CSAT) scores

Customer satisfaction (CSAT) scores measure how well your products or services meet your customers’ expectations. This metric provides insights into the overall customer experience and their happiness levels.

You often see companies conduct surveys and feedback in which customers share their ratings and the level of happiness they received from a company.

roi of customer experience-apple customer satisfaction
Apple consistently excelled in customer satisfaction.

A great example of a company that knows how to make its customers happy and satisfied is Apple. They’re known for making products that are easy to use and look good. Plus, when you need help, their customer support is there for you.

People love their products and the fact that it’s easy to get help when they have questions or problems. Because of this, Apple’s customers are really loyal, and they often tell their friends and family how much they like Apple’s products. This focus on keeping customers satisfied has been a big part of why Apple is such a well-known and successful brand around the world.

Formula to calculate customer satisfaction (CSAT) scores

CSAT scores = (sum of positive responses / total responses) x 100

Net promoter score (NPS)

Net promoter score (NPS) is a metric which measures the willingness of customers whether they refer your products or services to someone else or not. It’s a reflection of customer loyalty and advocacy.

Promoters are the brand advocates who can influence others positively. On the other hand, detractors are the unhappy customers who may raise areas of concern that help you to improve business.

For example, Glassdoor, one of the world’s largest job and recruiting websites, uses NPS surveys to improve its products. The NPS survey allows Glassdoor to gather feedback from a diverse range of users.

Zoe Soto, Glassdoor’s Product Manager, explains that this feedback helps them to identify areas where their product needs improvement. Glassdoor then makes decisions based on this feedback to ensure their users are more engaged and successful.

Additionally, Glassdoor uses ongoing feedback to measure the impact of these improvements. According to Soto, “It’s super helpful to know that investing in UX improvements has made a meaningful impact on how users feel.”

Formula to calculate net promoter score

NPS = (% of promoters) – (% of detractors)

Customer churn rate

Customer churn rate is a metric that helps you to calculate how many customers have left or show a tendency to leave your business. A high churn rate indicates a need for improvement in business processes, customer retention strategies, or issues with product or service quality. Monitoring this metric helps you take timely action to reduce customer churn and prevent them from leaving your business.

Formula to calculate customer churn rate

Churn rate = (customers at the start of the period – customers at the end of the period) / customers at the start of the period

Customer lifetime value (CLV)

CLV, or Customer Lifetime Value, helps you measure the total revenue you can anticipate from your relationship with an average customer over time. It gives you an idea of the future value of potential customers.

Comparing CLV with Customer Acquisition Cost (CAC) enables you to assess the effectiveness of your marketing strategies and identify factors affecting your profit margins. 

You can enhance CLV by implementing customer loyalty programs, improving customer experience, and reducing churn rate. CLV is a strategic metric that provides insight into the long-term value of each customer, including their potential for repeated transactions over time.

roi of customer experience-netflix
Netflix customer lifetime value approx calculation.

Imagine a subscription-based streaming service like Netflix, which offers its basic plan at ₹199 per month. Let’s say a customer signs up for this offer. If that customer stays subscribed for 2 years, their total spending would be ₹199 x 24 = ₹4776. So, the CLV for that customer is ₹4776.

This CLV information helps companies like Netflix to make decisions about marketing, customer retention, and acquisition strategies.

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Formula to calculate customer lifetime value

CLV = (average purchase value x average purchase frequency) x average customer lifespan

Customer service costs (CSC)

Customer service costs are the amount of money that you spend on providing customer service. These costs include employee salaries, technology, infrastructure, and training. Customer service cost is essential for maintaining a sustainable business model. It helps you to make the right balance between delivering excellent customer service and cost management.

But, at the same time, it is also found that some businesses spend more than enough money on providing customer service, and still don’t get the desired result. Hiring a customer service provider like AM2PM Support not only reduces your customer service costs but also improves customer satisfaction, leading to a great customer experience.

