How to Calculate Messaging ROI
6min read - iAdvize
Online shopping exploded in 2020 and shows little sign of slowing down. Retailers who had prioritized digital investments came out ahead, while others had to play catch up.
Even retailers with a solid web presence and streamlined online ordering knew they needed to evolve to keep pace with digital demands. And it wasn't all about adding new features and content. Focusing on the customer experience (CX)--which has always been important--gained even more momentum during the digital surge.
For many retailers, a logical next step in CX is adding a conversational messaging option to provide real-time support to shoppers. As data from Statista shows, the popularity of messaging has climbed steadily--with the number of messaging users set to surpass three billion:
Has your company adopted messaging yet? You may know it's the right thing to do, but need quantifiable proof of the value of messaging to justify the investment. If you have implemented messaging, you need to validate results to sustain funding and grow your program.
Either way, knowing how to calculate messaging ROI is a must. This guide to ROI calculation--with a real-world example from a multi-national retailer--will walk you through the process.
An Example Messaging ROI Calculation
How do you calculate messaging ROI for your own organization? There's a standard ROI methodology to use that requires you to know your expected investment and benefits for your messaging initiative.
Forrester employed this structured ROI approach to perform a Total Economic Impact (TEI) assessment for an iAdvize customer, a fast-growing retailer. You can replicate this process to build a business case for a new messaging initiative, or determine the impact of an existing program.
About the Company
Prior to deploying iAdvize's messaging solution, the retailer had a small in-house service team that handled customer contacts. Because of their limited service footprint, the retailer had challenges scaling to match rapid business growth. Also, the company could not provide-after hours support during evenings and weekends. The retailer had limited opportunity to provide pre-sales support, which diminished conversion rates.
The company rolled out iAdvize's platform in its home country first. After initial successes, the retailer began rolling out iAdvize to other regions.
Calculate Benefits First
According to Forrester, every business case should start with benefits first. If you're estimating expected benefits from a proposed initiative, calculating benefits can be challenging. A good approach is to project high and low benefit ranges. Base your estimates on existing data when possible.
In the Forrester TEI study, the retailer had a messaging initiative in place and had identified initial quantitative gains and could use those insights to project future outcomes. Forrester was able to use these metrics to estimate benefits for three years.
Notably, the retailers had seen success in four areas:
- Uplift in conversion rates
- Uplift in average order volume (AOV)
- Uplift in repurchase rate
- Customer support cost savings
Uplift in Conversion Rates
The biggest financial win for the retailer was its increased online conversion rates. Specifically, the retailer found that shoppers who engaged in a chat with an iAdvize expert were 3.25 times more likely to buy.
For shoppers who received a messaging invitation but declined the chat, the conversion rate was 4%. But shoppers who engaged with an iAdvize expert had a conversion rate of 13%.
Forrester's analysis examined the potential outcome of the retailer's expansion of the iAdvize platform into new regions. In projecting conversion rate benefits, Forrester used the following assumptions:
- The chat volume would grow significantly as the retailer deployed iAdvize in new regions
- The measured conversion rate uplift for shoppers who chatted with an iAdvize experts would stay consistent
- The AOV for orders not influenced by iAdvize was (300)
- The average profit margin was 10%
Due to the risks and variability inherent in any business, Forrester adjusted its benefit calculation downward by 20%. The estimated conversion rate benefit was ($4.9 million) over three years.
Uplift in Average Order Value
Another area of benefit for the retailer was increased average order value. When shoppers engaged with iAdvize experts, the average order placed was 12% higher than orders placed by those who didn't consult an expert. An average order for the brand was (300), but conversations with iAdvize experts were, on average, (336).
Of note, the retailer opted to pay experts a commission instead of just offering a flat fee for pre-sales chats support. During chats, iAdvize experts provide consultative support to help shoppers find the right product options. Because of the commission incentive, experts were motivated to help shoppers convert and to up-sell to higher-value products.
When calculating AOV benefit, Forrester made these assumptions:
- The expected sales figures were derived from anticipated chat volumes and conversion rates
- The measured AOV of 12% per order would continue to be valid
- The average profit margin was 10%
Again, for this calculation, Forrester risk-adjusted the benefit down by 20% to account for uncertainties. The total estimated AOV benefit over three years was (850,000)
Uplift in Repeat Purchases
A personalized conversation with a brand expert makes shoppers feel heard and understood. Also, shoppers are more likely to feel confident about the purchase decision. The retailer found that customers gave high marks to the iAdvize chat experience, with satisfaction scores ranging between 92 and 93 percent.
