Why are experience management metrics the #1 challenge year after year?
Quantifying CX ROI is the top challenge, per Pointillist’s 2019, 2020, and 2021 studies. This means current experience management metrics are insufficient! (NPS, CSAT, FCR, Health / Effort Score, etc.) Interestingly, Employee Experience or Partner Experience can be substituted for CX below. Experience Management (XM) encompasses CX + EX + PX. (Brand experience and product experience are subsets of CX, and they are sometimes subsets of EX and PX.)
So, what’s the solution? Understand how experience management metrics build upon one another, to see where you should focus. Like concentric circles, or a Russian doll, start with Earnings per Share and work backward.
Earnings per Share is the ultimate metric: it shows how much money is available ultimately. You may have profit sharing or mutual funds or stocks, where each share’s value matters. Employee experience, partner experience, and customer experience contribute to EPS.
EPS is ultimate for profit-based brands, but for non-profit and government organizations, Return on Assets or an equivalent metric is the ultimate indicator of excellent management.
Return on Assets is the key to EPS. Assets are everything your brand has invested in: people, software, hardware, facilities, etc. As assets contribute efficiently to revenue, EPS grows.
Lifetime Value of customers, partners, and employees is the key to ROA. Your brand relies on these 3 groups for growth. Employees and partners create and deliver value to customers who pay for salaries, budgets, and dividends (EPS).
Margin Expansion is a key to LTV. It means customers are less price-sensitive and/or willing to buy higher margin products/services. It means they’re not just buying due to discounts. This is possible through trust and value, which are generated by employees and partners.
Sales Velocity is another key to LTV. It is the cycle between (a) customer awareness of a need to buy from you and (b) getting money in your bank account. LTV increases as this cycle shortens, and as revenue per purchase increases. This is possible by building trust and value. An equivalent metric can be monitored for EX and PX: cycle time and value.
Sales Velocity is influenced in this order, from bottom to top of this list:
- MRR (monthly recurring revenue; a customer’s repeat purchases)
- Share of Wallet (how much your brand is winning among a customers’ total purchases of your type of product/service)
- Product Penetration (how much of your total offerings are purchased by a customer)
- Market Share (how many applicable customers in the world are buying your brand)
- Conversion Rate (how many people buy, among those showing interest in your brand)
- Share of Mind (how much your marketing/advertising is standing out from other brands)
Costs to Serve include delivering everything you sold to the customer, along with onboarding and maintaining your relationship with the customer. Unfortunately, it also includes costs of handling mis-steps, misunderstandings, concerns, negative word-of-mouth, refunds, remedies, incentives, escalations, churn, and so on.
Experience Management metrics revolve around the unfortunate aspects of Cost to Serve. They track the efficiency and effectiveness of making up for things going wrong.
- Customer Acquisition Costs (CAC) are influenced by Net Promoter Score (NPS), Health Score, and Satisfaction ratings. This also applies to Employee and Partner Acquisition.
- Churn Rate is affected by First Contact Resolution (FCR), Effort Score, and Satisfaction.
What’s missing in experience management metrics are the 2 core dolls in your concentric circles of Russian dolls. Success of CX, EX, or PX is when their realities match or exceed their expectations. When you achieve a 1:1 ratio between their realities and expectations, there is no pain. Accordingly, Costs to Serve are minimized. Therefore, you need strong focus on expectation management and realities (defects) management. This is the heart of experience management!
Health Score, CAC, NPS, SAT, Effort Score, and FCR are results of realities (positive + defects) relative to expectations for customers (CX), employees (EX), and partners (PX). These experience management metrics are indexes. They can be combined as a super index. For example, the Secure Customer Index combines likely to recommend + likely to rebuy + overall satisfaction. Similarly, Health Score combines NPS + overall satisfaction + Service inquiries + product usage. Indexes are useful in quantifying XM ROI when you use them for correlation analysis. (see my mini webinar: Is a Survey KPI Best?)
You must also collect other data about CX+EX+PX expectations and realities. This data can be collected via surveys or text/voice mining or operational data. When you correlate expectations and realities data versus your index, you can identify key drivers.
When you create a Pareto chart for each key driver, you rank order the contributing elements of that key driver. In the charts above, “Software Quality” is a key driver. The Pareto chart lists bars in descending frequency for elements contributing to Software Quality. The 80/20 rule indicates the Vital Few elements to solve. You want to focus on the Vital Few, to prevent recurrence of customer / employee / partner pain for the key driver.
