What You Need To Know About The ROI Of Employee Engagement
The days of HR leaders being workforce administrators are long gone. Instead, they’re now being compelled to become strategic partners for a company’s success, and for good reason. This is an essential transformation for any organization wanting to thrive in today’s aggressive talent market, but it’s easier said than done. HR professionals possess the skills to deploy employee engagement initiatives, but lack the time due to a pile of administrative processes that are equally crucial to the organization’s daily operations.
This is why companies frequently consider whether investing in employee engagement is worthwhile. After all, it requires significant resources, time, and, more often than not, indirect costs, so leaders wonder precisely how much value they can get from these initiatives.
In this article, we’ll delve deep into why employee engagement has a direct business impact, how you can concretely measure its return on investment (ROI), and further improve it to justify your investment. We’ll also include an employee engagement ROI calculator to see what kind of success can be achieved from the resources you’re investing.
This Guide Explores…
Why Is Employee Engagement Important?
The benefits of high employee engagement are crystal clear. Highly engaged employees perform better, foster healthier workplace cultures, and remain driven towards their organization’s goals. You don’t have to worry about dipping retention rates and losing your top talent to competitors.
However, the real advantage of employee engagement isn’t just in the dollars. It’s also in the value that engaged employees bring: they contribute business ideas, support teammates, and ultimately build momentum that pushes the organization forward. The result? Higher customer satisfaction, employee satisfaction, customer loyalty, and business scalability.
Here are some of the key reasons why businesses need to consider employee engagement initiatives:
- Better Employee Performance: Engaged employees are often go-getters. They tackle problems head-on instead of waiting for someone else to give them a solution. They are constantly looking for ways to improve and drive large-scale business impact. Plus, employee engagement leads to accountability and focus—such teams raise the bar and exceed expectations, while disengaged employees make you spend time analyzing where things are going wrong.
- Decreased Employee Turnover: Disengagement will always lead to high employee turnover, as they feel undervalued, lose the drive to perform, or seek better opportunities. On the contrary, strategic engagement boosts employee productivity, keeping them in the organization as they feel connected to its culture, purpose, and impact. Employee engagement efforts reduce employee turnover by telling your people they matter, their contributions matter, and that they have a reliable future with you. Simply put, low engagement turns retention into a revolving door, while high engagement saves you expenses on employee churn.
- Better Innovation: Every company wants an innovative workforce. It’s the only way to avoid stagnancy and weather business unpredictability, which comes with highly engaged employees. You operate with a dedicated workforce willing to bring more to the table: newer ideas, testing new strategies, and collaborating cross-functionally to implement them in real-time. When employees are valued and know they are part of something bigger, they’re inclined to push their boundaries and suggest innovative moves that others simply discard or don’t think of.
- Higher Employee Loyalty: One of the biggest reasons to engage employees is to foster better loyalty. When people feel more engaged at work and included in their organization’s purpose, their loyalty automatically grows. Increasing employee engagement translates to higher trust and a stronger bond between employees and their organization, even during challenging times. A loyal workforce is easy to retain since they stay because they want to and are not forced to. This outweighs things like salary hikes or office perks in today’s competitive job market, creating teams that are in it for the long haul.
- Consistent Customer Satisfaction: A highly engaged workforce also translates to better and more consistent customer satisfaction. Employees respond to problems or business challenges better, bringing empathy and focus to find solutions faster, offer better service, and find more ways to build customer relationships—all of which result in repeat business. In a nutshell, happy and active employees ensure happy customers, and these are people who’ll scale your business faster than you think.
Ultimately, employee engagement and ROI go hand in hand, as better engagement automatically delivers better financial and cultural results for your organization. Investing in better employee sentiment and higher employee morale is one of the smartest business investments you can make.
What Is Employee Engagement ROI?
It’s excellent when an organization wants to improve employee engagement and even better when it actively measures it. Measuring ROI is one of the most critical employee engagement metrics, as it directly depicts how engaged your people are, how well your employee engagement programs are performing, and whether they’re actually benefiting your business.
But what is employee engagement ROI? In a nutshell, it’s the financial returns from spending on engagement efforts. However, that’s just one ROI facet; measuring employee engagement ROI also means assessing factors such as work quality, productivity, involvement, and employee absenteeism.
How To Measure ROI On Employee Engagement
Measuring ROI employee engagement requires a multi-level approach. You must review several critical factors to determine whether improving employee engagement benefits your organization. It may seem complex, so we’ve listed the key metrics you must consider to measure your ROI of employee engagement.