It's no surprise that the retailer also reported an increase in repeat purchases for customers who had engaged in a conversation. Analysis revealed that shoppers who did chat with an iAdvize expert were 2.2 times more likely to return to the retailer website and make another purchase. Importantly, those shoppers proceeded to make 9% more purchases over time, with a 26% higher average order volume.
Using these figures, along with known chat volumes and conversion rates, Forrester calculated an average incremental revenue of (28) per repeat purchases. After risk-adjusting this benefit downward, Forrester determined the repeat purchase benefit to be (660,000) over three years.
Customer Support Cost Savings
One of the prime reasons the retailer sought a chat solution was to reduce the burden on internal support agents. After deploying iAdvize's chat solution, the company found that iAdvize experts fielded many questions that would have been routed to its support team. The retailer estimated 20 to 30 percent of the queries it received via chat would have resulted in a call to their contact center. As a result of this call deflection, the company projected that it would need fewer call center agents over time.
Specifically, the company projected that it would not need to hire 20 new agents--at a fully-loaded salary of (30,000) in the next three years. After applying a risk adjustment of 10 percent, Forrester projected total cost savings of (750,000) over three years.
Calculate Total Investments
After projecting benefits based on existing data, the next step in the ROI calculation is to determine total investments. Forrester found that three investment categories tied to the iAdvize implementation:
- Technology costs: These expenses include an annual fixed fee and variable fees per chat, along with commission fees for successful conversions. Forrester estimated a technology cost of (752,000) based on current and projected chat volumes.
- Conversation costs: This category covers compensation for the iAdvize experts. The retailer opted for a (2) per chat fee along with a 3% commission rate for successful sales. Based on projected chat volumes and AOV, Forrester calculated a cost of (3.5 million)
- Initial setup and ongoing operations: It took just 20 days for the initial iAdvize deployment. The retailer also reported that team members spend an average of 20 hours per week coaching experts and monitoring service quality. The estimated setup and operational cost for the retailer was (107,000)
Calculate Messaging ROI
After determining benefits and investments, it's time to calculate ROI. The formula to use is:
Here's a recap of the benefit and investment calculations:
Applying these numbers into the ROI calculation formula returns a ROI of 64%:
Messaging ROI = 100 x (8,701,642-5,291,602) / 5,291,602
Messaging ROI = 64%
Messaging Delivers Proven ROI
As this example shows, a conversational platform that supports messaging can deliver a substantial ROI. Every business's situation will differ, of course, but the potential to retain customers, increase repeat purchases, and increase order volumes is significant, as the example we walked through shows:
Maximize Messaging ROI with the Right Response for Each Customer
One of the best ways to maximize messaging ROI is to use a flexible messaging approach that employs in-house agents, chatbots, and iAdvize brand experts. When they opt to chat, shoppers can select the best path to get answers to their queries.
Bots can cover simple questions, but human interaction is necessary for more complex situations. For pre-sales inquires, a brand expert can provide guidance to help shoppers review product choices. That frees in-house agents up to focus on post-sales customer support. If customers need to switch paths--say from bot to a brand expert--that process is easy and seamless.
You Can Use ROI to Make the Case for Messaging
Calculating ROI is essential but is only one piece of winning the support you need for a messaging initiative. You should always make sure your digital experience objectives align with overarching and company and executive priorities.
Take time to understand your company's strategic direction. Also, get to know what matters to executives. Find out what quantitative goals consume their focus. Do they care about increasing Net Promoter Score (NPS), growing revenues, or increasing market share? Determine what else drives them, such as beating a certain competitor or being perceived as a market leader.
When you can tie your messaging program objectives into those goals, you'll earn backing from key leaders. They'll be more likely to become champions who evangelize the merits of messaging through your organization. But keep them informed along the way, with updates on quick wins and progress towards longer-term objectives.
When you have a clear ROI-backed rationale for your CX initiatives and a solid base of executive support, you can truly drive CX transformation forward. Look to our ROI calculation approach as a baseline when you build your next CX business case. You may need to secure funding and financial insights from other experts to ensure your business case aligns with your organization's expectations and needs. A rational, meticulous approach to your program design and calculations will win support for your messaging program.