Customer Experience Return on Investment

With fiscal challenges facing many transit agencies, now more than ever transit leaders want to know the return on investment (ROI) before deciding to invest in new or expanded programs. Customer experience programs and investments to remedy rider pain points seem like no-brainers for agencies that want to recover ridership and build community support for funding. Nevertheless, some facts can help cultivate support from agency leaders.

Here are a few relevant quotes from a 2020 article on customer experience return on investment in the corporate world:

• “Customer-centric companies are 60% more profitable than companies that don’t focus on customers."

  
  

• "Brands with superior customer experience bring in 5.7 times more revenue than competitors that lag in customer experience."

  
  

• "84% of companies that work to improve their customer experience report an increase in their revenue.”

  
  

The full Forbes article is here. (note: Forbes has a paywall but provides a few articles for free if you haven't reached their free limit yet).

While Forbes points to a strong return on investment for customer experience improvements in general, you should try to evaluate the ROI of your particular CX initiatives. To do that, estimate the marginal revenues and costs associated with your program, and calculate the difference to estimate a net return and look at this difference as a percentage of the investment.

When assessing the revenue side of a transit customer experience initiatives, consider Customer Lifetime Value (CLV). A regular transit commuter who pays say $2.50 per ride can generate over a thousand dollars per year in revenue, so it is quite valuable to retain them.

When assessing the cost side, be aware that some analysts will point out that the average cost to serve a transit rider almost always exceeds the fare so transit agencies can actually save money by having fewer riders. That is sometimes true, however it is the marginal cost of carrying riders, not the average cost, that is relevant to ROI. Often the marginal cost is much lower than average cost or even negligible. So be sure to consider marginal costs.

As a general rule of thumb, it costs five times more to create a new customer than it does to retain an existing customer. When businesses satisfy their customers, it not only helps retain customers and revenue but also reduces costs to respond to complaints or requests for refunds. Those savings can be estimated and factored into an ROI assessment in addition to CLV. Also consider that:

• customer experience improvements can generate free word-of-mouth recommendations that can lead to acquisition of new customers and revenue.

  
  

• customer experience improvements can build support for transit funding among voters and public officials.

All of these factors are relevant to assessing the ROI of customer experience improvements.

Measuring the ROI for some customer experience improvements may be easier than others. For example, for route-specific improvements like bus-only lanes or headway-based routes, changes in ridership and revenue tend to be relatively straight-forward to measure if contextual data is collected to isolate the impact of the CX initiative from other factors. In contrast, the ROI of broader efforts, such as initiatives to create a customer-centric culture or to bring the voice of the customer into product design, may be harder to measure, especially in the short term. When you can't quantify a benefit, still include it in your ROI assessment as a qualitative consideration. Some CX investments require faith and courage to trust that they will pay off in the long run. Transit leaders do well by trusting their instincts to prioritize customer experience investments.

Transit CX tip: If you are not sure about some of the marginal costs or revenues, assign a range from low to high, then calculate ROI multiple ways using both the least and most favorable assumptions.

Why are customer experience efforts essential? It used to be said that most riders are "transit dependent," meaning that transit is their only way to get around so they will ride regardless of their satisfaction level. But that is less the case in today's world. Even low-income riders will occasionally splurge on an Uber or Lyft if there are major transit delays and they have to get to work or daycare, if they fear for their safety at say a dark bus stop at night, or if it takes too much effort to plan their trip. In addition to Uber or Lyft, transit riders often have access to a shared scooter or bicycle, or a ride from a friend or family member with a car.

We now live in a world where nearly all transit riders are to some degree "choice" riders. They are no longer fully transit dependent. Sometimes riders' choices may stretch limited household budgets, but they do have choices. That's a core reason why transit leaders increasingly trust that customer experience improvements are essential. Nearly 70 transit agencies in the United States and Canada now have customer experience programs, up from just a handful prior to the pandemic. The transit industry increasingly realizes that an sustained focus on the customer experience is needed to generate ridership and community support.

Transit CX tip: ROI is important, but don't let it paralyze innovation and progress. Calcified organizations will often set a high ROI bar for new programs, while giving a free pass to existing programs. That creates a powerful incentive to keep doing things the way you have always done them and a disincentive to improve the customer experience. To free up funds for CX improvements, organizations have an opportunity to examine existing programs and shift investments away from unproductive areas toward customer-driven initiatives. That should be an explicit part of every budget cycle.

Want to chat about how to create a comprehensive customer experience program at your agency that makes puts the customer at the center of everything you do?

If so, email me at: AaronW@TransitCX.org. I offer a 34-point assessment of business processes and culture as well as other services to help agencies become more customer centric.