May 24, 2023

Knowing and Measuring Employee Engagement ROI

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With budget cuts and economic uncertainty, ROI is becoming more and more central in making business decisions. Where can you spend your dollars to enjoy the greatest, most impactful benefit? What will help you stretch your budget the furthest?

While this ROI-centric mindset can be good, it leaves employee engagement in an awkward position. Many leaders think that employee engagement doesn’t have an ROI, so it gets shelved when times get tough. However, investing in employee engagement can bring an ROI that impacts nearly every aspect of your business.

In tough times and easy times, employee engagement needs to be a focus for every business and every leader—and we’ll explain why.

What Is Employee Engagement?

Employee engagement is the level of devotion, care, and commitment that each employee feels toward their workplace and their work. Engaged employees are excited to go to work, and they care about helping the company attain its goals. They frequently exceed expectations without excessive oversight, find ways to help those around them, and help build a fun, inclusive, and collaborative culture.

Let’s round out the definition of engagement by looking at what disengagement means.

Employee disengagement is a lack of interest, care, or focus at work. Disengaged employees only do the bare minimum of what’s expected of them; they don’t care about the success of the company and aren’t interested in what they do; and they have negative, apathetic attitudes toward their work, the company, and their coworkers.

Take a moment to imagine your workforce full of both types of employees—that thought should already prove the ROI of employee engagement (but don’t worry, we’ll still dive into specifics below).

What Is the ROI of Employee Engagement?

Employee engagement affects nearly every aspect of your business, from productivity to turnover. Take a look at some specific stats that hit this point home.

Employee Engagement Improves Productivity By 17%

A study by Gallup shows that when companies have high levels of engaged employees, they are 17% more productive. When employees care about their work and feel committed to the company, they naturally work harder to push for success. 

Employee Engagement Raises Profitability By 21%

The same Gallup study found that those companies with high numbers of engaged people were 21% more profitable than those with disengaged employees. More effort and more care means more sales and more money—talk about a simple way to improve your bottom line.

Employee Engagement Lowers Turnover By 31%

Deloitte found that companies with a culture of recognition and appreciation, which are key to engagement, have a 31% lower turnover rate. By engaging employees from top to bottom with recognition and support, you can fight the effects of the Great Resignation.

Employee Engagement Reduces Absenteeism By 81%

Absenteeism hurts productivity, performance, and profits. The cost of absenteeism per employee is between $2,660 and $3,600 every year. But companies with highly engaged employees can enjoy an 81% difference in absenteeism. It’s simple: when employees care about work and are invested in what they do, they show up.

Employee Engagement Increases Sales By 20%

Highly engaged companies enjoy 20% higher sales compared to disengaged ones. That’s because employees who are engaged are more motivated to push the company toward success.

Getting Buy-In for Employee Engagement

Hopefully, with these stats in your arsenal, you’ll be able to communicate the value of employee engagement with leaders and stakeholders so that everyone is on the same page. Help leaders and decision makers know that you can’t afford to treat engagement as a frivolous or unnecessary expense. Instead, show that when you invest in employee engagement, your organization can thrive during hard times.

How to Measure the ROI of Employee Engagement

You know the potential awesomeness of employee engagement, and you have permission to invest in it. But how exactly do you measure the impact that your efforts have? Let’s look at how to measure the ROI in regards to three of engagement’s greatest benefits: productivity, turnover, and absenteeism.

ROI of Engagement on Productivity

First off, you need to measure employee productivity before starting any initiatives to increase employee engagement. Here is the way to measure it:

Total output ÷ total input

Output = the amount generated in goods or services ($500,000)

Input = the amount of labor hours required (3,000)

500,000 ÷ 3,000 = $166

The above example shows that your company generates $166 per hour of work. So, after implementing initiatives to increase employee engagement, you simply need to do this equation again to see how productivity has increased.

ROI of Engagement on Turnover

Similarly to productivity, you simply need to measure your turnover rate before and after you try improving employee engagement. Here is a quick equation:

# of employees who quit during a set time ÷ average # of employees during the same time

15 employees quit in 2022

200 average total employees in 2022

25 ÷ 200 = 12.5% turnover rate

By improving your engagement, you can expect your turnover rate to drop, and this equation will help you prove it.

ROI of Engagement on Absenteeism

Here is your equation for calculating your absenteeism rate:

(Average # of employees for a year x Total # of unplanned absences) ÷ (Average # of employees for a year x Total number of workdays available per employee)

(200 x 300) ÷ (200 x 260) = annual absenteeism percentage

60,000 ÷ 52,000 = 1.15% absenteeism

Once you’ve made concerted efforts to improve employee engagement, run this equation again to see how your absenteeism has lowered. 

The ROI Is Strong With This One

We hope that you now know with certainty how impactful employee engagement can be. Knowing the ROI of engagement, along with powerful statistics, can help you secure the funds you need to invest in improving employee engagement through things like employee recognition, benefits, perks, and value-driven work.

As you invest in employee engagement and your people start enjoying work more, you can count on results that make the present hard times seem easy.