The widespread adoption of chatbots was imminent with the stellar rise and consolidation of instant messaging. However, the accelerated pace at which chatbots have evolved from accepting scripted responses to holding natural-sounding conversations has been unprecedented. According to Google Trends, the interest in AI Chatbots has increased ten-fold over the last five years!

With chatbots getting smarter, value-driven, and user-friendly, it has fueled customer-led demand for chatbot-driven interaction at every touchpoint. As a result, businesses are scrambling to keep up with this requirement and investing aggressively in chatbot development; so much so that the market for chatbots is expected to reach a valuation of USD 10.2.29 in 2026 with an impressive CAGR of 34.75%.

On that note, it makes absolute sense to hop aboard this chatbot train. In fact, it is believed that about 80% of CEOs plan on revamping customer engagement with conversational chatbots. So, if you are looking for a way to get started, here is a step-by-step guide for chatbot creation!

In its simplest sense, a “chatbot” is a portmanteau of human “chatter” as conducted by a “bot.” It is a software application or computer program that can simulate human conversations through speech or text.

Such a service can rake in the following advantages:

• Unlike the unidirectional view of chatbots as customer service agents, they are highly versatile. Regardless of the industry, businesses can leverage chatbots for sales and marketing activities, HR and personnel management, IT service helpdesk, knowledge management, and more!
• Chatbots can help with collecting and qualifying leads, booking product demos, and engaging audiences which can increase sales by a whopping 67%!
• Almost 88% of consumers reported a positive or neutral experience with a chatbot, thereby paving the way for customer satisfaction and retention.
• 69% of consumers attempt to resolve any issue by themselves, but only a third of companies offer this facility. Chatbot fills this gap by offering self-servicing options 24/7 and without depending on human resources!
• About 67% of buyers expect an immediate response to their marketing, sales, or customer service inquiry — “immediate” being 10 minutes or less. With chatbots in the picture, businesses can set up live communication channels and cater to this need nearly 3x faster!
• Apart from lending scalability to business operations, it can reduce costs by 30%. The banking, retail, and healthcare industries are expected to save 2.5 billion hours and USD 11 billion through the implementation of chatbots by 2023.
• They will not only keep businesses relevant with the current times but also future-proof them by laying the foundation for conversational marketing, automation, and so on.
• Speaking of automation, chatbots can singularly handle 68.9% of end-to-end customer interactions and 80% of standard, repetitive tasks, thereby reducing the personnel load by 65%. More importantly, they can deliver these results without any errors or bias.
• In addition to increasing customer satisfaction levels through maximum engagement, omnichannel chatbots can reduce churn by plugging in leakage in a multi-touchpoint environment.
• The personification of chatbots can humanize brands and help them foster emotional and meaningful customer relationships.

Given the whole suite of advantages listed above, the role of chatbots boils down to empowering businesses by making them human, accessible, responsive, and reliable. For some businesses, it can also function as a competitive differentiator that sets them apart from others. And as a culmination of these qualities, your organization can achieve the highest level of customer approval and satisfaction. Who doesn’t want that?

Now that we’ve established that a chatbot can be a valuable addition to your business allow us to lead the way. We have formulated a detailed step-by-step guide on how to build a business chatbot — from identifying when it is the right fit, understanding the different types of chatbots, and defining goals, to launching and improving the chatbot. The following is your almanac to building a business chatbot:

Identifying Whether A Chatbot Is A Right Fit

While chatbots offer a plethora of advantages, it is not advisable for all businesses to hop on this trend. After all, the process of building a business chatbot from scratch is not easy on the pocket. Plus, it is a time-consuming and resource-intensive process.

Therefore, it would be wise for business leaders and C-suite executives to involve the crucial stakeholders and ask probing questions, such as those illustrated below, to audit the business processes and identify the need for a chatbot as a solution:

• Is the workforce heavily engaged in routine, repetitive tasks?
• Do customers often consult on similar topics?
• Is the business looking to reduce the customer service load and corresponding costs?
• Is the business a multilingual customer base spread across time zones?
• Does the business want to streamline sales and marketing activities?
• Is the business anticipating peak internal and/or external interactions during specific seasons?
• Is the business looking for ways to delight customers and stand out from the competitors?

