Employer BrandingWorkplace

How to Calculate ROI of Employer Branding Vs Employee Retention?

Even though recruiters labor tirelessly to find, screen, and select competent individuals, about one-third of new hires voluntarily leave their jobs within the first six months of employment. Numerous factors contribute to this turnover, including bad onboarding, a lack of direction, imprecise expectations, and a mismatch between employees’ culture. Employer Branding ROI Vs Employee Retention is critical. Learn how to calculate Employer Branding ROI and why to Calculate it.

You’d think businesses would scramble to use their employer brand as a retention tool, given the startlingly high incidence of voluntary exits. Employees are 40% less likely to leave an organization within the first six months if a company has a good employer brand, but this isn’t the case. In a recent poll, only 30% of businesses stated retention as their primary goal for employer branding.

We are aware that there is a considerable possibility for businesses to use their employer brand as a retention strategy, but how do you measure the effectiveness of these initiatives? That is why we are here. In this blog, we will guide you on how you can calculate the Return on Investment (ROI) of employer branding and your employee retention strategy.

Why Should You Track Employee Retention ROI?

Every hour you spend teaching a new employee how to perform an existing employee’s duties is an hour the current employee could have been generating revenue for the company.  

If businesses were prepared to spend time, effort, and money on enhancing employee lives, they could easily control many reasons that lead to employees leaving their employers. But to understand how their employees give output, you need to understand the ROI. Following are some reasons why tracking employee retention ROI could be necessary:

  • To comprehend the total financial cost of avoidable staff losses 
  • It is a strong indicator of employee involvement, morale, and productivity 
  • This frequently indicates if employees are dissatisfied and ready to leave 
  • ROI will show how leaving employees is affecting your business
  • You can understand how your employee retention strategy is working out

Why is it Important to Measure the ROI of Employer Branding?

Establishing a solid reputation as an employer in the eyes of former, current, and potential employees is known as employer branding. Building an employer brand requires human intelligence, labor, and financial resources like any other branding strategy. Everything that involves communicating online, including creating mobile-friendly websites, producing and uploading videos, running print advertisements, updating the careers area of your website, and promoting your employer brand through third parties, costs money. But again, it doesn’t matter if you spend a lot of money on employer branding. It’s nothing if it’s not affecting your turnover.

1. To Know Effectivity of Branding

By calculating the ROI of employer branding, you can understand how your employer branding is affecting your business turnover. Also, it will help you know how leaving employees affects your business.

2. To Know Your Financial Status

Many companies invest much money in employer branding, but is that worth it? Is it giving benefits to you, or is it a loss? To understand how much money you are wasting or saving, ROI is calculated.

3. Profit or Loss

After investing money and making great efforts, are you getting the expected outcome? To know whether your business is in profit or loss, ROI can help you. Also, ROI can help you for these reasons: 

  • To comprehend the connection between employer branding & ROI
  • Keeping an eye on returns seems reasonable given the significant investment involved

Calculating The Cost of Employee Turnover 

It can take time to determine the cost of employee turnover. To save time, we’ll use a condensed method based on statistics from TLNT (a business site). Organizations should budget for the following costs when taking into consideration all turnover-related expenses, including lost productivity and backfilling costs:

(The percentage represents the turnover-related expenses that companies should consider while calculating the employee turnover rate)

  • Entry-level employees: 30–50% of annual salary
  • Mid-level employees: approx. 150% of the annual salary
  • Senior/highly-specialized employees: approx. 400% of the annual salary

We’ll use each position’s lowest number (30% of annual income) to avoid sensationalizing.

How to Calculate The ROI of Employer Branding?

The formula to calculate the ROI is:

ROI = Net Profit / Cost of the investment * 100

So if you want to calculate ROI, whether ROI of employer branding or ROI of employee retention or any other project, this formula has to be used. Here we will see an example of how you can calculate the ROI of employer branding:

1. Example – Company X

A mid-sized tech company, Company X, has 100 full-time employees. Due to a tight labor market and a lackluster employer brand, Company X lost 15 employees last year due to voluntary departures. Following is a breakdown of turnover: 

  • 5 entry-level employees: avg. salary of ₹1,80,000
  • 5 mid-level employees: avg. salary of ₹4,80,000
  • 5 senior employees: avg. salary of ₹8,40,000

Considering that turnover costs the company 30% of each worker’s yearly wage, this talent drain cost Company X ₹22,50,000 in total.

