If you spend a dollar on customer service, how much money will that dollar make for you? The answer to that question (expressed as a percentage) is your customer service Return On Investment.
What is “Return On Investment”?
Return on Investment (ROI) is a simple formula:
So if you spend $100 on customer service, and as a result of that service you earn $150, your return on investment is 50%.
Which makes it all sound so neat and simple, doesn’t it? Certainly the equation itself is easy. However, getting accurate numbers to fill into it and accounting for more qualitative support impact present a real challenge for customer service teams.
Before you fire up the Excel spreadsheets and get those laptop fans spinning, take a moment to think about why ROI may be an important measure for your team.
Why ROI matters for customer service
In the corporate world, departments are often divided into two groups: cost centers and profit centers. Customer service is typically considered a cost center, a part of the business that does not directly produce profit and costs the company money to operate.
Most businesses have limited funding, so when they allocate their budgets for each quarter, the areas of the business that generate a profit very often receive the most funds.
That can leave customer service teams underfunded and overworked, since they can’t usually reduce their incoming workload. If a customer service team could show a solid return on investment, they would have a stronger hand to play in budget meetings. So why isn’t customer service ROI a standard metric for every team?
ROI: A simple formula with complicated numbers
Calculating ROI requires knowing two things:
- How much you are investing
- How much you earn from making that investment
For a sales team, figuring out the ROI is reasonably straightforward. If it costs $100,000 a year to employ a full time sales rep and that rep generates $500,000 in profit, then that’s a great return.
Of course there are more details involved than that, but it’s still easy to tell if a salesperson is generating enough profit to be worth hiring. Their daily work can be directly tied to the revenue they bring in.
For customer service teams, it’s reasonably easy to measure the costs of staff, training and tools, but it’s more difficult to get an accurate number for money earned (or costs reduced).
Support staff aren’t directly making sales or generating new income; they’re working with existing customers who are already accounted for, in terms of ROI, as sales or marketing wins.
Yet we know that great customer service does correlate with business success, and at an individual level it’s clear that people prefer to give their money to companies who look after them.
The challenge is finding a way to fairly account for the portion of the company income that customer service is responsible for.
Here are the core elements for financial return in customer service ROI:
- Upgrade income: existing customers deciding to spend more money because support teams helped them understand the service better.
- Retention: customers staying with the company longer than they would have without great support.
- Expansion: customer service acting as a marketing channel by giving customers great experiences that they share with others.
Discovering what those numbers are and determining exactly what impact customer service has on them is a real challenge. (In the second post of this series, I’ll make some recommendations on how to think about measuring ROI for your team.)
It’s clear that measuring customer service ROI is complicated and has no single solution. However, there are ways to create your own unique situation. In Part 2 of this series, we’ll examine some of those approaches in more detail.
Help U: Crash Course in Customer Service ROI
Have you tried measuring your ROI? We’d love to hear your stories, successes and challenges as we continue in this series. Leave a comment below, and be sure to check out the second part of this series, our Step-By-Step Guide to Measuring Customer Service ROI!