How to Calculate the ROI of Employee Engagement

HR leaders are at a pivotal crossroads. They have the skills and potential to drive business and financial impact—yet this critical aspect often takes a back seat. Instead, the HR function becomes entangled in repetitive administrative processes that hinder their capacity to both articulate and maximize the strategic impact of employee success initiatives like engagement, performance, retention, and culture.

The benefits of investing in employee engagement are clear: improved employee productivity, better customer service, increased safety, higher retention, and more.

But how do we improve employee engagement? 

And is the investment worth it? 

This article will explore the steps HR leaders can take to enhance their employee engagement ROI—culminating in a stronger, more competitive organization that leverages their talent to win.

Your investments in employee success are key to business success. Explore our  Employee Engagement Calculator today >>


The Shift Towards Strategic HR

The landscape of HR is changing. While traditionally viewed as the administrators of workforce processes, HR leaders are now facing increasing pressure to become strategic partners in their organizations' success. 

This shift towards strategic HR is not just a trend; it's an essential transformation for organizations aiming to thrive in the competitive talent market of today.

The problem is that many HR professionals don’t have the bandwidth to take on strategic engagement initiatives because they’re bogged down by tedious administrative processes.

The mundane and time-consuming nature of these responsibilities can limit HR's capacity to engage in strategic activities that drive real business impact. This challenge is not unique; it's a common struggle across the HR landscape.


HR Leaders Have the Skills to Be Strategic Partners

The impact of employee engagement isn’t limited by the skill level of HR leaders. According to research, a staggering 91% of HR leaders believe they have the skills necessary to become CEOs. They envision themselves as strategic leaders capable of steering their organizations to financial success. However, their reality is often quite different. 

Here’s why: more than two-thirds of business leaders report that their HR teams are primarily focused on processes - not impact.

More than ⅔ of business leaders report their HR teams are primarily focused on processes, not business impact.

Of course, processes are essential. But HR can’t invest most of their time here. HR should be helping to improve their organization's ability to adapt, remain agile, and capitalize on opportunities to drive employee impact. 

The call from business leaders is clear: HR must pivot from process-driven operations to more strategic, forward-thinking roles.


How to Calculate the ROI of Employee Engagement

Calculating the ROI of employee engagement is a strategic move that requires a systematic approach. While it may seem complex, we’ve broken it down into clear steps that simplify the process. 

Let’s dive in.


Step 1: Define Your Objectives

Before you start pulling reports and spreadsheets out of the cloud-closet, we recommend that you take a quick step back to outline your objectives. 

Why are you trying to measure employee engagement ROI? Are you aiming to reduce turnover? Boost productivity? Enhance customer satisfaction? 

Once you’ve identified your why, it’s time to translate it into an actionable goal. Your goals should be specific, measurable, attainable, relevant, and time-bound (SMART). 

For instance, rather than having a vague goal like "improve employee morale," set a specific objective such as "reduce employee turnover by 15% in the next 12 months."

This is also a great time to engage with key stakeholders within your organization, including HR teams, department heads, and C-suite executives, to gain a comprehensive understanding of their priorities and expectations. Their input can help refine your objectives and ensure they align with broader organizational goals.


Pro Tip: Prioritize Your Impact

It's common for organizations to have multiple objectives related to employee engagement.

Prioritize these objectives based on their strategic importance and the potential impact on your organization's overall success. Determine which objectives will be the primary focus of your ROI calculation. Then, once you have a clearer picture, you can expand your calculations to other initiatives.


Step 2: Gather Comprehensive Data

Any ROI calculation requires accurate data. Now that your goals are set, it’s time to start gathering the various types of data that are essential for a thorough analysis. 

Here’s how to get started.

  1. Identify Your Data Sources: Determine where you'll source the data required for your ROI calculation. These sources may include HR records, employee surveys, performance reviews, turnover reports, and customer feedback. Ensure you have access to both quantitative and qualitative data.

  2. Consider Using Data Collection Tools: Utilize appropriate data collection tools and technologies to streamline the process. Employee engagement platforms, survey software, and HR information systems (HRIS) can help automate data collection and aggregation, making the process more efficient.

