How to calculate the ROI of increased employee engagement
Here is the calculation required. If you don't have your own numbers, then the best place to start might be with industry benchmarks until you have the accuracy to know where you're at on each of the measurements.
(Number of employees x rate of disengagement) / 100
= % of disengaged employees
(Average salary x cost of disengagement)
= $ cost of disengagement per employee
($ cost of disengagement per employee x % of disengaged employees)
= $ cost of disengagement
Again, Aviato has 300 employees, $60,000 average salary and 17.2% disengagement. Remember the cost of disengagement is 34%.
(300 employees x 17.2% disengagement)/100
= 51.6% disengaged employees
($60,000 x 34%)
= $20,400 cost of disengagement per employee
($20,400 x 51.6)
= $1,052,640 Total cost of disengagement
Let’s say your goal is to decrease disengagement by 7% through more continuous feedback:
(300 employees x 10.2% disengagement)
= 30.6 disengaged employees
($60,000 x 34%)
= $20,400 cost of disengagement per employee
($20,400 x 30.6)
= $624,240 Total cost of disengagement
Previous cost of disengagement minus current:
$1,052,640 - $624,240 = $428,400
All you need to do now is subtract the cost of your people enablement platform, and you have the ROI of your new process. If you can prove a positive number, then you will be a star in the eyes of your leadership team. As easy as that!
$428,400 - $X = ROI of new PM Process
3. Employee Productivity
A study by Western Michigan University found that great feedback can increase performance by 5%-20%. Additionally, Gallup found that teams with managers who receive strengths feedback experience 12.5% greater productivity post-intervention than teams with managers who receive no feedback.
How to calculate the ROI of improved employee productivity
Start by calculating the value your company generated last year. To do this take last year’s revenue, number of employees and number of teams. Find the average revenue per team and subtract this by the average amount it takes to employ each team (average salary plus overhead). This amount is the dollar amount your company receives through productivity of employees. For example:
Value generated last year = $20,000,000
Teams = 30
($20,000,000/30) = $667,000 Avg revenue per team
Cost to employ = $600,000
Net contribution made by an average team = $67,000
Total: $2,010,000
Take a conservative approach by calculating how much more your company could gain from employee productivity if performance increases by 5%.
5% more productivity per team = $70,350
Total increase in net contribution = $2,110,500 - $2,010,000
$100,500 - x = ROI of new PM Process
So what are you waiting for?
Some of these calculations may have been a little daunting, but we promise if you work your way through and understand how they can help you prove value to your organization, you will have a much easier time getting buy-in for your new process and/or platform.
Don't forget, there are numerous other benefits (such as improved user experience for your people and time saved for your team and managers completing reviews etc.) as well as other short term goals you can track to monitor progress, but these are the numbers that people understand and care about, which you can now point at to show results.
So, what are you waiting for? It's time to go and start building your business case! If you still need help, or if you know what you're doing but just don't have any time, you can always feel free to schedule a demo to get help from one of our experts. They can help understand where you should allocate your time to see the best results, support you in building a business case, and help provide examples of other companies who have taken a similar path and seen great results.
If you're not quite ready for that, but you are interested in learning more about the people programs you could put in place to start working towards the results discussed above, then you should download our latest Impraise Guide to People Enablement Programs, below.