Employee Involvement
This metric measures your employees’ involvement in their work and the organization’s overall growth. Involved employees focus on things beyond meeting average salary benchmarks; they also study the organization’s objectives, identify new business verticals, pitch new ideas to attract new customer segments, and use business outcomes as their guiding light.
However, measuring employee involvement can be difficult, as it’s a broad concept encompassing various behavioral factors. Most senior leadership teams use the employee net promoter score (eNPS) as a consolidated metric to determine employee involvement. eNPS measures employees’ willingness to recommend their organization to others, directly reflecting their satisfaction and involvement levels at work. You can obtain responses through ratings between 1 and 10, and classify employees accordingly into the following categories:
- Between 1 and 3: Detractors (unwilling to recommend)
- Between 4 and 6: Passives (might be willing to recommend)
- Between 7 and 10: Promoters (actively willing to recommend)
These ratings are a great way to measure employee satisfaction and understand who is more involved in taking the company forward.
Employee Productivity
Traditionally, measuring employee productivity was all about meeting a given quota, such as a certain number of monthly work hours. However, modern work demands that leaders evolve this approach and adapt it to consider the quantity and quality of work. This has two significant benefits: gauging which employees are more productive (based on how well and how much they work) and identifying employee disengagement. For instance, if an employee consistently delivers poor work quality or misses attainable deadlines, it shows low productivity due to disengagement.
Measuring employee productivity becomes simple when you consider the profits of the work. A productive employee works better, which can automatically translate to dollar gains. Here’s an example formula that can be used for this scenario:
- Work Output = Amount of work produced (for instance, $10,000 of client goods)
- Work Input = Hours to produce the goods (for example, 1000 hours)
- Work Output Per Hour = Work Output / Work Input, that is, $10 of goods per hour
Now, you can compare the work output per hour before and after implementing your initiatives. This will show if there’s any increased engagement, and you can use that analysis to forecast how much more revenue can be generated by maintaining happy employees.
Employee Turnover
In today’s highly competitive labor market, reviewing employee turnover is mandatory when measuring ROI on employee engagement. As mentioned earlier, disengaged employees often leave voluntarily. So, if you see low turnover rates after implementing employee engagement efforts, the ROI is definitely positive.
An efficient way to measure turnover is to do it monthly, using this formula: (Number of employees who exited in a month / average number of employees in a month) x 100
So, if you had an average of 100 employees in June and four departing employees that month, then the employee turnover rate for June was (4/100) x 100 = 4%.
Focus On Quality
Work quality is a key indicator of employee performance. However, many modern businesses also use it as an individual metric to measure the ROI of employee engagement. Although no concrete formula can assess quality, you can compare it after implementing engagement initiatives. Measure employee engagement ROI by observing if their quality of work has enhanced, by judging factors like the following:
- Fewer client or internal revisions on their work
- Work that provides a competitive edge to the business
- Work that gives clients or potential customers a deeper understanding of the organization and what it stands for
- Work that encourages other employees in their team to learn and replicate for higher net benefits in the business
- Work that directly increases the operating income of the organization or any of its units
Revenue Per Employee
Employees are almost any organization’s highest expense. Hence, it’s natural for business leaders to check whether investing in them will pay off, and why calculating the revenue per employee is a key metric when measuring the ROI of employee engagement.
With the increased employee productivity and decreased turnover, employee engagement is bound to boost the revenue per person. Here’s how you can calculate it: Total revenue / average number of employees = revenue per employee.
For example, if your total revenue for a fiscal year is $500,000 and the average number of employees that year was 1000, then the revenue per employee would be $500. You can then compare this number with your company’s historical data to measure the ROI of employee engagement. If the number is higher than pre-engagement initiatives, it can be attributed to increased productivity, employee satisfaction, net promoter score, and other positive factors.
Employee Absenteeism
As the name suggests, employee absenteeism occurs when employees do not show up for work. A cohesive relationship with the organization often results in more committed team members who respect their schedules and are less likely to be absent unless absolutely necessary.
Therefore, this is another key metric to consider when you measure employee engagement ROI. A low absenteeism rate after implementing engagement programs would generally mean a high ROI. More importantly, this will also tell you how you can lower unexcused absenteeism to increase cost savings in the organization.
To calculate this metric, use this simple formula: (Total number of absences / total period of time at work) x 100 = absenteeism %
So, if an employee has been absent 5 times in 30 days, their absenteeism rate would be 5/30 x 100 = 16.66%.
Furthermore, if you want the complete picture of the annual absenteeism rate, you can use this formula: (Total number of absences in a year / total number of working days in a year) x 100 = annual absenteeism %
Using these and comparing them to historical data will tell you if your engagement initiatives are lowering absenteeism rates. If yes, then they are worth investing in.