  3. Analyze Benchmarking Data: Consider incorporating benchmarking data from industry standards or peer organizations. Benchmarking helps contextualize your data and assess your organization's performance relative to others in your industry. Advanced employee engagement tools provide benchmarking data right within the product interface.

  4. Determine Your Time Period Selection: Determine the appropriate time period for data collection. Depending on your objectives, this could range from monthly, quarterly, or annually. Consistency in data collection intervals is essential for meaningful comparisons.

This data forms the basis for ROI calculations, enabling you to quantify the impact of engagement initiatives effectively.


Did you know? We built an easy-to-use Employee Engagement ROI Calculator in case you want to get a jumpstart on your calculations. Check it out now!



Step 3: Calculate Total Costs

Accurately calculating the total costs associated with your employee engagement efforts is a pivotal component of determining ROI. Begin by categorizing the various costs related to your employee engagement initiatives. 

Common cost categories include:

  • Personnel Expenses: Calculate the salaries, benefits, and any other compensation-related expenses for HR professionals and other employees involved in engagement activities. Include the time spent on planning, implementing, and analyzing engagement programs. Consider indirect costs such as office space, utilities, and administrative support that contribute to your engagement efforts.

  • Technology Investments: Include expenses related to software platforms, survey tools, data analytics solutions, and any other technologies used for employee engagement. This may involve subscription fees, licensing costs, or customization expenses. Include costs related to data collection, storage, and analysis. This covers data management software, cloud storage fees, and the time spent by IT professionals handling engagement-related data.

  • Training and Development Costs: Account for the costs associated with training programs, workshops, or seminars aimed at enhancing employee engagement skills among HR personnel, managers, and employees. This also encompasses the cost of developing engagement-related content. If your engagement programs involve incentives, rewards, or recognition, calculate the expenses associated with these initiatives. This could encompass bonuses, gift cards, or other forms of employee recognition.

Once you have categorized and quantified all relevant costs, sum them to calculate the total costs of your employee engagement efforts. 

This comprehensive cost assessment provides a clear understanding of the financial resources allocated to engagement initiatives. It serves as a critical input in the ROI calculation, allowing you to compare these costs with the benefits and outcomes achieved through improved employee engagement.

If you’re feeling overwhelmed at this stage, remember that we’ve built an intuitive Employee Engagement ROI Calculator that you can use for free. Even if your numbers aren’t perfect, this tool can act as a foundational baseline for your ROI efforts.


Step 4: Quantify the Benefits Realized For Your Organization

In this critical phase, the focus shifts to quantifying the benefits your organization has realized from its engagement efforts. These benefits must be intricately tied to the objectives you established in Step 1.

Imagine your primary goal was to tackle high turnover rates within your workforce. 

In this case, you'll want to delve into the benefits yielded by reducing employee turnover. Calculate the cost savings realized through retaining valuable employees and sidestepping the substantial expenses associated with recruitment and training for replacements. 

This could encompass not only tangible costs like job postings and onboarding but also the intangible, yet substantial, loss of institutional knowledge.

On the other hand, if your engagement strategy primarily targeted productivity enhancements, your calculations should spotlight the noticeable increase in output or the significant reduction in errors attributable to these efforts. 

Dive into the data that showcases how engaged employees complete tasks more efficiently, contribute to fewer operational errors, or deliver products of higher quality. These improvements in productivity directly translate into tangible, often monetary, benefits for your organization.


Employee Engagement ROI Isn’t Just About Dollars

Remember that ROI isn't limited to financial metrics. It encompasses a broad spectrum of positive impacts, including cost savings, revenue growth, enhanced employee well-being, and more. 

Quantifying these benefits is the cornerstone of making a compelling case for the value of your employee engagement initiatives and their tangible impact on your organization's success.


Step 5: Apply the Employee Engagement ROI Formula

Congratulations! You’ve successfully gathered, qualified, and analyzed your employee engagement data. If you ask us, you deserve a coffee break. 

But your work isn’t done yet!

Now that you've gathered comprehensive data on both the costs and benefits of your employee engagement initiatives, it's time to put these pieces together using a structured formula to calculate your ROI. 

