We know it can be difficult to whisker away your leadership’s doubts about customer service being a cost center in your company. As a customer service leader, you know your customer service agents are powerful drivers of customer happiness — and revenue.
But how can you demonstrate their tangible impact on profits? By clawing through the numbers and calculating your customer service return on investment (ROI).
We’ll help you understand what customer service ROI is, how to calculate it and interpret the results, and share some strategies for boosting your customer service ROI with feline precision.
What is ROI in customer service?
Customer service ROI is a formula that allows you to evaluate how much money you’ve made from your investment in customer service (compared to how much you originally spent).
There’s a standard formula you can use to calculate your customer service ROI (more on that in a bit), and the metric that results is expressed as a percentage.
For example, “We saw a 40% ROI on our customer service QA program using Klaus.”
Why should I care about our customer service ROI?
Some companies still see the customer service function as a cost center. This is often especially true for large organizations. It’s ironic because although the customer support teams in large organizations are helping huge numbers of customers, they often get overlooked and undervalued.
C-Suites at these organizations understand the necessity of excellent customer service, but without a clear connection between the quality of the customer experience and revenue, it can seem like an unendingly expensive necessity.
In fact, they can view customer support like getting a colonoscopy.
Once you hit a certain age you know you need one, but it’s not something that gets you excited. It’s costly— in more ways than one — and unless it uncovers a serious problem, it’s easy to question whether it was a waste of time and money.
In actuality, it’s quite the opposite — both for colonoscopies and customer service.
Bad customer service is what’s expensive: 32% of customers say they would stop buying a product they loved after just one bad experience.
Compare that to the whopping 73% of customers who reported that a good experience was a deciding factor in their buying choices — even more than product price and quality. Even more, research done by the creator of the Net Promoter Score found that increasing customer retention rates by just 5% resulted in an increase in profits of 25% to 95%.
Chances are you’ve seen these scenarios play out with your own customers. You’re a senior customer service leader. You know this stuff. You don’t need convincing.
But calculating your ROI helps you make those connections for your leadership team and peers by giving you solid data around which you can build a compelling narrative.
Measuring your ROI will also help you identify when you need more customer service staff or better support software (and make a business case to justify the additional expense).
Calculating your ROI can help you compare things like your support volume and knowledge base traffic to trends in customer churn and recurring revenue over the same period of time. It helps you find overlapping problem areas, then make a plan or design tests to fix them.
Which brings us to an unexpected side benefit of calculating your customer service ROI: you’ll build close working relationships with other teams inside your organization.
- You may not have easy access to some of the metrics we’ve mentioned, like customer retention rates, customer churn rates, or monthly or yearly recurring revenue. But your sales and marketing teams do.
- You know your customer’s pain points with your product and the features they’d like to see implemented, but you’re not able to design or ship them. But your product and engineering teams can.
Building strong relationships with your product, engineering, sales, and marketing teams is integral to cementing your customer service team’s value in your company. And if you treat those teams as partners in your customers’ overall experience? It can drive more customer-centeredness and support-driven growth for your entire company.
That’s good for your customers, your customer service team, and your company’s bottom line.
How to measure customer service ROI?
Here’s the formula for calculating your customer service ROI:
(Gains from Customer Service – Cost of Customer Service / Cost of Customer Service) x 100
For an example calculation, let’s say your customer service team generated $100,000 in revenue from new and existing customers, while the cost of running the team is $60,000.
Plugging these values into the formula, we get:
Customer service ROI = ($100,000 – $60,000 / $60,000) x 100 = 66%
So your customer service ROI for that period would be 66%. Put another way, for every dollar invested in your customer service department you’re generating a return of 66 cents.
Now, the ROI formula itself is simple, but figuring out the right dollar amounts to plug into it is a little more complicated.
How organizations determine the costs and gains from good customer service can differ based on things like team structure, business model, and product, but we have some tips to help you guide your research.
How to determine your customer service costs and gains
First, decide on the time period you’d like to track when calculating your customer service ROI. It will be easier to gather data on gains and costs if that time period aligns with the reporting cadence your other internal teams are already using.
For instance, if your sales team tracks your company’s retention and churn rate by a quarter, you should track your customer service ROI quarterly as well.
The next step is to determine your customer service costs. Gather all possible expenses related to your customer service function for the time period you want to track.
This includes your customer support team’s salaries, the cost of any training you provide, the cost of all support tools and technology they use, and any other overhead costs associated with the customer service team.