Customer Satisfaction
Measuring customer loyalty is an unmissable step when determining the ROI of employee engagement. The higher the customer satisfaction, the more concrete your customer base, resulting in consistent and growing revenues.
An engaged workforce has a sense of ownership and a passion for the goods or services their organization sells, sparking a customer’s enthusiasm. Engaged employees often strive to establish long-lasting customer relationships that boost the company’s balance sheet and foster its reputation in the industry. Engaged employees are propellers for your brand, while disengaged ones are boulders tied to it.
Your organization’s customer service emails, surveys, and data (purchases, website interactions, newsletter signups, etc.) can be significant data points to identify improvement and ROI with increasing employee engagement.
How To Improve Employee Engagement ROI
Now more than ever, it’s integral for employers to invest in their people. This means integrating the right strategies into human resources management for monitoring and improving engagement ROIs. This is what drives both business and employee impact, and here’s how you can do it:
Confident Decision Making
Instead of assumptions, use solid data from calculations to get accurate insights that boost engagement. Calculating each metric thoroughly will help you strategically invest resources to yield the best results, steering your workforce towards success faster.
Targeted Initiatives
Random engagement efforts are detrimental to your investment. If you are investing time and money to make your employees happier, you must do it where it’s most needed. For example, if your employee productivity rate is high but so is the absenteeism rate, you need to deploy initiatives more focused on motivating employees to come to work every day. They are already productive, so spending too many resources there is unnecessary. Focused, well-timed initiatives are key to effectively realizing ROIs quicker and uplifting teams.
One-On-One Interactions
Few ways are as effective as simply talking to your employees to gauge what’s working and what’s not. It doesn’t have to be as formal as interviews or all-hands meetings; you can schedule quarterly discussions, speak to their managers, or even run anonymous surveys to get as honest feedback as possible. One-on-one feedback is one of the best ways to see how well your engagement initiatives are working, where you can improve, and where you don’t need to put in resources.
Recognition
Employees work day in and day out, and simply recognizing their effort can go a long way in boosting engagement ROIs. Rewards like bonuses, shout-outs during meetings, highlighting great work, and telling your people they’ve done excellent work can drastically boost morale and engagement. This is a win-win; you implement an engagement method that requires zero dollar investment, and your employees feel appreciated and double down on their efforts towards organizational goals.
Align Engagement Initiatives To Business Outcomes
To make your engagement plans successful, you need every employee on board, not just leadership members. This means proving impact, and one of the most effective ways to do this is by connecting your engagement strategies to tangible business outcomes. Think sales figures, turnover rates, Y-o-Y (year-on-year) financial performance, customer retention, and more. Employees and leaders are often more invested in boosting engagement when they can see its impact in real time.
Make It A Long-Term Strategy
Moving the needle on employee engagement means portraying it as a continuous strategy, not a one-off initiative. Employees rarely feel heard or supported when their engagement is addressed only occasionally, as this implies their well-being has taken a back seat. Instead, you must prioritize their engagement throughout the year, which will undoubtedly result in employees who are happy to work, consistently yielding better ROI.
Real-Time People Analytics
Every team is distinct, and for broader organizations, each team can have sub-groups with employees working on various functions. In such cases, measuring ROI on the organization as a whole won’t make much sense. Instead, you must use real-time analytics tailored to each team: participation rates, feedback insights, employee recognition, engagement drivers, etc. Analyzing data by department, team, or role will help you identify gaps and deploy more effective engagement initiatives that automatically yield favorable ROIs with minimal effort.
Employee Engagement ROI Calculator
There are many ways to calculate ROI for employee engagement. To simplify this, you can use the following formula to calculate the overall ROI on employee engagement: {(Financial gains from engagement – engagement costs) / engagement costs} x 100 = ROI %
Your revenue increased by $500,000 after investing $200,000 in engagement efforts. Based on this, the ROI % will be {(500,000 – 200,000) / 200,000} x 100 = 150%. This means that every dollar you invested in engagement returned $1.50 in value.
Final Thoughts
Employee engagement initiatives aren’t just another HR activity anymore. They go beyond indicating employee experience; the right initiatives can transform the workplace culture into one that sustainably chases business success through driven employees.
As businesses continue to venture into unpredictable verticals to innovate and thrive, they must see engagement ROI as one of the pillars of survival. With the right engagement initiatives, organizations can build teams that continue driving long-term impact, scale their workforce more seamlessly, and bolster their reputation to show emerging talent where they need to be. To wrap up, employee engagement isn’t just about keeping your people happy and bringing in more money, but also about setting up your company for success for many years.
