What is ROI?

As experts in customer experience, insight6 understands that ROI is essential to every investment a business can make, especially when it comes to marketing and consultancy.

Return on Investment (ROI) is one of the most common profitability ratios, and is used to measure the gain or loss made on an investment, relative to the amount of money that has been invested. The use of ROI in business involves observing how money has been invested in a company and the return that is realised based on the net profit of the business. 

How do you calculate ROI?

ROI calculation is based on percentage, as this is how return on investment is most typically expressed. The most common formula used for working out ROI is:

ROI = (Net Profit/ Cost of Investment) x 100%

This calculation is flexible and can be adjusted for different uses. To give an example of a return on marketing investment, imagine a company that averages 4% organic sales growth and runs a £10,000 campaign for a month. They have a sales growth of £15,000 that month. The calculation would look like this:

Return on Marketing Investment = [(£15,000 - £10,000)/ £10,000)] x 100

= 50%

By using this calculation a business can clearly determine how much return they have gained by their investment of £10,000. In this case they are £5000 in profit.

What are the benefits of using the ROI formula?

There are some advantages which make ROI percentages useful, as well as the formula used to calculate them. The first of these is that percentages are more often thought of as being easier to read and understand than ratios. The formula is considered extremely easy to calculate as well, because there is no set definition of what “return” signifies and can therefore be used as you or the company investing sees fit.

The notion of return on investment is also generally considered to be a universal concept, so if you use this formula, it is most likely that others will know what you are referring to. This will also allow for comparisons between investing in a new office, or if a new member joins your team.

What is a good ROI?

What determines a good ROI depends on what a company is investing, and how that company interprets its returns. As the formula for calculating ROI is flexible, there is the possibility for it to be easily manipulated to suit any company’s particular requirements. Because of this, you may find that results vary between the results found for your company and those found for other firms. When you are comparing the efficiency of an investment, it is important that the same inputs are used to get an accurate determination of your ROI.

In theory, any return on investment that results in a profit is good, but how much profit is required to consider the investment a success would depend on the business and the circumstances involved.

Factors affecting your ROI

A number of factors can affect and even completely determine the results of your return on investment. The largest of these is market share, because the higher the share of the market, the higher your profit margin tends to be.

As an average, companies which have market share above 36% earn more than three times as much as businesses with less than a 7% share of their market. At least three contributing factors come from high market share; economies of scale, market power and better access to quality management and talent. The latter can increase your ROI as high performing managers are most often successful at achieving large portions of their respective markets. 

The second largest factor that will determine your company’s ROI is the quality of your product or service. When customers are satisfied with what is being provided, they are more likely to return and use your company again. The ideal outcome is for a company to have both a high market share and to supply a superior product or service. 

How R&D (Research & Development) Affects ROI

R&D spending can also affect the ROI of a firm. When market share is high, a company’s average ROI will be highest when its R&D spending is also high. There are several hypotheses as to why this is the case, though it is most likely that having a high ROI will encourage a company to invest more in R&D and when this has a positive impact, it helps to improve the return on investments.

How Inorganic Growth Affects ROI  

The newest factor, which often needs careful monitoring, is the notion of increasing ROI through inorganic growth, otherwise known as a merger or acquisition. When this is done correctly, the acquisition should increase both your market share and your ROI, as you will immediately gain the customers and sales of the acquired business. For example, when Google bought YouTube in 2006, the company immediately made gains from the website and its existing userbase, and went to the top of the online video streaming market.

Improving your ROI

Improving your return on investments can be achieved in several ways, from generating more sales to raising prices. Also, improving your overall customer experience can go a long way to increasing your ROI on any investment your business may need to make to increase sales.

When you choose to begin a plan for improving your company’s ROI, it is important you have clearly defined outcomes you wish to reach first. It is also recommended that there are milestone goals in place, in order to help you increase the payback on the different initiatives you have set up and to keep you working towards the end result you have planned.

How Improving Customer Experience Can Offer a Great ROI

Customer experience is essential to how a customer perceives your company. If you improve your customers’ experience, they are much more likely to a) buy your product, or use your service again, and b) to recommend your company to others. 

Our Customer Experience Experts have countless case studies where improving customer experience resulted in a fantastic ROI. If you invest heavily in marketing but haven’t considered the foundations of your customer experience, then you could be wasting money on investments that return a very low, or even non-existent ROI.

Book a consultation with one of our CX experts and make sure your business is built from the ground up. This way you can increase the chances of your ROI delivering a profit that can ensure the future success of your company.