To define its culture and communicate its vision and purpose to its employees, Company X put a total of ₹5,00,000 into building its employer brand this year. As a result, five employees left the company due to voluntary turnover. They are separated as follows: 

  • 2 entry-level employees: avg. salary of ₹1,80,000
  • 2 mid-level employees: avg. salary of ₹4,80,000
  • 1 senior employee: average salary of ₹8,40,000

The cost of turnover decreased to ₹6,48,000 as fewer employees left the company, saving the company ₹16,02,000 annually. Now that everything is in place, we can compute ROI.

If you haven’t read the prior two articles in this series, we use the formula shown below to determine ROI:

ROI = Net Profit / Cost of the investment * 100

Or simply 

ROI = [(Financial value – Project cost) / Project cost] x 100 

[(16,02,000 – 5,00,000) / 5,00,000] x 100 = 220.4% ROI

We can see the ROI of Company X’s efforts at employer branding by entering the data from our scenario into this formula. Again, we’ve used hypothetical numbers for presentational purposes, but you may quickly adapt the formula to your circumstances.

How to Calculate Employee Retention ROI?

It can take some time to fully comprehend the cost of staff turnover because so many different variables are at play. However, for this post, we’ll simply discuss the ROI of employee retention in terms of rupees.

Here is the basic formula for calculating return on investment to get you started:

ROI = [(Financial value – Project cost) / Project cost] x 100

Let’s walk through an example of how we might determine the ROI of employee retention using these statistics.

1. Example – Company A

Company A is a 50-person small tech startup. However, they lost 10 employees the previous year, most of whom cited unrealistic deadlines and a lack of an excellent work-life balance as their reasons for leaving. Here is a breakdown of turnover:

  • 2x entry-level employees: average salary of ₹1,80,000
  • 3x mid-level employees: average salary of ₹4,80,000
  • 5x senior employees: average salary of ₹8,40,000

Assume that hiring, integrating, and training replacements cost the business 50% of each employee’s compensation. Therefore, this talent loss cost the business ₹30,00,000.

Then, company A invests ₹4,00,000 to enhance employee life, including dedicated training hours during work, establishing their company goals, and providing cheap childcare to prevent losing employees in the same volume.

This year, they lost 4 employees:

  • 2x entry-level employees: average salary of ₹1,80,000
  • 1x Mid-Level Employees: Average salary of ₹4,80,000
  • 1x Senior Employee: Average salary of ₹8,40,000

This implies that they will save ₹21,60,000 in costs this year because they will only spend ₹8,40,000 on turnover. We now have all the data required to apply the formula above.

ROI = [(Financial value – Project cost) / Project cost] x 100

ROI = [(21,60,000 – 4,00,000) / 4,00,000]*100 = 440% ROI

This helps us understand Company A’s attempts to retain employees better.

Conclusion 

ROI provides you with information about the profitability of your assets. It assists you in selecting the best investment from among numerous investment options. You can assess the investment based on your financial objectives and level of risk tolerance. Additionally, you might estimate the cost of your investment and search for any unreported fees that might reduce your profits. Typically, a percentage is used to represent the return on investment. Simply put, the Return on Investment (ROI) is a financial measure that aids in weighing the advantages of an investment against its disadvantages.

FAQs

1. What is ROI?

A ratio between net income and investment is known as the Return on Investment (ROI). A high ROI indicates that the returns on the investment outweigh the costs. ROI is used as a performance metric to assess an investment’s effectiveness or compare multiple distinct assets’ efficacy. It is a method of connecting earnings to capital invested in economics.

2. What is the ROI calculator?

ROI calculator is a simulation that helps you to calculate the ROI very easily. It assists you in gauging the exact profitability of your investments. The formula box on the ROI Calculator is where you enter the investment period, investment amount, and return amount. You can view your total return on investment with the ROI Calculator.

3. What are the benefits of using an ROI calculator?

You can understand the benefits of using an ROI calculator from these points: 

  • It displays both the annualized & absolute returns on your investment
  • The return on your investment can be calculated across various holding times
  • You may choose the best investment for your financial objectives & risk tolerance
  • The calculator aids in your selection of the finest mutual funds
  • By comparing the investment’s value to the benchmark, you can determine its value
  • You can compare the investment’s return to its cost to determine the investment’s profit
Show More

Leave a Reply

Your email address will not be published.

Back to top button