If the answer is a resounding yes to the above questions, then it is time to give it serious thought. Apart from the intangible and non-monetary benefits, a cost-to-benefit analysis and Return on Investment (ROI) calculation can be performed to justify the impending financial implications.

Understanding The Different Types Of Chatbots

As cliche as it may sound, not all chatbots are created alike. Depending on various factors (some of which we discussed in the previous section), businesses can settle for something as simple as a menus-based chatbot. Alternatively, businesses with resources and bandwidth could create something as elaborate as a conversational chatbot with sentiment analysis and Natural Language Processing (NLP) capabilities. Frankly, that’s your decision to make. However, to help you in this direction here’s a quick overview of some of the commonly available options:

• Menu-Based Chatbots
  Being one of the simplest forms of chatbots, these are essentially decision tree hierarchies presented in a chatbot form. Users can select the appropriate options that will eventually lead to the answer. They are often employed to answer FAQs.
• Rule-Based or Linguistic Chatbots
  These chatbots construct conversational flows along the if-then-else logic. Developers often embed business rules in the form of algorithms, and accordingly, the chatbots will navigate the conversation. However, do bear in mind that the research stage of this chatbot development would have to be exhaustive as one has to account for every permutation and combination of questions that may be asked.
• Keyword Recognition-Based Chatbots
  Unlike menu-based chatbots that participate passively, keyword recognition-based chatbots seek customized trigger words to respond appropriately. These chatbots often employ NLP, a subset of Artificial Intelligence (AI), to hybridize menu-based chatbots with keyword recognition.
• Contextual Chatbots
  These chatbots are a powerhouse of possibilities. They combine a blend of Machine Learning and Artificial Intelligence to understand context, learn from previous iterations, and improve with use and time. They also retain user preferences to make the experience more personalized and customer-centric.
• Hybrid Chatbots
  Hybrid chatbots feature cherry-picked models, architectures, and frameworks from any or some of the chatbot types discussed above, to cater to specific business requirements.
• Voice Bots
  As smart speakers gain more traction amongst end-users and digital assistants like Siri and Alexa become more popular, businesses are harnessing their capabilities to dive into voice bot development. The vernacular approach is found to be more in demand, as evident by a PwC survey.) that highlighted how 71% of consumers prefer voice searches over typing.

Knowing these basics will help one understand what is right for the business. Once that is out of the way, you can define the chatbot goals, as discussed in the subsequent section. (Or the following sections may shed light on how to make this decision. It works both ways!)

Defining The Chatbot Goals

Chatbots are as versatile as they are diverse. One could use them in lead generation activities, closing deals, upselling or cross-selling during sales, offering technical support, and more! As such, businesses must define their goal right at conception to stay focused on the outcomes.

To understand the primary objective of the chatbot, ask the beneficiary team or department the following questions:

• What problem will the chatbot solve?
• How will the chatbot solve the problem?

Outline the answer according to the SMART (Specific, Measurable, Achievable, Relevant, and Time-Bound) format, and one can stay laser-focused on the results and workflows during development. As an illustration, say that one wants to develop a chatbot to help with customer service requests. The SMART goal in this regard could be that the chatbot will automate 30% of customer queries regarding product details and specifications within the first three months of implementation.

Upon defining the roles and responsibilities of the chatbot, you can then move on to fleshing out additional details using the following steps.

Selecting The Chatbot Channels And Languages

Once the basics of the chatbot are outlined t, it is time to make a few strategic decisions, namely the channel and the language. Though chatbots are commonly found on websites and landing pages, they can also be implemented across instant messaging platforms like WhatsApp or Messenger. As such, businesses must identify the viable channels they wish to target.

One will have to gather user data to make a well-rounded decision in this regard. For instance, determine the following:

• What channels do the employees or customers prefer while availing of chatbot services?
• How do the Key Performance Indicators (KPIs), such as response rates, Net Promoter Score (NPS), and so on, reflect across these environments?

