Calculating the ROI of Employer Branding: Employee Retention
This is the third installment of our series on calculating the ROI of employer branding. If you haven’t had a chance to read the first two posts, we recommend you take a few minutes to check them out on our Tech Recruiter Blog.
Despite the tireless work recruiters put into sourcing, interviewing and hiring qualified candidates, roughly one-third of new hires will voluntarily quit within the first six months of employment. The reasons for this turnover are legion: unsatisfactory onboarding, lack of direction, unclear expectations and poor cultural fit to name just a few.
With such a startling rate of voluntary exits, you’d think companies would be falling over themselves to utilize their employer brand as a retention tool — employees are 40% less likely to leave within the first six months if the organization boasts a strong employer brand — but that isn’t the case. In a recent survey, only 30% of organizations reported retention as a primary objective of their employer branding efforts.
We know there’s a tremendous opportunity for companies to leverage their employer brand as a retention tool, but how do you calculate the success of these efforts? That’s what we’re here for.
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CALCULATING THE COST OF EMPLOYEE TURNOVER
Calculating the cost of employee turnover can be time-consuming. There are many factors that must be accounted for, and we simply don’t have enough space to cover all of them here (though we’ve included some useful links at the end of this article).
For the sake of time, we’ll utilize a simplified approach informed by some statistics sourced from TLNT. When accounting for all costs associated with employee turnover — from backfilling the position to lost productivity — organizations can expect to spend:
- Entry-level employees: 30-50% of annual salary
- Mid-level employees: Appx. 150% of annual salary
- Senior/highly-specialized employees: Appx. 400% of annual salary
To avoid sensationalizing, we’ll go with the lowest possible figure (30% of annual salary) for every position in our scenario.
HOW TO CALCULATE THE ROI OF EMPLOYER BRANDING
We’ll start by setting the stage with a case study that will provide us with some numbers to work with.
Company X is a mid-size tech firm with 100 full-time employees. Due to a competitive labor market and underwhelming employer brand, Company X lost 15 employees to voluntary exit last year. Turnover broke down as follows:
- 5 entry-level employees: Avg. salary of $40,000
- 5 mid-level employees: Avg. salary of $70,000
- 5 senior employees: Avg. salary of $100,000
Assuming turnover costs the organization 30% of each employee’s annual salary, this talent drain cost Company X $315,000.
This year, Company X invested a total of $75,000 into its employer brand, defining its culture and articulating its mission and purpose to its employees. As a result, the organization lost only five employees to voluntary turnover. They break down as follows:
- 2 entry-level employees: Avg. salary of $40,000
- 2 mid-level employees: Avg. salary of $70,000
- 1 senior employees: Avg. salary of $100,000
By reducing the number of employees leaving the firm, the cost of turnover fell to $96,000, saving the organization $219,000 year-over-year. Now we have everything we need to calculate ROI.
For those of you who haven’t read the first two articles in this series, we utilize the following formula when calculating ROI:
ROI = [(Financial value – Project cost) / Project cost] x 100
[(219,000 - 75,000) / 75,000] x 100 = 192% ROI
Plugging the figures from our scenario into this formula provides us with a clear look at the ROI of Company X’s employer branding efforts. Again, we’ve used fictitious numbers for the sake of presentation, but you can easily apply the formula to your own situation.
ATTRIBUTING RETENTION TO EMPLOYER BRANDING
Let’s take a moment to discuss attribution before we wrap up. It’s relatively easy to see how many applications originated from a careers page or social recruiting campaign, but understanding what is motivating your employees to stay or leave is a bit more challenging. How do you get this information? As with most quandaries in life, the simplest way to get an answer is to ask a question.
Exit interviews with departing employees will let you know why they’ve decided to leave and if the organization could have done anything to retain them. Similarly, speaking with your loyal employees on a regular basis will provide insight into why they initially accepted the job and why they’ve remained with the organization. With this information, you’ll be able to develop an understanding of how your employer branding efforts have impacted employee retention.
Additional Resources: When calculating the cost of turnover within your organization, generalizations won’t cut it. We used a simplified approach for demonstrative purposes, but you’ll need accurate figures. These resources will help determine exactly what turnover is costing you.
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