When you prevent recurrence of CX+EX+PX pain for the key driver, you’re creating XM Annuities! An annuity is a fund that provides ongoing returns. Preventing recurrence (a) frees-up your Cost to Serve expenses that would otherwise be needed forever in the future — those expenses are no longer needed! — and (b) re-allocates that money to growth opportunities.
XM annuities generate massive ROI. This is the key to quantifying XM ROI!
Notice in the Pareto chart that the Useful Many elements are your opportunities for quick wins. Make sure you focus primarily on the Vital Few elements if you want to demonstrate massive ROI through experience management metrics. Quick wins value is often short-lived, because they do not prevent recurrence of pain for the key driver. Only the Vital Few elements can achieve that.
To solve the Vital Few elements, you must engage people in resolving the root causes. This is why you quantify the money (revenue or cost) represented by a Vital Few element. When managers see how much money is represented by a Vital few element, they are motivated to engage.
You can quickly discover the true root cause of each Vital Few element by engaging a representative of 5-6 work groups (like Engineering, Sales, HR, Legal, Purchasing, Marketing, Quality, Safety, Service, etc.) in root cause analysis.
- By video conference or in-person workshop, ask these representatives to review CX/EX/PX comments about the Vital Few element.
- They will identify themes they’re noticing, and refine their thinking through group discussion.
- Then they will ask themselves: Why are we letting customers / employees / partners experience this? Then: Why are we allowing that? And again: Why are we allowing that? When they get to the 5th why, this is typically the true root cause.
The correlation analysis (aka key driver analysis) identifies which defects and expectations are problematic: why the 1:1 ratio failed.
- Expectations issues signal problems in what you are doing to get share of mind and achieve your conversion rate. The root cause will be how you are identifying, attracting, and converting your Ideal Customer Profile; and/or what and how you are communicating value; and/or how you are onboarding customers. This also applies to EX and PX; substitute the word “customer” for employee or partner.
- Defect issues signal inefficient and/or ineffective processes, handoffs, business models, policies, and/or attitudes. Typically, this means silos are causing CX+EX+PX pain.
When the true root cause of each Vital Few element is discovered, then your cross-functional group (above) creates an action plan to address each aspect of the root cause. Then they identify something they can track to monitor progress of this action plan. This is a Leading Indicator experience management metric. Arrange high visibility of the action plan and its progress metric.
- Make sure it’s on meeting agendas (at the front end, not the back end of meetings). This allows managers to help make sure real progress is achieved, by removing roadblocks, giving accolades as they’re earned, and being a spokesperson for XM.
- Communicate to your customers (or partners or employees) that you have an action plan for the key driver that’s causing them pain. Promise them a progress update at a specific time. Follow-through on that promise. This motivates follow-through on the actions. It also generates trust significantly. Also, it resets perceptions, to give you a clean slate in surveys and behaviors, without lingering grudges for past pains.
- Celebrate teamwork in preventing recurrence of issues in your recognition programs. This stimulates customer-centric culture (+ employee-centricity and partner-centricity). It nurtures a prevention mindset and a lifetime value mindset.
- Reward progress of your action plan metrics in bonuses and other compensation. Do this instead of rewarding index progress (survey scores).
Leading Indicators of indexes, costs, revenue, LTV, ROA, and EPS are your action plan progress metrics.
Since you have scientifically identified this metric (via index, then correlation, then Pareto, then 5 why’s), you can rest assured that your action plan progress will translate to index progress and financial progress.
The 5 best experience management metrics are XM Leading Indicators, Sales Velocity, Profit Margin Expansion, Value Quotient and Lifetime Value.
Examples of XM Leading Indicators are shown in the chart above. These are achievements of cross-functional teams at Applied Materials where I led CX company-wide. These strides are the result of CX index key driver analysis, followed by Pareto analysis and 5 Why’s analysis, action plans addressing the 5th why, and huge focus on the action plan’s internal progress metric as XM Leading Indicator.
- Arrows indicate which Leading Indicators improved Profit Margin Expansion and Sales Velocity.
- Value Quotient is a tally of value deliveries in the numerator and value failures in the denominator. This can be tracked by every work group in your firm, for both internal and external CX, EX, and PX. It’s instrumental in shaping a preventive mindset.
- Sales Velocity and Value Quotient contribute to Return on Assets.
- Profit Margin Expansion and Lifetime Value and ROA contribute to Earnings per Share.
- When you connect the dots between (1) defects/expectations Leading Indicators and (2) Value Quotient, (3) Sales Velocity, (4) Profit Margin Expansion, and (5) Lifetime Value, it’s easy for executives to see how you are shaping ROA and EPS.
This article is based on a recent LinkedIn Live mini webinar.