Employee engagement is where employee happiness and alignment to your business goals meet.
Focusing on employee engagement can supercharge the performance of your business and deliver tangible results.
But what about the reverse? Does low employee engagement increase costs in your business? Let’s take a look at some of the costs of low engagement. Some that you can easily calculate and others that are hidden.
Your business at 100 employees
Here are just some of the headline costs of low employee engagement we’ve calculated for a business with 100 employees.
Replacement of Talent : £7,500
Temps or Contractors : £19,300
Sickness / Absence Payments : £14,732
Under Performance: £386,000
TOTAL PER ANNUM: £427,523
I’m sure you’ll agree, this is a HUGE sum, particularly when you consider that a business of this size may only have revenues of £5m.
Below, we’ll talk through how we’ve calculated these figures. There’s some maths we’re going to use, that will help to bring these costs to life. Time to get your calculator out!
Your wage bill
The average UK salary in 2020 for full time employees was £38,600. Sticking with 100 staff, let’s assume an annual wage bill of £3,860,000.
Without taking into account national insurance, pension, benefits costs etc. - that’s nearly £4,000,000 invested in people.
Now think of this as a figure to be defended. If you were paying £4m to an agency, you’d be wanting to extract every ounce of value from your spend. It’s the same with employee engagement. An engaged team will provide a much higher amount of value for your £4m investment.
Replacement of Talent
A disengaged employee will leave (or even worse they could stay!).
It’s hard to accurately measure the cost of an open vacancy, but there are certainly opportunity costs of a vacancy and the impact it has on other members of the team. These impacts often more than off-set the salary saved whilst you’re recruiting.
For our calculations, maybe you are replacing some of the vacancies temporarily with temps, or paying contractors to pick up the slack. Let’s modestly add in the cost of 50% of one of your team here in temporary resource across the year: £19,300.
The average employee turnover rate in the UK is 15%. So in our company of 100, 15 employees are likely to leave each year.
Maybe you replace them all via an employee referral fee that you pay to your team, say £500 per role. That’s £7,500 per annum to replace your 15 roles.
Maybe you use a recruitment agency to help you to recruit. With a very modest fee of 10% salary for each role - £3,860 x 15, that comes in at £57,900 to replace your team via agency per year.
Or maybe you have an internal resource to help you with recruitment - say £35,000 per year?
Other costs include un-budgeted salary increases, often incurred whilst trying to rescue a dis-engaged team member and convince them to stay. Evidence suggests that these rescue plans don’t last long term, you’re unlikely to see a return on investment for this spend.
Sickness / Absence
Not all sickness/absence in a business is down to disengagement of course, but high engagement can make a big difference.
The average number of annual sickness/absence days in the UK is 6.4. Reducing this by 1 per person (to 5.4) would save £147. Across the business that’s a total saving of £14,732 in company sick pay.
Whilst underperformance is difficult to measure, we can put some numbers against it.
What if every employee was operating at 10% below their maximum potential? Maybe they’re making poor decisions, or not pushing hard enough for that critical client deadline. Maybe they’re doing a whole bunch of personal things at work. Maybe they’re taking twice as long to do a task than they should. Based on your wage bill, that’s £386,000 in lost performance.
Lost Sales / Lost Customers
What if your sales team isn't highly engaged? Or if your customer churn is high because the team is not servicing accounts well?
What is the value of a lost sale in your business, or the annual value of a lost customer?
Could you measure the cost of your employer and customer reputation being lower than you’d like? Maybe you are missing out on clients, or on employees who don’t want to work with you as they know it’s not a great place to be?
Shareholder Value / Company Value
Highly engaged teams are also valuable teams. High value and performance translates to shareholder value and dividends. A demonstration of a highly engaged team can be a real selling point when it comes to securing investment for your business. Don’t think the investors can’t tell if your team isn’t engaged as they walk through to your boardroom.
Wellbeing and Happiness
This is the ultimate “unmeasurable”. What is the happiness and wellbeing of your team worth to your business? What’s it worth to the employee?
We can’t put a price on our happiness, or on our health - but our employees are entrusting their businesses and leaders with it every day that they come to work. It’s this last point that really gets to the heart of why employee engagement matters.
So my calculation of the cost of low engagement to a business of 100 staff was £427,523.
Some might say this seems high, others a little low, but I hope I've helped justify my argument a little here.
Whilst using an employee feedback platform as the basis for an engagement action plan, won’t save you the full £427,523, it’s very likely to save you a huge amount more than you pay for it. For a business of 100 staff, the annual cost of using our platform is less than 2% of this figure.
Hopefully, this should provide a solid business case for putting employee engagement at the top of your agenda and spending list!