The ROI of Employee Engagement: 5 Reasons It’s Worth the Cost

We all know companies should invest in employee engagement. But for HR teams looking for budget and executive buy-in, showing the value of that investment can be a challenge. Employee engagement and the software used to measure and help improve it comes at a cost — and naturally, those holding the purse strings are obligated to push back.

Thankfully, there are clear, compelling reasons why even the most skeptical CFO can embrace the value of engagement. Whether you’re trying to make the case for purchasing an engagement survey tool or just planning next week’s team-building exercise, here’s why you can’t afford not to prioritize employee engagement.

1. Employee turnover is (really) expensive.

Of all the metrics today’s People teams measure, few catch executives’ attention more than turnover. Every employee is a long-term investment, from the upfront cost of recruiting them to the time required to train them. It’s no surprise then that the cost of losing an employee can range from tens of thousands of dollars to twice their annual salary. Why invite more of those costs by putting engagement on the backburner?

“Disengaged employees don't tend to be loyal to their organizations, which means they are continually in a high-risk zone of quitting,” said Jagoda Wieczorek, HR Manager at ResumeLab. We instinctively know this, but the data bears it out: Highly engaged companies have turnover rates that are between 25% and 59% lower than their less-engaged peers.

“When employees start to look for greener pastures, you'll have to start the costly hiring, onboarding, and training dance all over again to fill the gap. I think it’s safe to argue that if an employee earns $60,000 per year, the company is likely to spend $45,000 to replace them,” Wieczorek said.

2. Engagement improves customer satisfaction. 

Over the long term, customer retention can make or break a company’s chances for success. Along with revenue, cash flow, burn rate, and other financial metrics, C-suite leaders and company boards pay particular attention to customer retention and satisfaction scores. Fortunately for HR leaders looking for that elusive executive “yes,” those two metrics are closely tied to employee engagement.

“Highly engaged employees hold high regard for the quality of their service for both customers and the organization...Aside from fewer absences, committed people are more observant of customer needs, which contributes to higher customer satisfaction levels,” said Sherry Mae, Chief Marketing Officer at Tankarium. One Gallup study found that engaged companies had at least 10% higher customer satisfaction scores than their competitors. There’s also evidence that a positive employee experience correlates to long-term customer loyalty and even advocacy. A survey of Starbucks customers found that 87% of them attributed their affinity for the brand to its treatment of employees.

“Your employees interact closely with your customers. If employees are highly engaged, they will give the customer the best experience. The better the experience, the easier it is for the customer to connect with your brand emotionally,” said Reuben Yonatan, CEO of GetVoIP. “A highly engaged customer is also an engaged advocate. They will help market your brand via word of mouth.”

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3. It makes it easier to recruit top talent.

In addition to preventing employees from leaving, investing in engagement gives companies an edge in recruiting. Word-of-mouth and employer-rating sites like Glassdoor make it easy for candidates to identify which companies value engagement and which don’t. If you’re still growing and don’t have enough brand presence for candidates to actively seek you out, engaged employees will help you fill the gap through their referrals.

“Highly engaged employees participate actively in recruitment and refer other engaged and skilled employees to the company. This is also estimated to generate cost savings by reducing recruitment costs by 22%,” said Kevin Lee, CEO of JourneyPure. Lee also suggested that if teams are already tracking engagement, they might be able to correlate referral volume to employee satisfaction metrics like employee Net Promoter Score. 

4. Employees will be more productive.

Engaged teams work harder and produce higher-quality results. While that doesn’t sound like a controversial statement, having data to back up that assertion can help you win over the skeptics. Thankfully, there’s plenty of compelling evidence to choose from.

“Disengaged employees who aren't psychologically attached to their work will drag their feet to work and struggle to perform to the best of their ability,” Wieczorek said. Engagement data from Gallup corroborates that, as highly engaged teams were found to be 21% more profitable and 17% more productive. They were also 41% less likely to have problems with absenteeism.

“Happier employees work harder and are more invested in the success of the company, it’s that simple. Also, bad working environments lead to higher stress levels, anxiety, and burnout,” said Jenna Carson, HR Manager at Music Grotto. “Trying to identify problems before they get out of hand, and taking action to make sure employees are engaged saves money and increases productivity.”

5. Engagement powers revenue and sales.

As discussed earlier, prioritizing engagement keeps existing customers happy. There’s ample evidence that it might help attract new business, too.

A study from Aon Hewit found that engaged teams were more likely to reach their sales goals. The analysis found that for every 1% increase in engagement, teams could expect to see an additional 0.6% increase in new business. One $5 billion company that participated in the study saw its operating income increase by $20 million after improving engagement scores by just a single percentage point. Data from Gallup goes even further, suggesting companies that prioritize engagement can improve their sales by 20%.

What’s more, engagement doesn’t just drive outbound sales. As already mentioned, your work culture can influence clients’ decisions to renew. It might attract inbound interest from prospects, too.

“Prospects will want to buy from you if you prioritize engagement. There is an increasing expectation from customers that the brands they buy from have to behave ethically. Being able to demonstrate that your employees are treated well, and that your focus is on their wellbeing, translates to customers seeing the company in a positive light and having a lot more trust in you,” Carson said.

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Investing in employee engagement isn’t just a best practice, it’s a prerequisite for your long-term success. Lattice’s HR software empowers you to track, analyze, and act on engagement data in real-time — helping you make a return on that investment even sooner.

Don’t just take our word for it. An independent study by Forrester Consulting found that Lattice’s software had a three-month payback period and delivered a 195% return on investment. To read the study in full, click here. If you’d like to see our platform in action, schedule a demo today.