In our Drive Revenue With Great Customer Experience, 2017 report, we describe how great customer experience (CX) drives revenue. After reading the report, you may be wondering, how did we link revenue to CX?
We followed a rigorous, academic approach that started with the premise that improving CX drives customer loyalty. Using our Customer Experience Index (CX Index™) survey questions about customers’ loyalty to and spending with a particular brand and combining them with industry-level numerical assumptions, we answered the following question: How likely is a customer to stay with your brand, or spend more, or recommend you to others — and what would that be worth to your organization in dollars and cents?
For each customer, we calculated a loyalty-based revenue potential and a CX Index score. Calculating these numbers at the individual level allows us to track the relationship between CX and revenue throughout the entire range of CX Index scores and develop models to describe the nuances of how CX drives revenue in a particular industry. With these models, we can predict the revenue associated with a brand’s CX improving — or even deteriorating.
We tested several models to find the “shape” that best describes the data. We found that the relationship between CX and revenue potential tends to follow three main shapes:
- Linear. CX and revenue move in lockstep. Whether you improve a poor experience, a mediocre experience, or a good experience, the impact on revenue will be the same.
- Diminishing returns. Revenue potential increases sharply when poor experiences are improved, but it tapers off at higher levels of CX. Fixing poor experiences will have a bigger impact on revenue than optimizing good experiences.
- Exponential. Revenue potential remains relatively flat when poor experiences are improved, but it begins to increase dramatically at higher levels of CX. Making good experiences great will lead to larger revenue gains than making poor experiences OK.
Understanding the shape of the relationship between CX and revenue allows brands to prioritize the CX improvements that will most affect revenue. Many companies focus on eliminating bad CX wherever possible. However, for brands with an exponential relationship between CX and revenue, it can be more valuable to provide as many exceptional experiences as possible, even for customers who are already pretty happy. For brands with a linear relationship between CX and revenue, the consistent revenue impact across the whole range of CX improvements means these brands can be best served by improving the experiences influencing the largest number of customers.
If you are a CX professional trying to make the case for CX investments, I am happy to talk with you about the CX Index methodology, the model that best reflects your brand’s CX-to-revenue relationship, and how to communicate these results in your organization.