Waking up to the biggest opportunity to grow sales in the Legal Industry…

We conducted research into clients' perceptions of law firms and found that client experience is not nearly as good as the expert legal advice given by solicitors.

For a sector which employs 140,000 highly trained and skilled solicitors to advise on complex ‘human’ problems, it is difficult to understand why some law firms behave as if there is no client choice.

The time for solicitors to act and improve client experience is now! There is enormous pressure in the legal sector as 'low cost' competition increases. ‘Watson’, the legal artificial intelligence, has already been created to replace the solicitor’s advice and 'new business structures’ are challenging the traditional model.

Our insight6 study of the Legal Client Journey highlights an enormous opportunity for every law firm to grasp the nettle and focus on client experience. Clients want to be heard, understood and served by solicitors’ practices just like any other business they buy from, at every stage in the journey from first contact to receiving the bill.

The single biggest opportunity exists before the solicitor even knows a potential client exists - it is at the point that the client is shopping around - phoning in, logging in or walking into the practice.

Our research demonstrates the financial value of lost opportunities.

In a nutshell, the top six areas that need to be addressed at law firms at the enquiry stage are:

  • 6 out of 10 people were NOT called back after leaving a message 'out of hours’;
  • Less than 30% of enquiries had their call answered with a person that introduced themselves with their name;
  • Contact details were not taken by one third of callers which meant that enquiries could not be followed up;
  • Under half of the solicitors used the name of the client when interacting with them on the phone;
  • Only 1 in 4 firms described the benefits of working with them when talking to a prospective client on the phone;.
  • 80% of firms did not follow up call enquires and 95% did not follow up enquiries made through the website.

So what can you do?

First thing is to download the Legal Client Journey, have a read and hold a conversation with one of our Customer Experience Experts who are based throughout the UK and Southern Ireland to create a bespoke six step action plan for optimising the Legal Client Journey. We constantly receive ROI success stories from our 1,000+ clients who work through our programmes. Just one of insight6’s clients told us they invested less than £1k in improving customer experience and as a direct result retained a client worth £45k per annum.

The time to act is now! We are in an ‘experience economy’ where people value human connection more than anything else.

Download your copy of the Legal Client Journey by clicking here and reinvigorate your practice.

Six steps to guarantee a ROI (return on investment) in customer experience

How do you know when to invest in Customer Experience?  What does such an investment look like? Is it training or measuring or just paying attention to the customer? And then, the million-dollar question, how do you know your investment in customer experience has actually worked?  AND, is there a time you can stop investing in this valuable resource?

At insight6, our team of 24 Customer Experience Experts (CXDs) work across the UK and Ireland, with more than 1,000 businesses.

We asked them how they would answer these questions.

Our CXD team have very impressive senior management experience in customer centric companies from Tesler to Tescos, from Costa to Coke, Apple to Heineken.

What we discovered from our team of CXD’s can be summed up in six key findings:

1. One size does not fit all

The first step with any new client is to gain an understanding of the needs of the organisation. Some clients know exactly what is needed, for example, a team training programme or a competitor analysis. Other clients may need to gain an objective view on whether there is a customer experience issue to address. When a client does not know if there is an issue, the only way to find out is by asking either customers, the team or both! Whatever the client issue, whether it be high team turnover or low customer retention, the results of asking the right questions will always illuminate a path of action that will solve the problem. Simply having an open discussion with an expert will open up the world of CX and allow exploration into what can be achieved.

We had such a discussion with the CEO of a private school, which had a problem with their open days lacking purpose. Measuring the customer experience through insight6 CX reviews across all their open days led to identifying untapped specific sales opportunities that were immediately actioned by the whole team. This, in turn, led to an increase in conversion on new students of 49%! The return on investment on a school with £25K fees per annum is significant.

2. The time is right when you are ready for change

The only time to invest in Customer Experience is when you are prepared to take action. How many times have you decided to undertake research and used the report to fill a bookshelf, or attended a training course and, within a week, forgotten what you learnt? We all do it.

The truth is that you will know when it is time to invest in customer experience; it’s when you know you are ready and are open minded enough to embrace what comes next, and then make it happen.

Two live examples from our team are:

In an accountancy practice, staff focus groups and a team engagement survey were conducted across the business: the results were poor, as expected. The manner in which the results were presented, and the clarity of the next steps were too compelling for the managing partner to ignore. Within 6 months of the results and the actions of the management team, staff morale and retention had improved, and like for like sales had increased on the previous 6 months.