Here’s a standard formula you can use to calculate the ROI of your employee engagement efforts:

ROI formula: ROI (%) = (Benefits - Costs) / Costs * 100

Not a math major? Let’s break this down: 

Begin by subtracting the total costs incurred (Step 3) from the total benefits realized (Step 4). This straightforward subtraction provides you with the net gain or return generated by your engagement initiatives.

Next, divide this net gain by the total costs (Step 3). This division results in a decimal value, which you can multiply by 100 to express your ROI as a percentage. This final percentage figure is a clear representation of the return on investment your organization has achieved through its employee engagement efforts.

Remember that the specific formula and calculations may vary based on your objectives and the nature of your data. 

However, this structured approach ensures that you are systematically evaluating the impact of your engagement programs in a way that is transparent and easily communicable.

The resulting ROI percentage not only quantifies the success of your employee engagement initiatives but also serves as a valuable tool for strategic decision-making and future planning. It provides a clear measure of the value derived from your investments and offers insights into where you might want to allocate resources for maximum impact in the future.

Want to streamline this process? Head on over to our HR-friendly ROI calculator and we’ll take care of this analysis for you.


How to Improve Employee Engagement ROI: Investing in Impact

In the ever-evolving landscape of human resources, becoming a strategic partner hinges on a critical shift—investing in impact. But what exactly does this entail? 

HR leaders today are tasked with making decisions that are not only data-driven but also guided by insights that offer a deeper understanding of their workforce. This transformation demands a departure from randomness, emphasizing targeted actions that align seamlessly with strategic objectives. 

Simply put: Organizations should channel their investments into initiatives and technologies that drive both employee and business impact.

To empower HR teams on this journey, the adoption of efficient and user-friendly tools is paramount. These tools serve to liberate HR professionals from administrative burdens, allowing them to focus on value-driven tasks. They enable HR leaders to evolve into strategic partners, armed with the insights and capabilities required to enhance employee engagement ROI.


Build Confidence in Decisions

Confidence in decision-making hinges on data and insights, steering organizations away from decisions rooted in assumptions and hunches. The true impact lies in channeling resources toward the most strategic efforts, underpinned by a clear understanding of what truly matters.


Take Targeted Action

Taking action where and when it matters most is essential. Random acts of engagement won't suffice. You must shift your strategy to focused, well-timed actions. This strategy can help you realize impact more quickly and effectively.


Looking for more inspiration on how to invest in impact? Check out our 2024  CHRO Strategic Employee Success Planner.

Empower Teams and Alignment

The journey towards optimizing employee engagement ROI is incomplete without empowering teams and fostering alignment throughout the organization. You need tools and technologies that facilitate seamless collaboration and the free flow of information across departments. By adopting platforms that encourage engagement, enhance performance, and shape organizational culture as a shared endeavor, you can harness the collective power of their teams.


Transition from Task Managers to Coaches

Transitioning from mere task managers to coaches is critical for HR leaders to drive employee engagement ROI effectively. By investing in aligning teams, empowering managers, and leveraging the right tools, organizations can not only boost their employee engagement ROI but also gain a competitive edge.


Use Efficient and Simple Tools

Technology should empower, not hinder your HR team. Say goodbye to clunky, cumbersome tools that no one—especially your HR team—wants to use. Efficient, user-friendly technology saves time and empowers your team to focus on what truly matters.


Calculate Your Employee Engagement ROI Today

HR teams are under more pressure than ever, juggling myriad responsibilities in an increasingly complex business landscape. The demand for strategic thinking and actionable insights is incessant, and HR professionals are looking for smart solutions that not only ease their workload but also empower them to make a tangible impact on their organization's success.


“Quantum Workplace has helped us eliminate massive amounts of administrative work. The time I’m now investing is much more interesting to me. I’m able to start conversations in the business we’ve never had before.”

- Nicole Davies, VP of Talent Optimization at Valet Living

Don't let the complexities of modern HR overwhelm you. Embrace the future of HR with Quantum Workplace, and discover how you can achieve more, be more, and drive impactful change. Take the first step and explore our Employee Engagement ROI Calculator today. It's time to unlock your HR potential.


Make dollars and sense out of your employee success investments


Published October 12, 2023 | Written By Kristin Ryba