Development

How Much Money Can You Really Save With Employee Engagement?

Portrait happy woman in glasses has a successful idea under money rain isolated on gray wall background with bright light bulb above head
93views

Employee engagement strategies can help you save money. Calculate your employee engagement return on investment in a few easy steps to discover how.

It has been repeated time and again that: employee engagement will save your business money or employee engagement has an impact on overall business performance.

Companies investing in employee engagement know retention and engagement statistics which is why they are investing so heavily. They are aware of the numerous benefits an employee engagement program has on leadership, customer loyalty, profitability, and every single aspect of their business’ bottom line.

Investing in employee engagement

In today’s economy people do not purchase products without performing the necessary research about the product and most notably, it’s cost. Consumers are more technologically savvy and because of this, are that much more aware of the market.

As customers continue to become more acclimated to the market, it is paramount that employees show and reflect that same kind of knowledge to better serve them. The only way this kind of commitment and fostering can be accrued is through having a solid core which ensures all your employees are engaged with their work.

As such, investing in employee engagement is a must; and for any business, there are a few criteria to be kept top of mind to start your process. These principles must be followed before spending any amount of money on building your engagement program.

Before jumping into an employee engagement program every company should look at how much money can be saved if a strategic employee engagement program is implemented.

Calculate your ROI from an Employee Engagement program

Follow the steps below in order to calculate the savings you will receive by starting a strategic employee engagement initiative. It only requires a little mathematics and your bottom line will be thankful for it.

This example is based on collective employee engagement statistics provided by the HR industry; It will provide a fairly accurate estimation of how much money your organization can save thanks to employee engagement.

Let’s start by filling out this simple form:

In the table below, replace the variables found in the “Variables” column with the actual metric to establish your baseline Human Resource numbers. These numbers will be used to calculate your final costs.

Alternatively, Applauz has a calculator where your ROI on Employee Engagement can be calculated automatically, see here.

Employee Data Variable
Number of employees, beginning of the year A
Number of employees, end of the year B
Average employee salary C
Annual company revenue D
Number of employees that quit or were fired during the year E
Done? Great! Don’t celebrate just yet. Now let’s fill out the tables below:

Revenue

Employee Cost Data Current Higher Engagement

Revenue per employee

(annual company revenue) / (average number of employees) = (revenue per employee)

D / ( ( A + B ) / 2 ) = F

(revenue per employee) + 20% = (revenue per employee with higher levels of engagement)

F + ( 0.2 x F ) = G

Absenteeism

Employee Cost Data Current Higher Engagement

Cost of absenteeism per employee *

(1.2% of revenue per employee) + (1.2% of average employee salary) = (cost of absenteeism per employee)

( 0.012 x F ) + ( 0.012 x C ) = H

(cost of absenteeism per employee) – 40% = (cost of absenteeism per employee with higher levels of engagement)

H – ( 0.4 x H ) = I

Total cost of absenteeism *

(cost of absenteeism per employee) x (average number of employees) = (total cost of absenteeism)

H x ( ( A + B ) / 2 ) = J

(total cost of absenteeism) – 41% = (total cost of absenteeism with higher levels of engagement)

J + ( 0.41 x J ) = K

* On average, 1.2% of total working days are unearned paid time off.

* Total cost of absenteeism represents the impact of absenteeism of the scale of your company. Absenteeism can drop up to 41% when teams are engaged in their work (Workforce Institute on Absenteeism). This improvement can vary from 24% in high-turnover organizations to 59% in low-turnover organizations.

Turnover

Employee Cost Data Current Higher Engagement

Turnover rate *

(number of employees that quit or were fired during the year) / (average number of employees ) = (turnover rate)

E / ( ( A + B ) / 2 ) = L

(turnover rate) – 40% = (turnover rate with higher levels of engagement)

L – ( L x 0.4 ) = M

Number of employees that leave in a year

(number of employees that quit or were fired during the year)

(turnover rate) x (average number of employees) = (number of employees that leave in a year)

E  or  L x ( ( A + B ) / 2 ) = E

(number of employees that leave in a year) – 40% = (number of employees that leave during the year with high levels of engagement)

E – ( E x 0.4 ) = N

Average cost to replace an employee *

(1 month of average salary) x 9 months = (average cost to replace an employee)

( C / 12 ) x 9 = O

The average cost remains the same

O

Total cost of employee turnover

(average cost to replace an employee) x (number of employees that leave in a year) = (total cost of employee turnover)

O x E = P

(average cost to replace an employee) x (number of employees that leave during the year with high levels of engagement) = (total cost of employee turnover with higher levels of engagement)

O x N = Q

* On average, highly engaged teams will experience a 40% improvement in turnover. Turnover rates vary by industry. To check yours, click here.

* In general, it costs between 6 to 9 months of an employee’s salary to replace him/her. Take 9 months for the simulation.

You’re now seconds away from discovering how much money you can save with employee engagement. Fill out this last table and you’ll finally know!

Employee Engagement ROI

Area Profits / Savings

Company Revenue

(revenue per employee with higher levels of engagement) x (average number of employees) = (company revenue with higher levels of engagement)

(company revenue with higher levels of engagement) – (annual company revenue) = (company revenue profits with higher levels of engagement)

( G x ( ( A + B ) / 2 )) – D = >R

Savings from less absenteeism

(total cost of absenteeism) – (total cost of absenteeism with higher levels of engagement) = (savings from less absenteeism)

JK = S

Savings from less turnover

(total cost of employee turnover) – (total cost of employee turnover with higher levels of engagement) = (savings from less turnover)

PQ = T

Total ROI *

(company revenue profits with higher levels of engagement) + (savings from less absenteeism) + (savings from less turnover) = (total ROI)

R + S + T = U

*Your Total ROI value is the amount of revenue added due to:

  • a 20% increase in employee productivity
  • the money saved from a  40% decrease in turnover
  • as well as a 41% reduction in absenteeism

Your total ROI corresponds to the amount of money you can save by investing in employee engagement. Whether your company is large or small, its success highly depends on its employee engagement efforts. Now that you clearly know what it means for your company in terms of costs, what are you waiting for?

Visit Applauz.com, a free digital platform, that can help you begin setting up an employee recognition program, and will help boost employee engagement.

Stay up-to-date with the latest employee engagement information at EngagementTrends.com