Conversely, a business had commissioned Customer Experience reviews (mystery shopping) to measure the customer’s perceptions of the service. KPI data was generated from the customer experience studies on sales, service and presentation over a series of months. The detailed gap analysis over time, clearly highlighted the need for sales skills training but the business was not ready to take the plunge. When measurement is used without the accompanying action, it is not possible to create the impact on the business and maximise your return.

Improving CX is about changing behaviour and that needs to be central to all activity.

3. Investment in Customer Experience is everything to do with the Customer

Take a look at your business through the lens of your customer, and you will see everything that needs to change! Keep the customer as a metaphoric ‘horse whisperer’ by having a continuous 'feed in' of how they see your business, from focus groups to CX reviews (mystery shopping), on-line immediate feedback, to Video mystery visits. The only thing that is vital, is that you listen to the ‘whispers’, and elevate their status in your business to the most important voice in your management team. One of our clients has an empty chair at their board table that represents the customer, so the customer’s perception can never be forgotten. This makes the point to the whole management team that the person in that chair is the one who needs to be most impressed with the decisions made in the meeting.

Our CXD’s recount some great examples where…

An optician's practice committed to an ongoing programme of CX reviews (mystery shopping), Feedback Direct (real time customer feedback) and annual Focus Groups, which led to a change in strategic direction, continued investment and acquisition. All this was possible through deeply understanding the relationship with customers.

In a farm shop, the investment in understanding their customers better resulted in an observable increase in confidence in the management of the teams; they delivered great service and developed the art of selling through being ‘in service to customers’, rather than ‘hard selling'. The ROI was staggering.

4. Investing in the Catalysts to Customer Experience

Customer experience is not something that can be ‘given’ by a business. Customer experience is a subjective feeling that the customer has, which results from a series of events and encounters which leave an impression. This is called the Customer Journey. In order to create the blank canvas so that a customer journey can be identified, everyone in the organisation needs to see themselves as a catalyst to a great customer experience - from the leaders to the front-line team.

In a business that we worked with, the Customer Experience reviews (mystery shopping) and team engagement surveys revealed the need for sales training, coaching and mentoring for the whole team from the Senior leadership team to the salespeople. The team recognised the need to treat their customers better than their competitors, which resulted in an increase in sales and referrals.

A hospitality business was able to increase average spend by a fifth, and increase Customer Experience scores by 25%, as a result of fully engaging the team and management in the training and coaching programme.

5. ROI on Customer Experience is exponential

How do you measure the impact of making your team happier? What do you ask your customers to find out if they had a good experience? And how do you know if all your investment in your customers and team really did increase your sales?

Part of any customer experience project is to put ROI at the core of the work. It is vital that you can quantify the impact of the work and the money invested. The only place to start is by asking yourself questions about where your business is now and where you would like it to be and what would ‘great’ look like. Over 25 years, insight6 has developed robust tools to measure and quantify the impact of investing in customer experience for businesses, so you can know what works and what does not.

Examples:
A retail and hospitality business wanted to understand what the increase would be in sales following a programme of CX reviews that identified an issue with the cafe team not upselling.

As a result, a sales training programme was delivered to the team. A carefully structured benchmark was created with the client on current customer spend levels and footfall before starting the project, so that any increases would be recognised and rewarded. At the end of a 12-month period, the spend levels increased as a result of 75% more customers responding to the service of the team and they purchased more product.

In a solicitor’s practice, a client journey mapping exercise led to the whole team becoming engaged in the customer experience. As a result, client retention and team productivity was increased. Just one client - who decided to stay with the practice after all - paid for the investment in the customer experience project 52 times over.

6. The magic sauce for customer experience is objectivity and expertise

The journey to being ‘great’ is continuous, especially as we live in a world where expectations from customers increase every single moment. Keeping up with customer expectations, knowing how to respond and being aware of what the priority is in your business, is a difficult task when you are ‘looking out’ from your business, as opposed to having the benefit of looking from outside in. Finding a trusted, objective and expert human adviser/partner is the magic sauce for knowing when and how to act with customer experience. Have you ever tried being your own therapist or coach? It does work, but only to the limit of what you have already experienced in your life. Gaining the insight of an expert will always allow you to step outside the boundaries of your own thinking, and experience a fresh, new way of looking at your business, inspiring you to go boldly into your future.

“Having the experience to mentor the managers to follow up the training is essential to create the transformation.” Harriet, Scotland

“We provided powerful insight with a large sample size which clearly showed the changes needed, those changes in this example created an extra £200k of income.” Graham Hill

So, is investing in Customer Experience a choice? The answer is not binary - the business needs to commit to changing and you need to find the expertise to rocket fuel your customer experience.