What Is Customer Service ROI and How to Measure It?
Departments are usually divided into profit centers and cost centers in the business world. Where profit centers are bound to produce direct profit for the company, cost centers refer to the part which does not directly generate profit and costs money to the company to operate. Due to limited funding, businesses often distribute more money from their budget to areas that are profit centers.
This often puts the customer service teams in a situation where they are left overworked and underpaid. Since they cannot cut short their assigned work, they can still have a stronger role to play in the budget meetings, if they can show a solid return on investment. Concluding, customer service ROI should be a standard measurement for every team.
What Is the Return on Investment (ROI)?
The Return On Investment (ROI) is a measurement method that compares earnings to the expenditure of a company. ROI can be calculated using a simple formula [(Profit – Expenditure)/Expenditure] x 100.
Let’s assume, a company invested $100 in customer service and, in return, made a profit of $150. Filling these numbers into the calculation, (150-100=50), (50/100=1/2) and (1/2×100 =50). The ROI here is 50%.
Although the calculation here seems pretty much simple, getting the accurate number for accounting can be a real tough job for the team.
Calculating ROI: Simple Yet Complicated
There are two basic things that you need to know for calculating ROI.
- Money invested
- Profit made by it
In the case of a sales team, calculating ROI is simple and easy. Let’s say a company employs a sales executive for $1000 a month, and in return, he brings revenue of $5000, now this is a great return. There are more details involved than just this, but it is easy to tell if a sales executive is generating profit. Since his daily work can be bound with the profit, they generate directly.
However, in the case of a customer service team, it is easy to figure out the cost of staff, tools, and other things. But, getting the exact number of profit gained can be challenging. Since the customer service team doesn’t directly produce a profit, instead, they work with the pre-existing customers who are already considered in terms of ROI.
Obviously, the customers would prefer to give their money to the companies who look after them. Thus, implying that excellent customer service does correlate to a successful business. Yet, the real challenge to find out the exact portion of the company’s profit that the customer service team is responsible for remains still.
How Does Customer Service Generate ROI?
The customer service teams generally generate ROI in the following ways:
- Boost – The customer service team makes the existing customers understand the company’s services better, which is why they spend more money in the organization.
- Retain – Due to the great support by the customer service, the customers tend to stay longer with the company.
- Growth – The customers share their great experience with the company with others. This would not have been possible without customer service, which here aided in marketing.
How to Measure Customer Service ROI?
Based on these ways, you can measure customer service ROI.
Decide Your Team Approach and Customer Actions.
Prepare a proper plan. Think about the areas you would like to work on and accordingly decide what should be your team approach to get those customer actions, which in turn will generate boost, retain, and growth income.
Supposedly, for any website, the customer actions can be:
- Switching from its Standard plan to the Premium plan (boost).
- Signing up for another year of service (retain).
- Mentioning about its products or services they loved in reviews or blogs (growth).
Think of as many actions as you can and make a list of steps that the customer team should take to have a tremendous positive impact on these customer actions. And then combine the team approach with the customer actions, like “When the team delivers quality services to the customers constantly, our customers will:
- Not cancel their monthly subscription.
- Buy products and services more often from us.
- Tell about their excellent experience with others via social media or in person, leading to more new customers.
Make Reports and Change Accordingly.
- Net Promoter Score – Probability of the customer recommendations you might get.
- Customer Satisfaction – Is your service great enough to prevent your customers from going for alternatives?
- Cost per contact – Refers to the cost incurred to the company for answering each customer.
- Cost per conversation – Calculate this by using the formula- Cost per contact x Average number of interactions in each conversation.
- Customer lifetime value – The time a typical customer spends as your customer.
- Retaining rates – Percentage of active customers from last month who are still active in the current month.
- Rates of contact – Percentage of active customers who require to get in touch with customer support for any issue in a typical month.
- Contact rate by area – Break down your contact area by product area, which will help you understand the cause better.
You can reach out to a business analyst who can assist you in finding these accurate metric numbers.
Assess the Indirect Returns From Customer Support
Customer Support is not just about answering customer’s questions; you can also benefit from it by treating it like a reliable source of information. For instance, with every conversation, you can learn about customer feedback or the impression of your products among them or areas where you lack efficiency.
You can bring some considerable changes according to your evaluation such as;
- Number of reported errors
- Suggestions received
- Sales lead generated
Making a Testable ROI Thesis
Once you have figured out the customer actions that your support team can make an impact on and how it will benefit the company, you can proceed with some small experiments. In this way, you will be able to create more reliable data and look forward to the improvements in the meantime. Eventually, this will make your ROI calculation more solid and help build more robust customer support.
Every Customer Service ROI Has Different Return Rates.
After all this, there is one thing that must be kept in mind that every customer service ROI will have different return rates. You cannot expect it to be the same every time. However, investing in customer support means there must be measurable financial profits to be achieved, even if they can’t be broken down to a single percentage. Get ready to do a lot of ROI measurements. So this was all about the Customer Service ROI and the steps to measure it. We hope this blog helps you in establishing more impactful customer support and solve your doubts regarding the same. Do share your views about this in the comment box below!