Based on these findings, shortlist about three to five media for a truly multichannel experience. Follow a similar approach while deciding on the language support offered by the chatbot. After determining the channels and languages, you can move on to assimilating such a solution within your business infrastructure.

Addressing The Integrations

Chatbots do not operate in a vacuum; they have to function in harmony with other tools and systems employed by your business. Making such provisions right at the design and development stage will lend immense flexibility and scalability to the chatbot and make it future-proof to some degree. Given this fact, one will have to work out integrations between the chatbot environment and disparate systems, such as the Customer Relationship Management (CRM) platform, calendar, cloud storage, maps, payment systems, and more. Again, one will have to take a call on the impact and importance of certain integrations and prioritize them over the others.

Hiring Talent

Businesses taking on the mammoth task of in-house chatbot development will have to put together a robust team that can lead the mission to success. Start by treating the process as any other digital transformation project. Prepare a requirement report containing all the features, specifications, and outcomes expected from the chatbot; one may have already done that by following the preceding steps.

After completing the homework, one will need to add the following members to the chatbot development team:

• Project Manager: to oversee the chatbot development process, manage resources, budget, and timelines, and handle risks.
• Flow Designer: to orchestrate the chatbot conversation flow.
• User Researcher: to understand the needs and preferences of the target audience.
• Copywriter: to work with the flow designer and create responses that are appropriate, branded, and consistent.
• Developer: to carry out all the under-the-hood chatbot building by creating databases, building APIs, establishing protocols, and so on.
• AI/ML trainer: to teach the AI/ML engine to understand user inputs better and make smarter decisions.
• Data analyst: to extract meaningful, data-driven insights, whether related to chatbot performance or user.

Put together your A-team by handpicking experts from various fields, or we have another shortcut approach that you can try — outsourcing!

Outsourcing Chatbot Development

Building a chatbot development team and maintaining them can be costly, especially when complexities get involved. Not to mention, it is also a hassle to recruit and retain talent, sustain engagement and productivity, and keep everyone motivated towards the goal. In this scenario, outsourcing appears to be a viable alternative.

That being said, choosing the right chatbot development agency is key to the project’s success. Here’s how one can find the right fit:

• Find an agency that can operate as the developer, strategist, partner, and tech enabler. In other words, they should have the business’s best interests in mind.
• Explore their main services, target industries, typical clients, area of expertise, channels, languages, etc.
• Seek recommendations from the networks or get in touch with agencies that may have developed chatbots for the business’s competition.
• Make it a point to conduct thorough background research on the shortlisted agencies by checking out customer testimonials and feedback.
• Request portfolios or past projects to establish credibility and have them vetted too.
• Screen in agencies that understand business’s custom requirements and possess the skill and competencies to realize a unique chatbot.
• Discuss the budget by comparing chatbot development packages. Account for any additional charges relating to integration, maintenance, post-development support, and so on.
• Ask questions related to chatbot and source code ownership.

Sharing Project Requirements

Once a chatbot development team has been put together, or the expertise of an agency has been engaged, it is time to get down to business. Whatever chatbot-related details that one has collected, such as expectations, desired outcomes, and project deliverables, will have to be shared with the developer/development team. This information will act as a baseline for them and allow them to ideate and innovate without losing focus on the primary goal. At this point, the team might also refine the ideas or negotiate on certain terms so that your chatbot is realistically possible.

Upon discussing all these nitty-gritty, prepare a roadmap with well-defined Key Performance Indicators (KPIs), milestones, deliverables, timelines, and so on.

Now that you’ve laid down the complete foundation, you can start chatbot development!

Developing The Chatbot

Based on all the inputs, the development team will work on creating the chatbot as per the business requirements. One may be required to actively participate in the development process, so be prepared to step up!

The Dry Run

Rather than delivering a fresh, out-of-the-box chatbot solution, the development team will first deliver a Proof of Concept (POC) or a Minimum Viable Product (MVP). This prototype, of sorts, will help to test the chatbot’s performance in real-world conditions.

