If you’re invested in customer success, you’re probably constantly wondering whether you are doing everything you can to maximize your customer retention rate.
Growing your customer success team and making sure you only hire the best people is one way to tackle this, but it is also not a scalable way to grow your business. Constantly hiring people to answer questions and ensure an effective onboarding process is unsustainable: you are sure to reach a moment in which centralising your product knowledge and making it digitally accessible to your customers becomes essential. That’s why customer education initiatives become more important after companies reach a certain level of users: their need is dictated by growth itself.
Video is, without a doubt, the best medium for customer education. It is enticing, flexible, long-lasting and incredibly clear, with a level of applicability and practicality that is impossible to find elsewhere. We all know that showing is better than telling, which makes video the perfect anchor for a self-service model. Customers can watch product tutorials even before they have started using the product, which allows for an extraordinarily smooth onboarding experience.
This article will show you how to calculate the return on investment of using video training to educate your customers with a simple step-by-step approach to the economics behind it. We all know that organisations require some sort of numeric proof that any investment is justifiable. The simple yet powerful economic argument we will describe in this article will help you build a bulletproof business case for such investment.
We will use two main metrics to reach our conclusions: customer retention rate and customer success team costs. The latter is self-explanatory: it includes the salary package and overhead (benefits, incentives, related expenses) of maintaining a customer success team. Customer retention rate is the number of customers that prevail relative to the number of customers you had at the beginning (excluding new customers). It is the opposite of customer churn. In a nutshell: customers you have kept/customers you had at the start.
There are five sequential steps to follow to calculate the ROI of a video training approach to customer education:
Step 1) Gather current retention data
Step 2) Estimate retention improvement with video training
Step 3) Determine savings in customer success team
Step 4) Gauge level of investment in customer education
Step 5) Calculate your customer education ROI
You can follow the steps in this article using your own numbers to reach a tailored conclusion. Click here to download our Customer Training Academy ROI Calculator.
Step 1) Gather current retention data. Calculate your current annual retention rate and how customer churn impacts your revenue. Here’s an example:
Company A has 400 customers at the start of the year. Their average annual revenue is 40 thousand euros per customer. Let’s suppose they lose 20 customers over the course of the year. This churn represents 800 thousand euros in lost annual revenue. The implied retention rate is 95% (400-20)/400) and the churn rate is 5%.
Step 2) Estimate retention improvement with video training and calculate annual savings
By offering customer training, Company A will manage to improve retention by 2%, reducing their churn rate to 3%. This means they can earn an extra 320k annually (40 X 2% X 400).
Step 3) Determine annual savings in customer success team due to self-help solutions: customer education and video training
Customer training allows Company A to decrease the expected growth of their customer success team by one person, allowing them to save close to 50 thousand euros annually.
Step 4) Gauge level of investment in customer education: calculate the annual cost of the tool, the person in charge and the creation and maintenance of content.
Our example company would have an overall spend of 40 thousand euros per year in customer education. This includes the platform subscription, fifty percent of a team member’s time to manage the platform and 10 thousand euros per year allocated to content production.
We’ll be glad to give you an exact quote at bugle — just contact us!
Step 5) Calculate your customer education ROI. We are now ready to calculate the ROI of investing in video training. We take the increased revenue due to the annual change in our customer retention rate, add the reduced annual cost of our customer success team, deduct the video training investment per year and divide this result by our annual online video training investment. That is to say: ((Increased revenue due to increased customer retention rate) + (Reduced costs in customer success team) – (Online video training annual investment)) / (Online video training annual investment):
For Company A, the ROI of educating their customers through video is (€320k+€50k-€40k)/(€40k) = 8.25X investment.
Not bad, right?
This example uses annual values to keep the calculations simple. If we take into consideration that the improvement in retention rate will impact revenues in the subsequent years as well (we know that customers are highly likely to stick around), and that some of the initial costs of content production only happen at the onset and will be reduced in the following years, the ROI calculation for the next 3 to 5 years is even higher.
We can also use this formula the other way around:
Company A could have determined the minimum ROI that would justify an investment in customer training and calculate if the revenue increase and the team savings gave grounds for that investment. If Company A aimed for a ROI of 5X investment, they would understand that with a positive impact in revenue and team savings of 200k originated by customer education and the same investment they could get to that ROI. Alternatively, that 5X ROI could mean a 66k annual investment (instead of 40k) if Company A assumed that a 2% increase in customer retention rate and a one person reduction in the customer success team was achievable.
Interesting, isn’t it? You can use this methodology to assess whether customer education through online video is something you should be investing in, and what the resulting proceeds would be — you can download the Customer Training Academy ROI Calculator here.
As always, the bugle team is available to advise and support you as you research and weigh up this possibility. Get in touch!