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How you measure the financial impact of the Customer Experience
Everybody knows that the Customer Experience is the heart of the business – but what is the actual impact? Too often, we find that this question remains unanswered. Having a clear picture of the financial impact of process improvements, will ensure that everybody in the organization remains focused on improving.
In the following case, our client contacted us to gain insights on the needed changes to further grow their business. One of the steps we took was to evaluate how the current customer base acted according to their perception of the Customer Experience.
The initial steps in this process were a collection of the current financials of the complete customer base. Having done so, and surveyed a sample, we were able to obtain two metrics:
- Share of Wallet indicating how large a share of their budget they spent at our client
- Customer Satisfaction Index (CSI) indicating their perception of the Customer Experience
In this industry, we choose to measure a Customer Satisfaction Index, rather than the Net Promoter Score, to make results viable even with small business units.
Combining these metrics, gave a crystal-clear understanding of how the Customer Experience influenced the actual Share of Wallet, and we found a strong relation between CSI and Share of Wallet.
Figure 1: Strong relation between CSI and Share of Wallet
The conclusion of these calculations were simple – transparency. Without using advanced statistics, unclear assumptions or black-box techniques, we provided simple estimates everybody could grasp. Discussions were lead away from technicalities to how we could actually improve.
Return on Investment
Using this relation between CSI and Share of Wallet allowed us to model how customer expenditure was a result of satisfaction. Our analysis showed that every 1 pct.-point of satisfaction was equal to 0.5% more Share of Wallet. The pure Return on Investment would then be the gained revenue if all customers were lifted 1 pct. point.
Figure 2: The pure Return on Investment
The gained insights were aggregated, and the best performers (the highly satisfied customers) were used as a goal. So we asked the question, what would the revenue be, if all customers had the same Share of Wallet as the most satisfied? By doing so, we were able to calculate realistic potentials across segments and show what the total potential was. Giving all managers realistic potentials allowed everybody to prioritize the most important customers yielding the greatest turnover.