Customer Experience Return on Investment

Most of you who read this blog know that there is a tremendous Return on Investment (ROI) for delivering a great experience. But sometimes we need some data to share with others for them to understand.

This data was complied by our friends at Customer Think:

study of the Value of Customer Experience among two $1 billion+ businesses published in Harvard Business Review (HBR) quantified the effects of good customer experience. One of the businesses was transactional and the other was subscription based. What the researchers found was that:

“after controlling for other factors that drive repeat purchases in the transaction-based business (for example, how often the customer needs the type of goods and services that the company sells), customers who had the best past experiences spend 140% more compared to those who had the poorest past experience”

While the transactional business is more interested in repeat purchases and their   frequency, the subscription business is mostly interested in how long customers remain loyal. For the subscription business the researchers found that

“A member who rates as having the poorest experience has only a 43% chance of being a member a year later. Compare this to a member who gives one of the top two experience scores — they would have a 74% chance of remaining a member for at least another year. We were also able to use this data to predict future membership length based on the quality of experience. The difference: on average, a member who gives the lowest score will likely only remain a member for a little over a year. Compare that to a member who gives the highest score — they are likely to remain a member for another six years.”

Customer Satisfaction Results in a Higher Share Price

The CFI Group created a stock portfolio in 2000 to examine the relationship between customer satisfaction and financial success in the short and long term, using data from the American Customer Satisfaction Index (ACSI), and the National Customer Satisfaction Index UK (NCSI). According to the study:

“the cumulative return of a $100 investment in the ACSI fund from April 2000 to April 2012 was $490, a gain of 390 percent. By comparison, the S&P 500 returned only $93, a 7-percent loss. In the United Kingdom, the NCSI portfolio earned a return of 59 percent from April 2007 to June 2011, and the FTSE 100 had a negative return of 6 percent.”

In addition, higher levels of customer satisfaction are tied to high levels of positive cash flows with low volatility, and positive earnings surprises.

A Better Customer Experience Improves your Retention

According to Bain & CO, retaining just 10% of the customers you already have will result in a 30% increase in the value of your company. Why is this? Because when it comes to retaining a customer, you will spend up to four times less annually in marketing to keep a customer than attracting a new one to take their place. Bain and company estimates that the amount spent to attract new customers as high as seven times more than keeping an existing customer. And the key to keep your customers is improving your customer experience because 68% of the customers that leave you do so because they are upset with the Customer Service they received. (Source:

There is sometimes a misconception that customer churn doesn’t represent much business, but this isn’t true. JD Power and Associates reported that the annual premiums paid by customers that switch insurance providers amount to $7.6 billion. According to their 2014 US Insurance Shopping study, 28% of the Customers who switched auto insurance providers did so because of “poor experience.”

A Great Customer Experience Increases Up-Sell and Cross-Sell

According to Marketing Metrics, you have a much higher probability to sell your existing customers than a new prospect, at 60 to 70% versus 5 to 20%, respectively. Add to the fact that the profitability of each customer you retain increases over the time you have them (according to Leading on the Edge of Chaos by Emmet and Mark Murphy), you can see that keeping a customer improves your bottom line over time.

And to make the cross-sell and up-sell case more clear, the majority of customers’ buying decisions are tied to how they feel about the experience. In an article about the moments of truth in customer service, McKinsey & Company revealed that 70% of customers at a bank reduced their commitment when they had a bad Customer Experience. That article also revealed that 85% of customers that had a good relationship with the bank increased their commitment. And consider how much business 70% of dissatisfied customers can send to another organization.