The surprising ROI of great customer experience (and the terrible cost of bad CX)

| April 12, 2016
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Yes, this is an article about why you should invest in customer experience.

But first, I want to make something very clear that makes most CX “gurus” uncomfortable: you can grow your business with an average customer experience.

You could even grow it with bad customer experience (shout-out to airlines, whose profits are soaring lately, and who are responsible for 80% or more of my terrible-CX-induced rage).

But just because you can grow your business without a deep focus on CX, doesn’t mean that you should.

Here’s why: you probably don’t have a monopoly in your market.

And your customers probably have a choice.

Let’s try a little exercise.

Think about the companies who have your business, and who you’ve had average or terrible customer experiences with.

There’s a good chance that you’re doing business with those companies for one of two reasons:

  1. Their product is the best one for the amount you’re willing to pay. If someone came along with a better alternative for the same price or less, you’d be out the door before they could say “retention.”
  2. You don’t have a choice! There’s a reason that companies with a monopoly on their market consistently get poor marks for customer experience. They don’t have to care!

In either of those scenarios, you may be a customer, but you’re certainly not a loyal customer.

Now think about the companies you do business with that consistently deliver an amazing customer experience.

Do you still shop around for better options?

If you’re like most people, the answer is no.

And THAT—customer loyalty that goes far beyond price or product—is why customer experience is so important.

A look at the numbers: the ROI of great customer experience

“But what about the numbers?”

A natural question for analytical folks (which, if you’re reading the UserTesting blog, you almost certainly are).

Well, good news. There is data to support investing in customer experience, and lots of it.

There are two key areas where a great customer experience has been shown to deliver a positive return on investment:

1. Customer lifetime value (CLV)

In Oracle’s 2011 Customer Experience Impact Report, the company cites research that found that 86% of customers will pay more for a better customer experience.86% will pay more for better customer support

And it wasn’t a fluke; American Express found a similar result in their 2011 Customer Service Survey, with 70% of Americans willing to spend an average of 13% more with companies they believe provide excellent customer service.

Finally, a third convincing data point: in research published in the Harvard Business Review, researchers found that among thousands of customers studied:

“Customers who had the best past experiences spend 140% more compared to those who had the poorest past experience.

Graph from HBR.org showing that in a transaction-based business, sales are driven by good customer experience

2. Customer acquisition costs (CAC)

But great customer experience doesn’t just make your existing customers more valuable. It also makes it easier and cheaper to get new customers.

That same American Express survey referenced above found that on average, happy customers tell nine people about their experiences with a company.

1 happy customer = 9 referrals

That’s great news, as referrals from friends or family members are the single most-cited reason for customers trying a new product or service, beating things like sales, reviews and advertisements by a large margin.

We get a lot of questions about how to get more referrals, and by far, the most effective way to get referrals is to make your customers want to refer you. Delivering a great customer experience helps you accomplish that.

Creating happy customers through customer experience also helps you drive CAC down even further by allowing you to focus on selling to your existing happy customers (which is cheap), rather than spending more money going out and trying to find new ones.

In the book Marketing Metrics, the authors share a fascinating finding from their research:

“The probability of selling to a new prospect is 5-20%. The probability of selling to an existing customer is 60-70%.”

Graph showing that there's a higher probability of selling to an existing customer than a new prospect

With odds like that, why wouldn’t you work hard to make your existing customers as happy as possible? After all, with a bit of smart upselling, they’re the ones who can make it easy to grow your business.

The other end of the spectrum: the cost of bad customer experience

So, we agree that good customer experience can make you more money.

But just how much can bad customer experience cost you?

Well, let’s look at the numbers.

According to RightNow’s 2010 Customer Experience Report, 82% of customers have left a company because of a bad customer experience.

82% of customers left a company because of a bad customer service experience

Just like great CX is a magnet for high-value customers, bad CX will repel them fast.

And remember how happy customers LOVE to tell their friends about great experiences?

Well, according to that same AmEx survey, angry customers love to talk, too. And they tell a lot more people about their bad customer experiences. Nearly double, in fact!

1 angry customer = 16 anti-referrals

That’s a big price to pay for poor CX.

Next steps: so what can you do?

First of all, if you agree that customer experience is worth focusing on, you should be proud of yourself: you’re off to a good start. Simply committing to making your CX great is more than many companies—including, probably, some of your competitors—do. And as you can see, those that don’t pay dearly for it.

So, what’s next?

1. Learn

There are lots of valuable resources that can help you learn how to start improving your customer experience, aside from the UserTesting blog and resource center,

We share weekly tips on the Groove Support blog as well to help businesses make their customers happier. I recommend starting with some of our greatest hits here.

I’m also a big fan of—and have learned a lot from—Medallia’s Feedback Loop blog, the Customer Experience Matters blog, and the (onboarding-specific) teardowns at UserOnboard.

There are another 15 valuable customer experience articles compiled here.

2. Track

Improving your CX starts with knowing where it currently stands. Listening to your customers will give you massively valuable insights into how your customers are interacting with—and feeling about—your product.

To do this, you can use a platform like UserTesting, but even tactics like NPS Surveys and simply talking to your customers (here’s how we do it at Groove) will help you make big strides in understanding customer sentiment.

3. Improve

Armed with knowledge and feedback, you can begin to make improvements to your customer experience, whether that’s feature changes, onboarding optimizations or customer service enhancements.

Start small, be patient, and most importantly: never stop. Great customer experience isn’t a feature that you build. It’s an ongoing journey that the very best businesses in the world are always on.