As Customer Experience (CX) leaders, we’re continually in the spotlight to prove the value of CX. This starts with the CX business case.
It’s easy to talk about the effects of a better customer experience – improving customer loyalty, reducing churn, and generating positive word-of-mouth. But what’s the dollar value of those outcomes?
As a CX community, we struggle with writing financial business cases that show the Return on Investment (ROI) of CX investments.
We have a hard time:
- writing a customer experience business case that the finance department approves
- talking about the benefits of CX in a language stakeholders understand
- showing the ROI of CX as a dollar amount
My career journey to the CX discipline was unusual, spending 15 years at company that sold financial software to hospitals. Along the way I had two experiences that gave me an edge for writing business cases.
- In order to understand and empathize with hospital CFOs, I earned a Certified Healthcare Financial Professional (CHFP) credential – the Healthcare Financial Management Association’s highest certification. The difficult certification process gave me a crash course in financial planning and accounting.
- I was VP of Operational Excellence, where I got lots of hands-on practice writing financial business cases for Lean Six Sigma process improvements.
When I became a CX practitioner, these experiences helped me present successful business cases for CX projects, hiring more people, and buying enterprise software like Qualtrics.
It starts with understanding what a CFO cares about.
The Road to the CFOs Heart is Paved with Hard Dollars
Business cases center around “hard dollars” and “soft dollars.”
The phrase “hard dollars” means real money. You are going to make or save the company actual money that will show up on the profit & loss statement (P&L).
“Soft dollars” means efficiency improvements or intangible benefits that don’t directly and materially change the company’s income or expenses.
For example, if your improvement makes a team of 10 people 20% more efficient, they can now handle the work of 12 people.
This may be world-changing to the VP of Operations, but if the company is not going to reduce headcount or delay hiring, then it is a “soft dollar” improvement. The cost of operations hasn’t changed, so it’s not “real money.”
If you’re asking to spend real money on CX, your CFO wants to see Return on Investment (ROI) in hard dollars.
Because if CX is costing more money than it makes, it’s a bad investment to him.
Now, let’s not omit the intangible benefits from the business case. Eliminating friction, reducing customer frustration, improving efficiency, building goodwill, and improving brand recognition are all important outcomes that will resonate with stakeholders.
But if you can link your business case to hard dollar ROI, it’s much more likely the CFO will get excited.
4 Ways to Generate Hard Dollar ROI From Your CX Initiative
Understanding how a CFO thinks, we can now begin to speak his language.
There are 4 common sources of hard dollar ROI.
1. Revenue Growth (Make More Money)
Revenue Growth means increasing the income of the business – adding dollars to the “top line.”
Growth can come from launching a new revenue stream – selling a new product or service at a profitable margin. (It has to make more money than it costs to provide).
One example is adding a premium service line for top-tier customers. If you have the data to show that a particular customer segment is willing to pay for an enhanced experience, then you can grow revenue by launching a new service product for that customer segment.
Another example is reducing churn – customers that cancel, switch to a competitor, or don’t come back. It may seem counterintuitive that reducing churn is considered growth, but that is how the finance department sees it.
Example: If the business has 5% annual customer churn, with a dollar value of $1M, then reducing churn from 5% to 4% would grow revenue by $200K per year.
2. Cost Reduction (Spend Less Money)
Cost reduction means decreasing the expenses of the business – which improves the “bottom line.”
In other words, you show how improving the customer experience will allow the business to do less of something that costs money.
In the CX world, we say “reducing the cost to serve customers.”
Frequently, this means reducing headcount.
Layoffs are one way to do this but not necessarily the best way. When people begin to equate CX projects with reductions in force, then it’s hard to keep enthusiasm and support.
Instead, find alternate ways to reduce budgeted positions without terminating employees. Two ideas are:
- Promote high performing employees to other roles and don’t replace them. The net effect is a reduction in headcount, but it feels positive because it was good for employees.
- Don’t backfill employees who leave voluntarily. Organizations naturally have some attrition, so just close the positions and realize the cost savings when employees move on voluntarily.
Other ways to lower costs are to reduce or eliminate spend on technology, 3rd party vendors, inventory, real estate, or office supplies.
Example: Creating a self-service support channel at a cost of $250K reduces customer effort and improves satisfaction. This also deflects calls from the contact center, allowing a 10% headcount reduction for an annual savings of $500K.
3. Cost Avoidance (Don’t Spend What You Planned on Spending)
Cost Avoidance is a way to justify your operational efficiency savings, but it comes with a catch: the business must have already budgeted additional spending that will no longer be needed.
Remember the example team of 10 people who became 20% more efficient and can now handle the work of 12 people? If the business already budgeted to hire 2 additional people, you can show hard dollar savings through cost avoidance by eliminating those 2 positions from the budget.
The key point in cost avoidance is that the business must already be planning to incur the cost. If the cost isn’t in the budget, then the improvement is only “soft dollars.”
4. Risk Avoidance (Spend a Little to Prevent Something Bad)
Risk avoidance is like buying insurance. You don’t know when something bad will happen, but you want to be prepared if it does.
Naturally risk avoidance is the most tricky cx business case, and it depends on your individual business context. If the initiative reduces the company’s risk exposure, the potential cost savings might be worth the up-front investment. Just like buying insurance.
Can improving CX reduce the exposure to penalties, fines, or litigation? Spending a small known amount on the CX initiative might be preferable to the possibility of a large unknown cost.
Another option is to reduce the risk of another major initiative. Mistakes that cause failure, delays, and rework are all expensive – especially when they impact customers. Sometimes it’s easy to digest an incremental spend on CX to insure a project is done correctly.
For example, if the IT department is already investing in an expensive digital transformation, you could propose soliciting customer input into the design of the new digital journey. This reduces the risk of failure or rework in the already-budgeted digital transformation. In other words, it’s worth spending a little more on CX to make sure the digital transformation is done right the first time.
Repeat After Me: Finance is My Friend
Building a relationship with your finance partner is one of the best actions you can take. This relationship should be a top priority for any CX leader.
Finance has a pulse on the entire business, so your finance partner likely has access to confidential information that isn’t communicated below the c-suite. While they many not be able to share that information directly, they provide a valuable litmus test for the likelihood that the business will approve a new investment.
Growing revenue, reducing costs, avoiding costs, and reducing risk are the most common sources of ROI – but they are not the only ones! A good finance partner can help you craft the customer experience business case and measure the financial impact along the way.
Want to talk it through?
I help my clients build their CX business case – and I’m happy to help you too. Let’s have an informal chat about your CX project.
Drop your name and email in the form below, and I’ll send you a link to my calendar.