Lastly, you’ll want to bring in your sales and marketing partners to help you gather all the data you can on your team’s contributions to revenue.
These contributions fall into three main categories:
1. Acquiring new customers.
Your team’s great customer service acts as a Word of Mouth boombox — 86% of those happy customers will go out and tell their friends, who come to your company and are delighted themselves, so they go tell their friends, and on it goes.
Associated metrics: new customer acquisition rate, customer acquisition cost, customer churn rate.
2. Retaining existing customers.
Your team’s kind, individualized support extends your customer’s tenure with your product or service exponentially. Harvard Business Review found that, particularly for subscription-based services, customers who reported having the best experience with a company had a 74% chance of still being subscribers a year later.
Meanwhile, customers who reported the worst experiences with a company only had a 43% chance of still being a subscriber a year later. Considering that 80% of profits come from just 20% of customers — keeping those customers matters.
Associated metrics: customer retention rate, customer lifetime value, monthly or yearly recurring revenue.
3. Helping customers find value in additional products and services.
Your customer support agents are experts in consultative selling. In other words, they invest time in deeply understanding a customer’s problem and then help the customer find solutions in another product or service.
This can have a big impact on your company’s profits: nearly 70% of customers will spend more money with a company when they feel heard and that they’ve been given individualized support.
Associated metrics: upsell, cross-sell, expansion revenue.
Note: for more details about key metrics like the ones mentioned above, check out this deep dive into the customer service KPIs →
How to improve your customer service ROI
Once you’ve measured your customer service ROI, you’re in a great position to start brainstorming ways to optimize it for your team. Don’t be afraid to think outside the box!
Some of your ideas will likely be unique to your business, but we can recommend three strategies to get you started on cat-apulting your ROI to new heights:
- Focus on quality with a quality assurance (QA) program
- Offer more training to your customer service reps
- Reassess the tools your customer service team is using
Focus on quality with a QA program
As we’ve already covered, the quality of your customer service has a huge impact on every facet of the customer lifecycle, from bringing in new customers to deepening their understanding of your products to turning them into brand ambassadors.
Implementing a formal QA program allows you to zero in on your customer’s experience like a cat on a laser pointer. You’ll define what quality means to your team and, using QA scorecards, you’ll create helpful guidelines for what stellar customer support looks like.
A thoughtfully-designed QA program will make for happier customers and more engaged agents, but if you’ve never implemented a QA program before, don’t be afraid. QA tools like Klaus offer many resources for customer service teams who are new to the practice — or for bigger call centers who want a fresh take on customer service quality.
One great example: Setting Up The Purrfect Customer Service QA Program is a useful course if you’re creating your QA program from scratch.
Offer more training to your agents
Another major benefit of a QA program is that it will help you identify topics and skills for which your team needs more training.
Addressing weaknesses in areas like product knowledge, written voice and tone, and proactive support can all have measurable impacts on the gains side of your ROI calculation: lower cost per ticket, higher customer satisfaction, improved retention & customer loyalty.
Although offering formal training is always a solid option, don’t forget that training can come in other forms as well. Peer reviews, analyzing customer feedback, manager coaching, and cross-functional mentoring are all excellent ways to provide growth opportunities without increasing your overhead.
Reassess the tools your team is using
We’ve all been there: you choose a tool for ticketing and then pick up a tool for chat, and then you piece together something for your help center, and your team uses one project management tool but the engineering team uses another, and and and…
Support tool bloat often happens so quietly and gradually that it’s easy to miss until you’re doing something like adding up all of your customer service costs for an ROI calculation.
Even if you’re not dealing with tool bloat, it’s worth asking yourself whether your tools are still serving the team well — 46% of support leaders say their current tools are hindering them from meeting their customer service goals.
It’s also a good idea to investigate where automation and AI-powered tools can relieve labor-intensive tasks and workflows for your team. Go carefully into this new frontier, however: 72% of global customers and 82% of U.S. customers want more human interaction in their customer service experiences.
Embrace your inner meow-thematician and calculate your customer service ROI like a pro
Now that you know the value of determining your customer service ROI and understand how to calculate and influence it, it’s time to go forth and measure the purr-formance of your customer service efforts.
Remember, is like a ball of yarn — sometimes elusive, but always worth chasing after. With a keen eye and a smart approach, you can untangle the mysteries of your customer service impact on the bottom line.