Formula to calculate customer service costs

CSC = net salary of customer support / total number of tickets solved

Customer acquisition costs (CAC)

Customer Acquisition Costs (CAC) are a critical metric for understanding the effectiveness of your marketing and sales efforts. Because it calculates how much money you spend in acquiring a new customer. A lower CAC number indicates you have efficient customer acquisition strategies. Also, CAC helps you allocate resources wisely and optimize your customer acquisition methods.

roi of customer experience-Jio-Digital-Life
Reliance Jio monitors its customer acquisition cost (CAC) to optimize its market strategy.

For example, Reliance Jio, the big telecom and digital services company spent around 2 billion Indian Rupees, on ads, promotions, and launching new services. During that time, they got 5 million new people to sign up for their services. 

By dividing how much they spent on marketing by the number of new customers, it is found that it costs them about 400 INR to get each new customer. They use this information to make smart choices about where they spend their money on ads and how they get more people to use their services without spending too much.

Formula to calculate customer acquisition costs

CAC = (total marketing and sales costs) / number of new customers acquired

Customer referral rate (CRR) 

Customer referral rate is a metric that measures how many customers are referring your business to others. A high referral rate can lead to organic customer growth and reduced customer acquisition costs.

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Formula to calculate customer referral rates

CRR = (number of referrals / total number of customers) x 100

Customer effort score

Customer effort score (CES) measures how easy or challenging it is for customers to engage with your business and achieve a goal. A lower CES number indicates your business has a straightforward and customer-friendly process, which can lead to higher satisfaction and loyalty.

Have you ever had difficulties in browsing any website or application? I believe it’s a yes!

Let me provide you with an example: Suppose you encounter an issue with your Spotify account and reaching out for assistance becomes a challenge. Dealing with long wait times and confusing instructions can be frustrating and result in a lower CES score.

However, if finding help on their website is easy, and you can chat with support to quickly resolve any money or technical issues, the experience becomes smooth and hassle-free. This can lead to reduced customer complaints and increase in the CES score.

Formula to calculate customer effort score

CES = (sum of customer effort scores for all customers / total number of customers surveyed)

Average revenue per user

Average revenue per user calculates the average revenue generated by each customer or user over a defined period. It helps you to identify trends, make data-driven pricing decisions, and track the impact on revenue generation due to product or service changes.

Formula to calculate average revenue per user

ARPU = (total revenue generated / number of active users)

Customer retention rate (CRR)

Customer experience is one of the two core pillars of customer retention;the thing is, you can’t grow if your customers don’t stick around.

Jes Kirkwood

Customer retention is crucial for sustainable business growth. CRR is measured by the percentage of customers who make repeat purchases within a specific period. A high retention rate indicates that your business has a high number of satisfied and loyal customers. By tracking this metric, you can evaluate the effectiveness of your marketing efforts, product quality, and customer experience that encourage repeat business.

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Formula to calculate customer retention rate

Retention Rate = ((customers at the end of the period – new customers acquired during the period) / customers at the start of the period) x 100

Enhance your business’s growth through customer experience investment

Investing in customer experience can help your business to stand out from the competition. In a world where many companies offer similar products or services at comparable prices, it’s the customer experience that is priceless- for both customers and businesses.

Providing great customer service can have a positive impact on your business revenue. However, it’s important to measure the return on investment for customer experience to ensure that you are heading in the right direction and have the necessary budget to deliver a successful customer experience.

In this article, I have provided some proven metrics and formulas used by renowned brands to calculate customer experience ROI.

If you are looking for a company to handle your customers and deliver significant customer experience, outsourcing a call center like AM2PM Support can solve your concerns. They have a proven track record of delivering sales of 950 crores to 100 of its clients across 3 countries by elevating customer experience.

Listen from Mayank Jain, Co-Founder, AM2PM Support.

Partnering with AM2PM Support can help you show your love and care to your customers, and in turn, they will reward you with trust and loyalty.
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  • Aniket Keshari

    I am a passionate digital marketer with a strong focus on SEO. I leverage my expertise in digital marketing and SEO strategies to make a dynamic organisation successful.