ROI of employee engagement: Everything you need to know

Employee engagement makes the difference between a team just doing their job and a team that’s truly motivated to achieve results. It makes employees feel valued and invested in the company’s success. 

But let’s be honest: good vibes and happy faces aren’t enough to convince the C-suite to prioritize engagement initiatives. They need concrete data and a clear return on investment (ROI).

So, how do you measure the ROI of employee engagement? 

Let’s explore the key metrics and methods that can help you evaluate the effectiveness of your engagement activities and their impact on your company’s success.

What is employee engagement and why does it matter?

Employee engagement is the level of enthusiasm and dedication an employee feels toward their job and the company they work for. It shows how emotionally and mentally invested employees are in their work, team, and the company’s goals. 

Engaged employees are:

• Motivated and enthusiastic towards their work
• Productive and efficient, delivering higher quality work
• Committed and loyal, which makes them less likely to leave the company
• Proactive and innovative, suggesting ideas and improvements

Employee engagement matters because it improves productivity, retention, workplace culture, and profitability. Let’s break this down:

• Engaged employees are more productive. They love their work. It drives them to perform better and be more innovative. Their engagement can increase productivity by 18% and profitability by 23%.
• High levels of engagement reduce turnover rates. Engaged staff are less likely to leave their jobs. They save companies money for recruiting, hiring, and training new employees​, which can total 10 to 30% of an employee’s annual salary.
• Engaged employees contribute to higher customer satisfaction. They provide better service and are more attentive to customer needs. Their actions improve customer loyalty and promote word-of-mouth recommendations​. Gallup’s study shows that businesses with engaged employees have 10% better customer ratings and 18% higher sales.
• Engagement contributes to a strong workplace culture. Employees feel respected, needed, and connected to the company’s mission, which is key to business success. A good culture improves teamwork and communication. It also boosts morale and makes the workplace balanced and efficient.
• Businesses with high employee engagement perform better financially. They grow their profit 3x faster and offer higher salaries.

How do companies invest in employee engagement?

Companies should invest in employee engagement through the entire employee experience. Here are some effective methods:

Professional development

One of the best ways to keep employees happy and engaged is to provide chances for ongoing learning and career growth.

You can offer:

• Workshops
• Conferences
• Online courses
• Mentoring
• On-the-job training

Such programs help employees improve their skills, boosting their engagement and loyalty​.

Competitive compensation and benefits

Ensure that employees’ salaries are competitive with industry standards. Review wages and adjust them to match market rates. 

Provide health benefits and retirement plans. These give your employees financial security and show that the company cares about their long-term well-being. Bonuses tied to performance can motivate them to work harder, boosting efficiency and job satisfaction.

Work-life balance

Promoting work-life balance means allowing employees to:

• Work flexible hours
• Work hybrid – half time from the office and half remote
• Work remotely – from the location they choose
• Take private time off (PTO) without feeling guilt

53% of employees dissatisfied with work flexibility report burnout​​, which makes them 3.4 times more likely to plan to look for a new job​​. However, flexibility allows people to manage personal responsibilities while maintaining productivity. It reduces stress and commuting time, increasing engagement and job satisfaction. 

Employee recognition and rewards

When you recognize and reward employees’ efforts, you boost their morale and motivation. 

You can offer recognitions like: 

• Employee of the month
• Peer recognition
• Rewards for good performance

These programs allow colleagues to nominate each other for awards. They help build a supportive team culture and recognize unnoticed contributions.

This is where HR tools like HeartCount can help. Employees can give each other kudos or react with “+1” to someone else’s praise. The whole company can see these peer recognitions. They stay in employees’ records, ensuring their contributions are not forgotten. You can follow up with appropriate incentives, such as days off, bonuses, or gift cards.

Clear communication and feedback

Keeping open communication and looking for feedback ensures that employees are heard and valued. You can achieve this through:

• Regular pulse checks and custom surveys 
• One-on-one meetings
• Suggestion boxes

Regular and open communication will provide insights into potential areas for improvement. You’ll be able to address issues before they become serious problems. If you’re worried that some employees hesitate to raise their concerns due to possible consequences, use HeartCount. It offers confidential and/or anonymous surveys.

What is the ROI of employee engagement?

Employee engagement ROI refers to the benefits of investing in your employees’ happiness and well-being at work. These benefits can be both financial and non-financial.

Financial benefits usually include:

• Reduced turnover costs
• Increased productivity
• Higher sales and revenue

While non-financial benefits typically encompass

• Improved customer satisfaction
• Enhanced recruitment and better company reputation
• Lower absenteeism rates 

The ROI is the value of these benefits compared to your investment in making your employees engaged and efficient by making them happy and fulfilled.

Factors Affecting Employee Engagement ROI 

Factors that influence employee engagement ROI include:

• Effective engagement strategies include open communication, growth opportunities, and recognition. They address employee needs and interests and lead to higher engagement and ROI.
• Supportive, approachable leaders who set a positive example boost employee morale and engagement.
• A positive and inclusive culture fosters engagement and a sense of belonging. It translates to higher ROI.
• A healthy work-life balance contributes to employee well-being and engagement.

