It’s increasingly clear that Customer Experience (CX) plays a pivotal role in shaping and driving a company's performance.
In the era of "customer is king," poor CX is like showing up to a sword fight… with a rubber chicken. Simply put, great CX drives better business performance while poor CX negatively impacts your key metrics.
Understanding these linkages can help businesses better maintain their competitiveness and financial stability. Here's a closer look at how CX affects various key metrics.
- Monthly and Annual Recurring Revenue (MRR/ARR) For subscription-based business models (increasingly common across ALL industries), MRR and ARR are vital drivers of revenue, predictability, and business value. Negative CX can lead to greater attrition, non-renewal, or lower customer value. In a market with abundant choices, even one poor interaction can drive customers to competitors. And you do NOT want that.
- Customer Lifetime Value (CLV) CLV is the total value a customer contributes to your business, over their relationship with your business. Driven by multiple quantifiable factors including purchase amounts, purchase frequency, and length of relationships, poor experiences tank customer value by decreasing all of these factors. If customers feel their needs aren’t being met by you, they’ll find someone else. After all, it isn’t personal. It’s only business, right?
- Customer Acquisition Cost (CAC) Customer feedback—positive or, more often, negative—can quickly become widespread, affecting perception, reputation, and brand value. These perceptions can be positive, as great word-of-mouth tends to drive customers to you, decreasing your CAC. On the other hand, negative experiences tend to increase CAC, as businesses have to invest more to overcome negative feedback leading to higher expenses and lower margins.
- Churn Rate A high churn rate (greater attrition, lower retention) often signals customer dissatisfaction and can be a critical indicator of CX effectiveness. Ignoring customer feedback or delivering experiences that make it harder for them to accomplish their goals will push current and potential customers away. With customer empowerment higher than ever, and ‘smart customers’ increasingly in charge of their relationships, smart businesses pay close attention to how CX is affecting churn.
- Operating Margin Simply put, it’s the percentage of revenue you have left after deducting operating expenses. In customer experience land, this means the more you have to spend to get, keep, or serve customers…the lower your operating margin is going to be. A key indicator of a company's efficiency and profitability, it tells you how you did after the fact. Fixing customer experience helps you improve it in advance.
- And…. We’re just scratching the surface here. Whatever business metric you’re measured on, chances are exceedingly high that customer experience has a direct impact on the key performance indicators most important to you, and your leadership. Return on investment? Check. Customer loyalty, or satisfaction? Yup. Gross revenue and net profit? Oh, yeah. Cost per lead, revenue per employee, customer service costs? The list goes on.
The bottom line? Customer Experience is a powerful lever that, when utilized effectively, can significantly enhance a company's performance across a wide array of business and financial indicators and executive ‘care abouts’.
Today, customer choices are plentiful and customer loyalty is hard-won. Neglecting CX is a huge missed opportunity—as well as a threat to your business's viability. Because if you’re in the business of selling to and serving customers, CX isn't just a part of the game. It's increasingly becoming a game-changer.