Enter 12 data points that you know of or use our US benchmarks (we will show them as means and ranges, so you can pick a value that best reflects your situation) for the data that you don’t have. Gain valuable insight from your engagement and retention data. The whole exercise should not take more than 10 minutes unless you want to run multiple scenarios. So, let’s start!
Let's find the professional development ROI for you!
Size of employee base for which you want to calculate the RoI metrics (if not, we use 100 as the default size that shows you RoI per 100 employees)
Average annual fully loaded cost per employee (includes salary, bonuses, benefits, and other costs born by the business. US range for such fully loaded costs for white-collar jobs is 42k to 310k with an average of 92k. This equates to gross compensation (from SimplyHired data) + 45% on average (as per BLS data 2021))
% Turnover that you are experiencing in this employee base. This value is highly specific to your company, industry, geographical location, competition, time frame, and employee base. For white-collar jobs, US data ranges from 11% to 26% with an average of around 15% as per Mercer/Zippia data over 2019-2021.
% Voluntary turnover where employees leave your employee base for better/different opportunities outside of your company. This does not include lay-offs or retirements. It also typically excludes 'healthy turnover' where the departure is of benefit to the business. Our benchmark for voluntary turnover uses the range of 20% to 70% with a mean of 50% based on Gallup and other sources as of 2021. You can use your own estimate to run different what-if scenarios.
Average replacement cost to the business for each voluntary turnover. This includes basic rehiring costs plus extra training and onboarding expenses. As per Zippia, these costs are in the range of 60% to 90% of gross compensation for that position as of 2021. 2006 research paper by Eileen Appelbaum and Ruth Milkman quotes figures in the range of 130% to 196% for middle and upper management earning between 50k and 200k. Our benchmark uses the range of 80% to 180% with a mean of 130% given our focus on white-collar workers. Use your own estimate as a what-if scenario.
% disengaged employees within the employee base that you are calculating this RoI. Research from Gallup and data from Zippia indicate a range of 27% to 74% for the extent of disengaged white-collar employees. We use this range with a mean of 51% for the modern workplace. You should use your own value based on the recent internal surveys or estimates.
Opportunity cost of each disengaged employee per year. The disengaged employee costs company in multiple ways, such as work errors, delays, lost revenue, lower customer satisfaction, lower team morale, and lower productivity. Research from Gallup and LinkedIn since 2015 has indicated that such opportunity cost ranges from 3600 to 4000 USD per 10000 USD salary per year. You can use your own internal estimate.
% Turnover reduction potential. You can't stop all voluntary turnover, but with the right tools, you can stem a large portion. As per Gallup metadata, top-tier employers experience an 87% reduction in voluntary turnover with higher employee engagement and investment in professional development. PB JAM benchmark range is 20% to 80% with a mean of 50%. You should use your own values to run a few what-if scenarios.
% Engagement improvement potential for your employee base if you invest in professional development. As per Gallup metadata, top-tier employers experience 73% engagement levels as against 36% average engagement level. Thus, there is a 47% opportunity to improve employee engagement. PB JAM benchmark range is 20% to 50% improvement with a mean of 35%. You should enter your own values as what-if scenarios.
Of course, to reap these benefits you need upfront investment in professional development initiatives within your company. CCL benchmark from 2019 shows that companies invest between 2600 USD and 4200 USD per employee per year in leadership training. At PB JAM, we broaden this range & adjust for inflation (~10% for inflation and range of 400 to 4600 USD with a mean of 3700 USD.)
Apart from the money spent on professional development (direct cost), there is also indirect cost in terms of the time employees spend on professional development. As per Statista, average number of hours spent in training at US companies (100+ employees) range from 32 hours to 103 hours per year. At PB JAM, we take this range with average of 80 hours as indirect cost.
Just like allocating certain money for professional development is important, it is also important to find the right target employees. This does not mean exclusivity or nominations by senior managers, but a judicious analysis of who would benefit most. There are quite a few employees who are not interested in professional development and forcing them to work on professional development can be futile and counter-productive. PB JAM benchmark range is 10% to 30% of the employee base with a mean of 20%. A simple way to find the right candidates is to ask who has demonstrated or expressed, "Better me is better us!", in the last 12 months. Try a few different values to fit your circumstances.
Wow! Lots of data and thinking there... well, are you ready to see the metrics? We keep it simple as a one-sentence summary that you see below with some supporting metrics. Feel free to change any of your inputs and see the impact on your metrics.
Allocating _________ for each of your _____ target employees for soft skill development will add _________ to your bottom line every year!
Avoidable Turnover Costs
Your Costs of Status Quo
Payments for resources and materials
Your Investment in Professional Development
Time spent by your people on professional development
Your total benefits
Net P&L Impact per year
RoI = (Net P&L Impact / Your Investment) as %
Interested in knowing more about the references and logic behind RoI calculations? Email us to request our RoI white paper.