ROI of Customer Service: How Much Is Good Support Really Worth?
Grow your business by proving the value of CS.
Let’s get this out of the way right off the bat: yes, you can still grow your business with an average customer experience. But that doesn’t mean that you should.
Here’s why: you probably don’t have a monopoly in your market. Why wouldn’t you make sure that every part of your company—including customer service—is working towards growing your business—backed by actual data?
At Groove, we talk a lot about how crucial it is to make your customer service experience outstanding in general. But we also emphasize the importance of measuring the success of your efforts with hard numbers.
Combining the two will help you really get to know how your customer service efforts are benefiting your company when it comes to the bottom line.
There is data to support investing in customer experience—lots of it—and you can make all of it work for your company to make sure that your customer service is at a level where it not only makes people delighted to work with you, but also serves your company’s financial goals.
Today, we’re talking about ROI—return on investment—and why and how you should start measuring it in your customer service efforts.
PS: Make sure to stick around until the end of the post to download a simple template to get you started with defining and measuring your ROI activities!
What Is ROI?
Before we start talkin’ money, let’s make sure we’re on the same page about what ROI, or return on investment, even is:
Return on Investment (ROI) is the benefit to an investor resulting from an investment of a resource. A high ROI means the investment’s gains compare favorably to its cost.
Basically—if you spend a certain amount of any resources on improving your customer service, how much will those actions make you as a direct result? The answer to that question is your customer service ROI—expressed as a percentage.
Calculating your (customer service) ROI means you need to know two things:
- How much you are investing into it
- How much you earn from making that investment
The equation is easy. Applying it is fairly easy in many areas of your business, too.
However, things get a bit trickier when we’re talking about measuring ROI in customer service, because the lines of what “earning” from your investments is are a bit blurrier.
But first, let’s talk about why you should even think about measuring ROI in customer service.
Why Measure ROI In Customer Service?
There are two main reasons why measuring the ROI of your customer support matters:
- Customer experience does drive sales, and if you figure out how exactly (and to what extent) you can improve it in all the right directions to drive even more sales;
- Customer service departments and reps are often overlooked and -worked, and proving the value in investing into them can change that.
Let’s get more into both of these reasons:
First of all, many people think that the only way to grow their business is to find new customers.
But often, the best source for growth is sitting right in front of you: existing customers—the exact same thing that your customer support reps are solely responsible for.
When it comes to sales, the probability of selling to an existing happy customer is up to 14x higher than the probability of selling to a new customer.
PS: Make sure to read our guide to upselling to existing customers to increase revenue.
Still not convinced?
In research on actual customer transactions 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.
Secondly, partly connected to the first point—think about how budget allocation works in most companies, large or small.
Departments—development, marketing, customer support, etc—are often divided into two groups: cost centers and profit centres—even if not consciously, that tends to be how managers think. It makes sense.
Customer service is typically considered a cost center—a part of the company that does not directly produce profit, yet obviously costs the company money to operate.
If you’re quite literally swimming in money Scrooge McDuck style, this isn’t an issue. However, most companies have limited cash to throw at departments, so when they allocate their budgets for each, the areas of the business that are proven generate a solid profit very often receive the most funding.
Since measuring ROI in customer service isn’t that common, the lack of proof about returns means that customer service ends up with the short straw. That can leave customer service teams underfunded and overworked.
If a customer service team could show a solid return on investment, they would have a stronger hand to play in budget meetings, and therefore have more room for improvement and finding a good balance.
Basically, proving that your customer service department benefits the bottom line = more investment in your customer service = better operating customer service team = better customer experience = mo’ money.
Now that we’re (hopefully) on the same page about the need of investing in customer service, let’s get cracking with how to calculate the ROI.
There are three main steps to measuring ROI in customer service:
- Identify your key metrics
- Set your ROI hypothesis
- Test, learn and improve
Let’s get into it.
1. Identifying Your Key Metrics and ROI Elements
As mentioned before, ROI is calculated based on two things: how much is invested, and how much is earned as a result.
When it comes to customer service, money spent (or money that could be spent) is pretty easy to calculate, because it’s largely the same stuff that goes into any other department—costs of staff, tools/equipment they need, training, etc.
However, calculating an accurate number for money earned (or costs reduced for that matter) is much harder, because customer service reps aren’t technically directly generating new income or making sales for the company.
There are several different investments you can put into customer support, and they aren’t all going to have the same return rate.
Therefore, a single, general customer service ROI indicator basically isn’t possible if you want it to actually be useful and prove a point.
Instead of trying to come up with just one ROI indicator (which in customer service would be too broad to provide any real value), break it down into individual smaller, more easily monitorable parts.
This can mildly change depending on what kind of business you’re in, but the core elements for financial return in customer service ROI are usually:
- Existing customer upgrade: existing clients moving from trial/free plan to paid plan, or from paid to more paid because of great support.
- More efficient customer support (saving time and money on everyday operations).
- Customer retention: customers staying with the company because of great support.
- “Sales”: customer service acting as marketing by providing an awesome support experience that people want to share with others.
These are all direct results, which are made up of other, smaller customer service metrics that indicate improvement:
- Net Promoter Score
- Customer Satisfaction
- Cost per contact
- Customer lifetime value
- Retention rates
Deciding which customer service metrics to look at and which indicators are the best ones to determine success depends on your company.
We’ve written a post about some of these here. Walk yourself (and your team) through your company numbers as well as customer service metrics, and identify the ones that:
- Correlate well with your business growth goals.
- Your team can have a clear and measurable impact on.
Now that you have identified the metrics that you can use to measure the impact of your investments, you can start setting up your hypothesis.
2. Set Your ROI Hypotheses
Once you’ve done the work to figure out which customer service metrics your team can influence and how that contributes to the company’s success, you can start running small, measurable experiments with individual ROI figures attached.
Structure your hypothesis like this:
This is the state right now. If we do …, it will …, which we expect will…
All of our customer service reps are in the US, but our product/service is used globally. If we add another service rep in Europe, it will bring the first response time down to an hour. We expect a better first response time to improve our customer satisfaction score, which is tied to customer retention.
Setting these hypotheses should be a discussion with your entire team, preferably after having a discussion about your customer service culture and identifying some pain points when it comes to your customer service process.
Every time you make these small, testable and provable predictions, you gather more information to feed into the next one, and your hypotheses will start becoming more accurate and calculated.
3. Test, Learn And Improve
Once you’ve made your hypotheses, you can start testing them, and reporting back on the results.
The time period that your tests take to return actual results depends on the size of your investment, but for example, based on the previous example of an added customer service rep in a different timezone, this is what a result would look like:
Three months ago we hired a customer service rep in Europe in addition to our reps in the US. Since then, our first response time has consistently been under an hour, and our customer satisfaction rates from support email interactions have gone from 74% to 92%.
By building up small, provable wins like this, you can develop the trust you’ll need to ask for longer term investments into your customer service department—and as a result, a much better customer experience.
Prove The Value Of Customer Service
Providing great support to your customers is first and foremost about investing in a relationship with them. But that doesn’t mean that your company and its interests should fall to the background.
By helping customers get the most out your product and service through amazing support, you create an experience they’ll be willing to pay for.
Start small, consult your team, and most importantly—be patient. Great customer experience and investing into it to improve it even further is an ongoing journey.
Make sure to grab your ROI baseline document by clicking here and let us know how it goes!
With enough commitment and planning, the value of investing into your customer service experience will benefit both your and your clients in the long run.