The ROI of Employee Engagement: How to Measure Success

Employee engagement is one of the most powerful and needle-moving strategies that companies can undertake. Everything from worker productivity to customer satisfaction, to revenue will only grow as engagement increases.

The positive outcomes of engagement programs are more than just qualitative — they’re highly measurable. Given their measurability, HR teams need to monitor results carefully. Doing so makes all the difference in securing company buy-in and maintaining program longevity.

If your company is exploring strategic HR initiatives that advance company goals, employee engagement should be at the top of your list. In this article, we’ll explore the measurable benefits of employee engagement and walk you through how to calculate ROI.

Why Employee Engagement is Important

Enthusiasm and dedication are valuable assets in the workplace. As workers experience more joy and purpose, they bring more energy, innovation, and precision to their job duties. 

Unfortunately, engagement is sorely lacking in the professional world. Data from Gallup reveals that employee engagement is the lowest in over a decade. As of this year, there are 4.8 million fewer engaged employees. And with engagement on the decline, so are productivity and other success metrics. 

The good news is that poor engagement is something that can be remedied. By implementing initiatives that enhance the employee experience — such as rewards and recognition programs, internal communication strategies, and wellness initiatives — companies can get employee dedication back on track.

Employee engagement initiatives have been found to improve the following outcomes: 

1. Worker productivity
   When workers feel more valued, they are naturally more motivated and enthusiastic — leading to higher levels of productivity and efficiency. Gallup found that companies with higher engagement experienced 18% more productivity than those with poor engagement.
   
2. Profitability
   When we realize how engagement affects productivity, it’s easy to understand why engaged employees generate more revenue. Gallup has discovered that companies with highly engaged workforces are 23% more profitable.
   
3. Customer satisfaction and loyalty
   Engaged employees bring their enthusiasm to customer-facing interactions as well. They effuse passion about their company’s products or services, which inspires more trust and loyalty among customers.
   
4. Employee turnover
   When employees feel more valued and satisfied with their jobs, they’re less inclined to seek out other opportunities. One study found that employees who are highly engaged are 87% less likely to leave their company!
   
5. Worker well-being
   Engagement and well-being are closely linked. When companies prioritize the employee experience — whether it’s by providing recognition, offering remote work options, or subsidizing gym memberships — employees experience lower levels of stress. And when workers are less stressed, they perform better and take fewer days off.
   

What is Employee Engagement ROI?

Employee engagement return on investment (ROI) refers to the financial gain derived from company initiatives that boost engagement. This measurement can be calculated by performing a cost-benefit analysis and subtracting the costs of engagement programs from the financial gains they achieved:

ROI = investment gain – investment costs/cost of investment x 100

Why Should Engagement ROI Be Measured?

Strategy-minded HR leaders know that efforts to enhance engagement must be meticulously tracked and quantified. Measuring engagement ROI is crucial to:

1. Secure leadership buy-in
   Employee engagement programs are not free, and the expense must be justifiable to company leadership. HR teams are better poised to obtain ongoing investments when they can demonstrate engagement ROI, particularly as it pertains to the company’s bottom line
2. Inform resource allocation decisions
   There are many different employee engagement initiatives, and companies typically implement several at once. By tracking the performance of these varied programs, HR and company execs can detect which have had the highest impact — and accordingly, which should continue to receive funding.
3. Identify areas for improvement
   ROI data can help companies uncover the reasons behind disengagement and identify gaps or weaknesses within engagement programs.
4. Measure company health and scalability
   Productivity and other engagement outcomes are highly correlated with overall company growth. Monitoring these outcomes can help companies gauge their scalability and make data-driven decisions on everything from new product launches to budget planning, to the pursuit of external funding.
5. Keep initiatives on track
   Engagement programs play a key role in helping companies achieve larger goals and milestones. By regularly measuring program ROI, company leadership is able to detect if initiatives and goals fall out of sync with one another— and then shift course as needed.

How to Measure the ROI of Engagement

It’s a lot easier to focus on the qualitative outcomes of employee engagement, such as employee well-being and customer satisfaction. And while these outcomes certainly matter, they can’t be plugged into a cost-benefit analysis to calculate ROI.