A prototype gives the opportunity to identify and fix issues before they turn catastrophic. As such, the typical chatbot performance assessment will evaluate across the following spheres:

• Personality: Does the chatbot communicate per the brand’s voice and tone?
• Onboarding: How do new users respond to the chatbot, and how fast do they adopt it?
• Understanding: How effectively can the chatbot understand customer requests?
• Answering: What are the elements of a typical response? Are they relevant and contextual?
• Navigation: How easily can chatbots go through an end-to-end conversation? What is its impact on engagement?
• Error management: What is the fallback rate? How efficient is the chatbot in handling the resulting errors and recovering from them?
• Security: How secure is the conversation? Is the chatbot compliant with any data security and privacy regulations?
• Intelligence: Can the chatbot retain any information, and does it use it to gain context about the user?
• Response times: How quickly can the chatbot resolve queries?

Of course, this list is purely indicative, and you will have to modify it according to your industry, chatbot type, roles and responsibilities, and other variables.

Launch

After the beta testing is a success, the development team will start creating the full version of the chatbot. All the necessary changes will be implemented, additions will be incorporated, and integrations will be tested. Once the chatbot performs to expectations, it is time to launch it into the real world!

Bup bup bup! Hold your horses because that’s not all! You have one final consideration to make for the continuous improvement of your chatbot. We discuss that in the final section.

Testing, Measuring, Tracking

Simply launching a chatbot is not enough. After all, chatbots are not “build it and forget it” things.

Businesses need to vigilantly monitor their performance to pave the way for continuous growth. First, the business will have to define certain KPIs and corresponding parameters that serve as benchmarks to analyze the chatbot’s performance. Next, businesses will have to take note of every anomaly or discrepancy and find justification for the same. Then, perform corrections are required to get the performance back to optimal values. Finally, the business will have to detect any underlying patterns.

In the meantime, one will also find opportunities to scale and expand your chatbot capabilities based on market conditions, ongoing trends, customer feedback, and metrics like satisfaction rates. Such a holistic approach will allow your chatbot to improve at every iteration!

Now that we have indulged in some heavyweight reading about chatbot development, let’s polish this knowledge with a few important tips and tricks to make the process fun:

• For a cash-strapped startup or a small business looking for a DIY approach, they might find some chatbot builder platforms online.
• Grant a unique name and personality to the chatbot and maintain it consistently on all fronts.
• Humans want to connect with humans. So, put in the effort to humanize the chatbot and make it friendly and approachable.
• Train the chatbot to communicate in simple language so that they are easily understood by various users.
• Delegate complex and repetitive tasks to chatbots but also grant users the opportunity to switch to a human agent.
• Evaluate and optimize the bot regularly, but avoid overwhelming audiences by unveiling all features at once. Follow a graded approach.

Considering that nearly 3 out of 4 customers expect to encounter a chatbot while visiting a business website, chatbots have become more of a necessity than a “nice-to-have” feature. Fortunately, the business already has a head-start in meeting this expectation, given that it has reached the end of this manual.

As a treat for your perseverance, here’s a quick recap of the detailed 10-step process:

1. Start by identifying whether or not a chatbot is a right fit for your business model.
2. Understand the different types of chatbots and identify the ones you need.
3. After settling on a type, give your chatbot a purpose by defining its goals.
4. Once the end goal is in view, iron out the details surrounding the language, channels, and so on.
5. Work out the different integrations that will be required and find out ways to accommodate them.
6. Recruit a team of experienced professionals or outsource the entire job (you do you)!
7. Regardless of your choice above, document and share defined project requirements so you can get a chatbot as per your expectations.
8. Get started with the chatbot development, and once ready, send the prototype on a dry run.
9. Finally, when you have worked out the kinks, gear up for D-day as you launch the chatbot.
10. Round up the chatbot development process with continuous testing, measuring, and tracking its progress so that it continues delivering value to your business.

Sure, the process seems overwhelming, but it is well worth the effort. All it takes is a little initiative to get the ball rolling, and once such an ambitious project gains momentum, it would put your business on the fast track to customer-friendliness.

So, get started with building the business chatbot now!