Neglecting these factors can lower employee morale and productivity and increase turnover. Disengagement negatively impacts the organization’s performance and profitability, reducing employee ROI.

Measuring ROI on employee engagement

Measuring ROI on employee engagement can be tricky. Although you can use a simple calculation formula, evaluation requires more than just looking at numbers. Your focus should also be on how your employees feel and what they think about their workplace.

Here are the top ways to measure employee ROI:

1. Employee involvement 

Employee involvement and productivity are tightly linked. Employees who feel involved and invested in their work are more likely to be productive and contribute their best efforts. 

• Pulse check surveys: Use HR tools like HeartCount to conduct short, frequent surveys. They will help you gauge employee sentiment on specific involvement-related topics. Examples include:
  • Feeling valued and heard by leadership
  • Opportunities to contribute ideas and feedback
  • Sense of purpose and alignment with company goals
  • Collaboration and teamwork within the team

• Focus groups: Talking with small groups of employees will help you get feedback on engagement efforts.
• Employee Net Promoter Score (eNPS): This metric shows how likely employees are to recommend your company as a great place to work. A high eNPS suggests employees feel involved and positive about their work experience.

2. Productivity 

• Output and sales figures: Track individual and team output after implementing engagement initiatives. Look for increases in sales figures, completed projects, or other relevant metrics specific to your industry.
• Performance reviews: Analyze trends in performance reviews before and after engagement efforts. Are employees exceeding expectations more frequently? Are there improvements in quality of work or efficiency?

Look for patterns between your employee involvement data and your productivity data. Did an increase in employee satisfaction correlate with a rise in sales figures?

3. Turnover 

The turnover rate is a metric that shows the percentage of employees who leave a company during a specific period. High turnover can mean employees are unhappy and not finding opportunities to grow in the company.

To calculate the turnover rate, divide the average by the departing number of employees. Then, multiply the result by 100.

Turnover rate = (Average number of employees / Number of employees who left​) × 100

Turnover affects employee engagement ROI since:

• High turnover is expensive. It costs money to recruit, hire, and train new employees. Lower turnover means saving these costs.
• Engaged employees stay with the company and are more productive. Reducing turnover keeps experienced and efficient employees in the company.
• Frequent turnover can harm morale and disrupt team dynamics. Stable teams with engaged members contribute to a positive work environment.
• Lower turnover often leads to better overall company performance. Engaged employees contribute positively to the company’s success.

By keeping turnover low, you can see a higher return on investment (ROI) from your employee engagement efforts.

4. Absenteeism

Absenteeism is when employees frequently miss work without a valid reason. It includes days when employees call in sick, take unplanned personal days, or simply don’t show up.

High absenteeism rates cause

• Productivity loss, as work gets delayed, or other employees have to cover for absent one
• Increased costs of hiring temporary workers or redistributing workloads
• Lower team morale and increased stress among employees who must do extra work
• Poor customer service if there aren’t enough staff members to meet customer needs

The International Organization for Standardization (ISO) suggests measuring absenteeism rate in the following way:

Absenteeism rate = (Number of absent days / Number of total working days) × 100

Lowering absenteeism saves money on overtime and temporary staffing, improving the ROI of engagement initiatives. It also helps keep a positive workplace culture, boosting employee morale and engagement.

5. Profitability

Employee engagement isn’t just about money. But, a disengaged workforce can hurt your profitability.

Profitability is typically measured through profit margin ratios:

• The gross profit margin ratio calculates the percentage of revenue left over after deducting the cost of products sold. A higher gross margin indicates better efficiency in managing production costs.
• The operating profit margin ratio considers operating expenses like marketing and administrative costs. It shows what percentage of revenue remains after covering all operational expenses.
• The net profit margin ratio gives you the percentage of revenue that remains after all expenses, such as taxes and interest.

Track your profit margins before and after starting employee engagement initiatives. Be patient. The impact of employee engagement on profitability may take time to show up in your financial results.

Remember: Employee engagement isn’t just a “soft” metric. Showing how it boosts profits can strengthen the case for investing in a more engaged and productive work environment.

Employee engagement ROI calculator

To calculate the ROI of employee engagement, follow these steps:

1. Gather data: Collect relevant data on metrics such as productivity, turnover rates, absenteeism, and customer satisfaction.
2. Calculate costs: Determine the total costs of your employee engagement initiatives, including salaries, technology investments, training programs, and rewards.
3. Quantify benefits: Measure the benefits realized from engagement efforts, like cost savings from reduced turnover, increased revenue from higher productivity and sales, and improved customer satisfaction.
4. Apply the Formula: Subtract the total costs from the benefits, divide the result by the total costs, and multiply the result by 100.

ROI (%) = ((Benefits – Costs) / Costs) * 100

For example, if the benefits from engagement efforts amount to $500,000 and the costs are $100,000, the ROI would be 400%​​.

