How To Measure Customer Service Return on Investment (ROI)?

Business both risk and investment at the same time. Owners invest their hard-earned money and use their names to acquire financial loans to start the business or get additional funds. However, not all business operations necessarily mean earnings.

One of the departments that do not directly contribute to the income of the company is the customer service team. However, they would still like to see how the department can use their skills in boosting sales or increase income. Using the formula of customer service ROI (Return On Investment) is one of the ways to know how much the team contributed to the company earnings.

How to Compute ROI?

Generally, computing the Return On Investment is the percentage of subtracting the initial value to the current value, and dividing the difference to the initial value. The same formula is used in calculating customer service ROI, where the initial value is replaced by ‘cost’ and the current value by the ‘gains’. An illustrative formula may help understanding it better:

[(gains – cost) / cost] * 100 = Customer Service ROI

It may look easy to analyze, but in the world of business, computing the exact percentage will require the collaboration of different departments. When talking about customer service ROI, there are a lot of things considered to determine the exact result.

The formula can also be used when the data available are rough estimates, which can give an idea in checking for the ROI. Now, take a look at what can be considered as ‘gains’ and ‘costs’.

Looking at the Gains

The customer service department typically falls in the category where it does not contribute to the company’s profit. Nevertheless, gains are more realized in the sales department because sales directly contribute to the financial health of a business. However, the customer service department can bring also perform sales activities such as the following:

1. Offering Additional Products or Services

Customer service staff can create sales by promoting additional products or services that will serve as a solution to the customer’s issue. It could be an accessory to the original item or an additional service to the one currently being used.

For example, a customer went to the store to complain about their internet connection. After asking the customer probing questions, the staff concluded that the customer needs an additional router. The customer purchased the offered item by the customer service staff and satisfied with the solution. The sale of the item is considered to be gained from the customer service department.

2. Upgrades

To solve customer issues, some products and services need to be upgraded. Companies that are offering upgrades are most likely to be in the industry of computers and technology. The best example where a lot of customers can relate is the sharing of audio or streaming platform log-ins.

These kinds of services won’t work simultaneously, depending on the number of users allowed on the plan. Customer service staff might saw the usage from his account history and offered an upgrade to provide more user access. If the customer accepted, it is an income from the department.

3. Cross-Selling

Cross-selling is a sales activity where the customer is offered something that is completely different from the purpose of his visit or contact. In the customer service department, this is usually done through customer observation, or the staff is required to increase awareness of new products or services.

Let’s say the customer entered a retail store looking for a certain item. The customer service staff saw that the customer is wearing jewelry that needs cleaning. The employee offered one jewelry cleaner and the customer accepted it. Through observation, the customer service staff contributed to the gain of the department.

4. Referrals

Customer service staff can also gain from referrals. This is usually coming from a result of word-of-mouth advertising whenever the employees give exceptional service to a customer. Aside from that, efforts from the marketing team can boost earnings in the customer service department when the business can give discounts to referrals.

This kind of marketing strategy is popular on mobile apps, asking for a referral code to new users. In return, the company will provide a reward or special offer to the user that is associated with the said code.

There are more ways that a customer department can create a profit other than those that are listed above. It may not involve them directly, but can be considered as their gains.

Looking at the Cost

Customer service operations are usually seen as a cost, involving expenses that do not necessarily convert to earnings. The department is directly involved in the money spent, compared to the money gained that can be managed by another department.

Computing the true cost when talking about customer service have different kinds of approach. There are businesses that would compute it as a whole, while some would require estimating the cost per customer. It would also depend on the industry and the kind of customers it deals with.

The biggest expense associated with customer service is the operating costs. This is the amount of money spent on maintaining the smooth daily operations of the department. Some of the examples that fall in this category are rent, utility bills, office supplies, and employee salary.

Once the company has computed the exact or estimated amount, it will be considered as ‘cost’. The formula stated above can now be used to tell if the service provided to the customers has returned financially. Companies also consider the period to be evaluated – some may do it for one whole calendar year while some may prefer to do it on a specific period (like monthly or quarterly).

As mentioned, it could be hard to distinguish if the gain came from the customer service department. Some customers may go directly to the sales team, with the influence of the customer service staff. But what is most important is that the company, in general, obtained more profit even if the customer service department does not primarily focus on income.

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