Even as companies collect employee surveys and other qualitative feedback, they should make sure to gather raw data. Because as much as company leadership will appreciate reading survey responses, they’ll also want to see the dollar value of engagement strategies.

In order to measure engagement programs quantitatively, you’ll need to have a data monitoring system in place. Here is a five-step process for measuring engagement ROI:

Step 1: Determine key performance indicators (KPIs)

Every engagement initiative should be assigned one or more key performance indicators (KPIs), which are measures of performance that can be tracked over time. Some examples of KPIs include:

• Employee turnover rate
• Units of production
• Absenteeism rate
• Customer satisfaction scores

Step 2: Measure the baseline

To determine the effects of engagement on a given business outcome, you’ll need to record the KPI prior to program implementation.

Step 3: Track KPIs

After rolling out the initiative, your HR team should continuously monitor progress. KPIs can be tracked and recorded at the desired frequency, such as monthly, quarterly, or yearly.

Step 4: Determine the financial gain of KPIs

KPIs are great for demonstrating progress over time. However, they usually aren’t a dollar value. Once you have your KPIs recorded over a span of time, you’ll want to translate them into financial gain. Here’s how:

Example 1: Attrition

KPI: Turnover Rate 

Company A reduced its turnover rate from 20% to 15% a year after introducing an engagement program that cost $10,000. The company size was 300 people, so a 5% reduction in turnover translates into 15 fewer resignations. 

Now, let’s say that the average cost to replace each employee is $30,000. This means that the savings to the company is $30,000 x 15, or $450,000. 

Financial gain: $450,000

Example 2: Customer Satisfaction

KPI: Customer Retention Rate

Company B is a subscription software company with 5,000 customers. Before implementing their engagement program, they had an 85% customer retention rate. By the end of the year, it increased by 5%.

The previous retention rate of 85% translates to 750 lost customers every year (0.15 x 5,000). But with a 90% retention rate, this drops to 500 customers. 

This means that the company held onto 250 more customers thanks to its $20,000 engagement program. With an average customer value of $500 annually, this comes out to $125,000 in profits. 

Gross financial gain: $125,000

Example 3: Absenteeism

Company C has 200 employees, and it reduced its absenteeism rate from 2% to 1% after spending $50,000 on employee engagement. 

The cost of absenteeism can be calculated as follows:

(Average revenue per employee x absenteeism rate) + (average salary per employee x absenteeism rate) = absenteeism cost per employee

With an average revenue per employee of $200,000, an average salary of $85,000, and an absenteeism rate of 2%, the absenteeism cost comes out to $5700 per employee.

Because the absenteeism rate was reduced by half, we can now halve the absenteeism cost per employee. At a cost of $2,850 for 200 employees, the average total savings is $570,000.

Gross financial gain: $570,000

Step 5: Perform a cost-benefit analysis

The next step is to calculate the net gain by subtracting program costs from the gross financial gain. Here are the calculations for the above examples:

Example 1: $450,000 – $10,000 = $440,000 ROI

Example 2: $125,000 – $20,000 = $105,000 ROI

Example 3: $570,000 – $50,000 = $520,000 ROI

You can perform this cost-benefit analysis for just one KPI, or you can combine multiple KPI metrics to determine the cumulative return on investment from all engagement programming. 

Below is a chart that shows several engagement program success metrics with relevant KPIs and financial metrics for each. This will help you hone in on some data points as you start tracking your engagement initiatives. 

Track Your Engagement ROI With WorkProud

Recognition is one of the most powerful ways to improve employee engagement. If you’re considering employee recognition software as part of your engagement efforts, be sure to look for one that has robust data analytics and reporting. The WorkProud platform is proud to offer not only a user-friendly suite of interactive tools — for feedback, rewards, employee milestones, and more — but also rich data tracking in one cohesive dashboard. 

We see firsthand that our clients reap incredible ROI that they can measure with ease, all while improving their employees’ satisfaction. To give our solution a try, click here!