Calculate Your ROI for Employee Onboarding Investment
Are you all in on finding the right onboarding tech partner, but looking to build a rock-solid business case internally? You’ve come to the right place. In this article, we’ll help you calculate the ROI for your employee onboarding investment so you can wow your finance team and get your organization excited about enhancing the new hire experience.
The Key Metrics to Track
Effective onboarding leads to higher productivity, improved retention rates, and increased engagement. But in order to draw a clear line from onboarding to these metrics, you have to start tracking some numbers. Here’s where to start.
Employee Retention Rate
Why it matters: When new hires leave within their first 6-12 months, that costs you money. But if you do onboarding right, those new hires will be excited about their new role and less likely to leave. Case in point: Hugo Boss saw a 77% decrease in < 3 month attrition by implementing Enboarder for their onboarding.
How to measure: Compare the retention rates of employees who have gone through your improved onboarding program with those who haven’t.
Time to Productivity
Why it matters: Beyond giving your new hire a warm welcome, your entire onboarding program should be designed to provide them the connections and tools they need to be successful – i.e. productive – in their role. Working with Enboarder to improve employee onboarding, a major telecommunications provider saw a 15% increase in sales productivity.
How to measure: Calculate the average time it takes new hires going through your new onboarding process to reach key milestones. For sales onboarding, for example, this could be closing their first deal. Compare that to new hires who had no formal onboarding.
Employee Engagement and Satisfaction
Why it matters: Decades of research have shown engaged employees outperform their disengaged counterparts. When comparing employee engagement levels, Gallup found that the highest engaged teams improved profitability by 23% and productivity by 18%.
How to measure: Conduct employee surveys and pulse checks at various states in your onboarding process.
Turnover Costs
Why it matters: The total cost to replace an employee can range from one-half to 2x their annual salary when you take into account recruiting, training, and lost productivity costs.
How to measure: Use this turnover cost calculator to make a quick estimate. Averages are included, but if you can get these specific numbers for organization, the more accurate the estimate will be:
- Annual turnover percentage
- Number of employees
- Cost of hiring and recruiting per employee
- Cost of training and onboarding per employee
- Learning and development costs per employee
- Cost of lost productivity
The ROI Calculation Formula
Use this formula to calculate your employee onboarding ROI:
ROI (%) = [(Net Benefits of Onboarding – Onboarding Costs) / Onboarding Costs] x 100
- Calculate onboarding costs: Add up expenses like tech, training materials, facilitator time, and any onboarding activities. Let’s say that’s $50,000 per year.
- Determine net benefits: If effective onboarding has decreased your 30-, 60-, and 90-day turnover, calculate the savings from fewer recruitment and training cycles. Or maybe, like O.C. Tanner, you’ve been able to save on administrative costs through automation. Let’s say that’s $150,000 per year.
- Plug into the formula: $150,000 – $50,000 / $50,000 x 100 = 200%
So in this example you would be able to show every dollar you invest in onboarding nets $2 in return. That’s a no brainer in our book!
Why You Should Calculate Your Onboarding ROI
HR is typically considered a cost center, but you can shift that perspective within your organization. By showcasing the impact of your onboarding program, you’ll be seen more as a strategic partner rather than just an operational function. And even better, you’ll be more likely to secure budget for further investment in onboarding. That’s a win for you and your team, but also for your new hires who will enjoy a more engaging, connected, and productive introduction to your company.
See how much turnover could be costing you with our Turnover Cost Calculator. In just a few minutes, you’ll get results to help you make data-driven decisions that improve your bottom line.