Why Revenue Growth Is A Poor Measure Of Customer Experience ROI

Some customer experience evangelists are getting too revved up over revenue growth.

In their zest to demonstrate customer experience ROI to skeptical business leaders, some customer experience evangelists are getting too revved up over revenue growth.

But how could revenue growth be a poor measure of success?

 

Profit Is Paramount

There are two important drawbacks to using revenue growth as a macro indicator of customer experience ROI.  The first is grounded in one simple fact:  Most businesses exist to make profit, not to make revenue.

Growing revenue at the expense of profitability is rarely a sustainable strategy (at some point, investors do expect to make money).  Indeed, focusing too much on revenue growth can actually drive the wrong behavior in an organization, potentially leading people to focus on businesses, segments, or customer experience enhancements that boost sales but not profits.

Most company boards will have limited patience for executives who deliver sales, but not earnings.  If the goal is to help executives appreciate the value of customer experience differentiation, then for goodness sake, use a metric that won’t get them fired!

When the benefits of customer experience are framed largely as a revenue play, the implied message is that profitability is a secondary concern – or worse, that profitability improvement isn’t an anticipated consequence of a better customer experience.  Either way, it sends the wrong message.

 

Revenue Is But Half The Equation

But there’s also a second important shortcoming to using the revenue growth metric:  It completely ignores the expense-saving aspect of a better customer experience.

A great customer experience, if properly engineered, should affect a business’ income statement in two places – the revenue line and the expense line.

When customers love you, revenue goes up because they refer others to you, they buy more stuff from you, and they’re less price sensitive.

But loyal, happy customers also help to control, if not reduce, expenses – by generating referrals that shrink new business acquisition costs, and by putting less stress on operating infrastructure (via fewer complaints, for example).

Revenue growth, as a measure of customer experience ROI, completely misses the expense half of this equation.  And the impact isn’t just on numbers, it’s on people, too.

When companies define customer experience ROI purely in terms of revenue growth, employees who aren’t directly connected to sales get disengaged from the whole improvement effort.  In their eyes, they have little opportunity to influence a revenue metric.

A broader measure of customer experience ROI, one that accounts for both revenues and expenses, has more relevance to more parties.  And when employees – in sales, service or any other function – believe that they can personally move the needle on customer experience success metrics, then it’s a lot easier to enlist them in the whole improvement endeavor.

 

A Better Measure of Customer Experience ROI

So what’s the solution?  No macro measure of customer experience ROI is perfect; they all have imperfections.  But the one I’ve long favored is a more holistic measure of business performance  – namely, stock appreciation.

Over the long-term, stock price is a reflection of a company’s future cash flows (its “earnings growth,” in Wall Street terminology).  And how do you maximize cash flows?  You improve profitability.  And how do you improve profitability?  By growing revenues and reducing expenses – two tasks that will have immediate relevance to most anyone in an organization.

What’s more, there’s good evidence that, over the long-term, customer experience excellence is indeed rewarded by investors (check out Watermark Consulting’s 2015 Customer Experience ROI Study).  It’s not a perfect correlation, but it is an intriguing indication that customer experience leading firms are often viewed as more valuable than their laggard counterparts (a discovery that has relevance to any company, public or private).

Stock price appreciation is by no means a flawless measure of customer experience ROI, but it is, without question, a more holistic measure of business success than revenue growth.

That’s a key distinction, because if you’re seeking to influence executive mindsets around the importance of customer experience, you need to speak in terms that will resonate with everyone in the C-Suite.

A conversation about stock appreciation and long-term profitable growth accomplishes precisely that.

 

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Jon Picoult is Founder & Principal of Watermark Consulting, a customer experience advisory firm that helps companies impress their customers and inspire their employees.  As a consultant and keynote speaker, he has advised thousands of executives across some of the world’s foremost brands.

Contact Jon at www.watermarkconsult.net, or follow him on Twitter @JonPicoult.