Measuring the ROI of employee engagement [free calculator]

Only 21% of employees feel a sense of engagement at work — globally.* That may be challenging to hear if you’re a manager, human resources professional, or people ops leader who’s aware of the connection between engagement and employee well-being. 

And that statistic is equally daunting if you’re tasked with quantifying your employee engagement return on investment (ROI) and reporting it to your company’s decision-makers. 

That’s why it’s essential to build a repertoire of solid engagement metrics that’ll show how successful your employee engagement initiatives are and help you gain leadership’s buy-in. To that end, we’ve put together a list of seven fundamental ways to measure the ROI of employee engagement.
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*Gallup, 2022.

What is employee engagement ROI?

On the surface, employee engagement ROI is the financial profit companies yield from investing in engagement strategies. If you think about it in terms of profitability for the company, you can calculate the return on investment of employee engagement the same way you’d calculate any other kind of ROI: divide the profits you’ve earned on the investment by the cost of that same investment.

‍But profitability isn’t the only way to measure engagement ROI. Because when you prioritize employee engagement, your investment yields other returns, too — all tangible and measurable, like improved quality of work and higher levels of customer satisfaction.

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7 ways to measure the ROI of employee engagement

Measuring the ROI of employee engagement is challenging because engagement isn’t just about what your people do for your organization. It’s also about how they feel and what they think about their workplace. Still, there are more ways to evaluate engagement ROI than to simply look at profitability and productivity — here are the top seven ways to measure it.
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1. Employee involvement

Greater employee involvement and satisfaction at work is one of the first outcomes of an effective engagement strategy. And engagement tends to have a ripple effect: that sense of fulfillment positively impacts employee performance, with increased productivity and work quality.

That’s why monitoring employee satisfaction and motivation is fundamental to determine if you’re getting an adequate return on your engagement efforts and investment. If you’ve already researched how to measure employee engagement, you may know what metrics to look into. But if not, here are some suggestions:

• Conduct pulse surveys — Pulse surveys are short, quick-to-complete questionnaires that gauge employee sentiment around a particular topic (like remote work, professional development, career growth opportunities, or something else).

• Run diversity surveys — These are pulse surveys that tell you how your company is doing regarding diversity, equity, and inclusion (DEI). And they’re also a great way to determine the state of psychological safety at your company; when everyone feels accepted and included, they’re more likely to feel comfortable and satisfied at work.

• Find out your employee Net Promoter Score (eNPS) — Your eNPS quantifies how your company is doing based on the answer to one question: How likely are you to recommend [Company] to your family and friends as a place to work?

A word of caution: There is such a thing as overdoing it with engagement surveys. It’s not uncommon for employees to feel survey fatigue, especially when they don’t think managers and leaders will take action on the instant feedback employees share. And a lack of action leads to disengaged staff.
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“One of the key indicators that my employee engagement efforts are working is whether staff members show up when they aren’t required to.

Meaning: If I host an optional social hour or learning opportunity and there’s a strong turnout, I know my colleagues are invested in the organization and feel engaged. I track this and look for patterns in attendance.”

— Caitlin Upshaw, founder of Rad HR Friends‍

2. Productivity 

Engaged employees work more productively because they’re more driven. Of course, they’re motivated by factors like recognition and monetary rewards — but highly engaged employees are inspired by intrinsic factors, too. They feel appreciated at their workplace and enjoy learning, growing, and seeing their professional efforts bear fruit.

But how do you know if your engagement efforts are impacting employee productivity? Try tracking productivity metrics and comparing them against your engagement program.

For example: Did you notice an uptick in sales when you started focusing on employee engagement? It might be because your strategies are working!

You can also track employee productivity within a certain period by looking at:

• Total sales — This is a common productivity metric. You can calculate it by dividing your total sales by the number of hours employees worked.

• Performance reviews — Analyzing employees’ previous performance reviews can give you insights into productivity shifts or improvements.

• 360-degree reviews — This is a type of review that looks at performance holistically. Employees assess their own performance and receive instant feedback from peers, direct reports, and even clients or service providers.

3. Turnover

Engaged staff tend to stay with organizations longer because they feel aligned with their companies’ missions. That’s why many employers consider their attrition rates to see where they stand with employee engagemen

But on their own, decreased turnover rates may not be a fully accurate indicator of engagement. That’s why it’s critical to have a holistic mindset regarding engagement ROI.

Of course, other factors can influence an employee’s decision to stay with a company. They may not, for example, feel confident about the availability of other opportunities if they leave.

And in a time when the labor market is tight and more companies are incentivizing employees with bonuses and merit pay, they may find that monetary rewards are motivation enough to stay in their current jobs — even if they don’t feel satisfied.

“I've interviewed CEOs that have made positive changes to corporate culture, and they say it takes almost two years until employees know that this is serious and not just another fad initiative.

Still skeptical? There are exchange-traded funds (ETFs) that you can invest in that are based on the impact of human capital. Yes, the companies that get the human capital part right outperform their peers — and it is an investable strategy.”

— Dave Bookbinder, valuation expert and author of The New ROI: Return on Individuals

4. Absenteeism

Absenteeism, like turnover, is another unreliable engagement ROI metric. Although absenteeism can be a symptom of disengagement, it can also be a warning sign of employee burnout and fatigue. Increased absenteeism can also happen because of personal, family, or medical issues.

