Top 3 KPIs to measure your performance management system ROI

How to calculate the ROI of employee retention

If your main objective with your new people enablement platform is to decrease turnover, consider setting a retention goal. At the end of your first year using this new system, what should your retention rate look like and what will you save by achieving this goal? Depending on where you sit currently and how much resource you have to allocate towards this, you should set something realistic and consider industry benchmarks to get an idea of where your competitors might be (you don't want to put yourself on the back foot here if you can help it!).

The first thing you need to do is calculate the current cost of turnover. The above averages can give you a very general ballpark figure but to calculate the true cost of turnover at your company, try this formula:


(cost of hiring + onboarding + training + time to fill position) x

(number of employees x annual turnover percentage)

= Annual cost of turnover

(Tip: Here is a calculator that can do the math for you)


Once you have this number, set a conservative goal based on industry benchmarks. Gallup found that simply by giving more continuous strengths based feedback companies can reduce turnover by 14.9%.

Currently, you have; 300 employees, 25% annual attrition rate and your average cost per hire is $4,129.

($4,129) x (300x25%) = $309,675

Let’s say you set a goal of reducing turnover by 7%.

($4,129) x (300x18%) = $222,966

Savings = $86,709

Now compare this number to how much you’re spending on your new performance management system. If this is positive, and you think it's realistic to achieve these results, then you've got a solid business case. Remember, even if you don't make 100% of your goal, there will still be positive results across your organization – this is just icing on the cake if you can prove to your leadership team that you could achieve a positive return on investment – as this is the language they speak!

$86,709 - $X = ROI of new PM Process

2. Employee Engagement

While engagement may seem like the most people focused HR metric, there is a clear link between engagement and bottom line objectives. Gallup found disengagement costs $3,400 for every $10,000 of salary. On average approx 17.2% of the US workforce is actively disengaged.

98% of employees fail to be engaged when managers give little or no feedback. However, the good news is, studies show that 43% of highly engaged employees receive feedback at least once a week.

How to calculate the ROI of increased employee engagement

Here is the calculation required. If you don't have your own numbers, then the best place to start might be with industry benchmarks until you have the accuracy to know where you're at on each of the measurements.

(Number of employees x rate of disengagement) / 100

= % of disengaged employees

(Average salary x cost of disengagement)

= $ cost of disengagement per employee

($ cost of disengagement per employee x % of disengaged employees)

= $ cost of disengagement

Again, Aviato has 300 employees, $60,000 average salary and 17.2% disengagement. Remember the cost of disengagement is 34%.

(300 employees x 17.2% disengagement)/100

= 51.6% disengaged employees

($60,000 x 34%)

= $20,400 cost of disengagement per employee

($20,400 x 51.6)

= $1,052,640 Total cost of disengagement

Let’s say your goal is to decrease disengagement by 7% through more continuous feedback:

(300 employees x 10.2% disengagement)

= 30.6 disengaged employees

($60,000 x 34%)

= $20,400 cost of disengagement per employee

($20,400 x 30.6)

= $624,240 Total cost of disengagement

Previous cost of disengagement minus current:

$1,052,640 - $624,240 = $428,400

All you need to do now is subtract the cost of your people enablement platform, and you have the ROI of your new process. If you can prove a positive number, then you will be a star in the eyes of your leadership team. As easy as that!

$428,400 - $X = ROI of new PM Process

3. Employee Productivity

A study by Western Michigan University found that great feedback can increase performance by 5%-20%. Additionally, Gallup found that teams with managers who receive strengths feedback experience 12.5% greater productivity post-intervention than teams with managers who receive no feedback.

How to calculate the ROI of improved employee productivity

Start by calculating the value your company generated last year. To do this take last year’s revenue, number of employees and number of teams. Find the average revenue per team and subtract this by the average amount it takes to employ each team (average salary plus overhead). This amount is the dollar amount your company receives through productivity of employees. For example:

Value generated last year = $20,000,000

Teams = 30

($20,000,000/30) = $667,000 Avg revenue per team

Cost to employ = $600,000

Net contribution made by an average team = $67,000

Total: $2,010,000

Take a conservative approach by calculating how much more your company could gain from employee productivity if performance increases by 5%.

5% more productivity per team = $70,350

Total increase in net contribution = $2,110,500 - $2,010,000

$100,500 - x = ROI of new PM Process

So what are you waiting for?

Some of these calculations may have been a little daunting, but we promise if you work your way through and understand how they can help you prove value to your organization, you will have a much easier time getting buy-in for your new process and/or platform.

Don't forget, there are numerous other benefits (such as improved user experience for your people and time saved for your team and managers completing reviews etc.) as well as other short term goals you can track to monitor progress, but these are the numbers that people understand and care about, which you can now point at to show results.

So, what are you waiting for? It's time to go and start building your business case! If you still need help, or if you know what you're doing but just don't have any time, you can always feel free to schedule a demo to get help from one of our experts. They can help understand where you should allocate your time to see the best results, support you in building a business case, and help provide examples of other companies who have taken a similar path and seen great results.