ROI of employee engagement example

You can see the perfect example of a return on engagement in Vega IT’s case:

Vega IT, an IT service company, needed help keeping its company culture during rapid growth. High turnover and disconnected leaders needed a way to build a strong culture, boost profits, and improve workplace mood.

The company teamed with HeartCount to fix these issues and turn employee feedback into actionable steps. Its commitment to improving employee engagement strengthened company culture and resulted in significant financial benefits.

ROI of employee engagement included:

1. Reduced turnover rates to less than 7%
2. Continuous profit growth exceeding 30% annually
3. Employees feel heard and valued, fostering a sense of gratitude and loyalty

How can you improve return on engagement?

Here are some ways you can improve your return on engagement (ROE) and get the most out of your employee engagement efforts:

1. Choose quantitative data (surveys, turnover rates) and qualitative data (feedback, focus groups). Both should relate to your specific engagement goals.
2. Don’t just collect data and let it sit. Analyze your findings and develop actionable plans to address employee concerns. Regularly communicate how their feedback is being used to improve the work environment.
3. A one-size-fits-all strategy won’t work. Tailor your engagement initiatives to your employees’ needs. Consider factors like age, demographics, and job roles.
4. Open and transparent communication builds trust and fosters engagement. Keep employees informed about company goals, changes, and progress on engagement initiatives.
5. Give employees autonomy and decision-making power in their work. This increases engagement and productivity by fostering a sense of ownership and responsibility.
6. Reward employees for their contributions. Public recognition can be a powerful motivator.
7. Enable employees to learn and grow. This shows that you value their development and helps them feel more invested in the company’s success.
8. Offer flexible work arrangements, generous leave policies, and programs that support employee well-being. A healthy work-life balance reduces burnout and contributes to long-term engagement.
9. Don’t expect to see overnight results. Continuously monitor your engagement metrics and adjust your strategies as needed. Be patient and focus on continuous improvement.
10. Ensure employee engagement ideas align with company goals and objectives. Employees benefit from understanding the wider picture and how their efforts affect the company’s success.
11. Engagement starts at the top. Leaders must be visible, approachable, and actively champion employee engagement initiatives. Their attitude is the role model for the entire company.

Features of an employee engagement platform that maximizes ROI 

Key features of an employee engagement platform that maximize ROI include:

Individual Retention Predictability (IRP)

This feature uses predictive analytics to identify employees at risk of leaving. HR staff is alarmed when an employee shows dissatisfaction, disengagement, or emotional fatigue. By reducing turnover, the company saves on recruitment and training costs. Also, retaining experienced staff boosts productivity.

Comprehensive feedback tools

An employee engagement platform should provide different ways to collect employee sentiment data. For example:

• Pulse checks
• Personal feedback
• Custom surveys
• Kudos 
• Private messages

Ongoing feedback helps you make timely improvements. It improves employee engagement and productivity, contributing to a better return on engagement.

Confidential and anonymous feedback

These features enable honest employee feedback without fear of retribution. 

• Confidential feedback is visible only to respondents and people of high trust.
• Anonymous feedback doesn’t collect information identifying respondents.

These surveys provide more accurate feedback, helping the company identify and solve real issues. Without anonymity, employees might fear retaliation and not speak up.

Engagement features

Measure engagement across different dimensions, like:

• Feedback and recognition
• Personal advancement
• Job satisfaction
• Attitude toward the company
• Relationship with management
• Relationship with colleagues
• Productivity and efficiency

Holistic engagement insights allow targeted interventions, improving overall workplace morale and output.

ESG (Environmental, Social, and Governmental) reporting KPIs 

Clear reporting aligns with corporate social responsibility. It attracts and keeps talent and may boost investor confidence.

Your employee engagement platform should measure different key performance indicators, such as:

• Employee engagement (EE) index 
• Well-being index 
• Autonomy score 
• Emotional exhaustion score 
• Motivation score

Detailed reporting and monitoring

Choose a platform that offers weekly, semi-annual, annual, and custom reports:

• Weekly reports allow for timely intervention on emerging issues
• Semi-annual and annual reports provide insights into long-term trends
• Custom reports can address specific organizational needs, ensuring relevant and actionable insights 

These reporting schedules help keep employees motivated, boosting productivity and increasing ROI.

Use an HR tool to stay on top of employee engagement ROI

Employee engagement is a strategic investment with a measurable return. Focusing on employee well-being can lower turnover, raise productivity, and increase profits.

But how do you translate good intentions into tangible results? 

Here’s where HeartCount comes in.

HeartCount equips you with the data and insights you need to:

• Identify areas for improvement: HeartCount uses various engagement metrics, including pulse checks, surveys, and kudos, to provide a complete view of employee sentiment. It allows you to discover where your efforts are needed most.
• Take targeted action: By clearly understanding your employees’ needs, you can address their concerns and foster a truly engaged workforce.
• Measure your ROI: Track the impact of your engagement efforts on key metrics like turnover, productivity, and customer satisfaction. HeartCount’s reporting features make it easy to demonstrate the financial value of a happy and engaged workforce.