But you can solve these problems by creating a generous and flexible personal time off (PTO), vacation, and sick leave policy. And you should encourage your people to really take time off! One way to do so is by setting a minimum number of days employees have to book off every year; this is currently done by many companies that offer unlimited time off.

A comprehensive PTO policy shows your workforce you care about their individual needs outside of work, and it should be one of your employee engagement initiatives. And if your people feel that the organization pays attention to their basic needs, they’ll be more likely to feel satisfied and safe at work.

5. Focus on quality

Highly engaged teams aren’t only more motivated: they’re also more committed to producing high-quality work. Happy employees work harder and smarter.

But it’s up to your company to determine what excellent work quality looks like. And as organizations change and grow, the metrics they track to measure quality might shift. Still, there are a few ways you can use work quality to measure your employee engagement ROI: 

• Setting and monitoring cascading goals — Cascading goals translate company-wide, high-level goals into objectives that are measurable at each level (including the individual). And you can use them to check for improved quality of work by comparing individual and team performance with your company and department-wide goals. Evaluate to what extent your employees have reached their objectives and see how well their goals align with those of the organization.

• Tracking objectives and key results (OKRs) — OKRs don’t just help you reach your goals more quickly; they allow you to define what your goals look like in the first place. So, the more specific you get with your OKRs, the more they’ll help you measure your work in terms of quality. 

• Analyzing peer and manager feedback in performance reviews — Your employee may be keeping up with their usual output, but has the standard of their work improved in general? And if so, has their performance boost coincided with your engagement strategies? 

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6. Customer satisfaction

Not enough organizations are investing in the employee experience of their customer care professionals. And it shows, as great customer care talent is getting scarce. 

All companies should make their customer success team’s engagement a priority — because when they feel satisfied with their jobs, they’re more likely to stay in their role, learn, develop, and be attentive to customer needs.

And for organizations that are already working on improving the customer experience from all angles, here’s how you can tell if your engagement efforts are positively affecting customer satisfaction:

• Customer Satisfaction Score (CSAT) — Businesses try to capture this rating immediately after customers interact with their organization, service, or product. To calculate your CSAT, divide the number of positive responses (your satisfied customers) by the total number of responses. Then, multiply that number by 100 to come up with a percentage. 

• Net Promoter Score (NPS) — This score helps you measure customer satisfaction and loyalty.
  
  To calculate your NPS, ask customers to answer the question, “How likely are you to recommend our product or service to family, friends, or colleagues (on a scale from zero to ten)?” If your customer gives you a nine or ten, they’re a promoter. If they choose seven or eight, they’re passive. Anyone who gives you less than a seven is considered a detractor.
  
  You can then figure out your NPS by subtracting your number of detractors from your number of promoters, then dividing that amount by your total number of responses. Multiply that by 100 to get your NPS, which is a whole number, not a percentage. Keep in mind that most companies have scores between 31 and 50.

• Customer Effort Score (CES) — This metric measures the convenience or ease of your customers’ experience with your team, product, or service. When people don’t have to make much effort in an exchange or transaction, they’re likely to have a more positive experience.

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7. Profitability

There’s a connection between disengaged employees and negative business outcomes. By some estimates, disengagement could cost around 34% — or US$3,400 out of every US$10,000 of an employee’s salary.

If increasing employee engagement is in your purview as a manager or leader, then you know profitability is one of the most important metrics for getting a green light from budgetary decision-makers.

When thinking about profitability, it’s important to make this distinction: Profit is the income your business generates. But profitability quantifies your business’s ability to turn sales into profit. Companies determine this by looking at their profit margin ratios:

💵 Gross profit margin ratio = (Revenue – Cost of Goods Sold) / Revenue x 100

📈 Operating profit margin ratio = (Operating Income ÷ Number of Sales) x 100 

📊 Net profit margin ratio = (Net Income ÷ Number of Sales) x 100 

👉 Try out Leapsome’s ROI Calculator

Once you’ve calculated your margin ratios, you’ll want to compare them against your industry averages. And, as with our other metrics for measuring employee engagement ROI, you’ll also want to see if an increase in profitability correlates with an increase in employee engagement efforts.

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How to use the Leapsome employee engagement ROI calculator

To calculate your organization’s employee engagement ROI, use Leapsome’s ROI calculator. 

Our ROI calculator can then estimate the potential effects you can expect by investing in employee engagement. You only need to enter the following variables for your company into the calculator:

• Number of employees
• Average salary 
• Employee turnover rate 

Not sure about your turnover? Find the average employee turnover for your industry here.
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There’s an efficient way to build engagement 

Improving employee engagement requires cultural, personal, and, of course, financial investment. But this can really benefit your people and your business — and those benefits are measurable.

And if gathering ROI metrics seems intimidating, employee engagement module can help!

With Leapsome’s module for engagement surveys, you can find out how your employees feel about their workplace and discover what’s driving engagement.

And because our platform also has features for running performance reviews and tracking goals and OKRs (and much more), you’ll be able to measure the impact of engagement on your employee performance, too.
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⭐️ Engage your people and track results with Leapsome

Whether you want to ramp up your employee engagement program or analyze its ROI, Leapsome can guide you through every step, helping you build workflows from start to finish.

👉 Book a demo‍