What is the ROI of Investing in Employee Experience?

Employee experience (EX) covers the entirety of an employee’s journey within an organization, from onboarding to exit. It influences engagement, productivity, and retention, which all impact a company’s bottom line. This is why measuring the ROI of EX isn’t just a good practice; it’s a necessity for justifying investments in DEI initiatives and understanding their broader impact on both financial performance and workplace culture. This article explores both the financial and non-financial returns of investing in improved employee experience, offering insights into why and how these investments pay off.

Key takeaways

  • Investing in employee experience (EX) yields substantial ROI through enhanced productivity, reduced turnover, and increased revenue.
  • A robust DEI strategy within EX fosters a supportive culture, leading to better performance, higher productivity, and increased revenue.
  • Improved retention rates from engaged employees lead to cost savings, as replacing an employee can cost up to 200% of their annual salary.
  • Companies with strong EX and DEI practices report up to 147% higher earnings per share, highlighting the financial benefits of such investments.
  • Companies prioritizing EX and DEI gain a competitive edge, with improved financial performance and market share.

Understanding employee experience

Employee experience is defined by the interactions and perceptions employees have throughout their time with an organization. This includes their work environment, the kind of technology they use, and the company culture they experience. A robust DEI strategy is integral to a positive EX, ensuring that all employees feel valued and included.

Culture, technology, and the physical workspace collectively impact employee engagement and productivity. A supportive and inclusive culture encourages engagement by fostering a sense of belonging and purpose among employees. When employees feel that their unique perspectives and contributions are valued, they are more likely to be engaged in their work and committed to the organization’s goals.

Related: Key Employee Experience Metrics to Track for Business Success

How does employee experience impact performance and revenue?

Investing in EX directly influences performance and revenue through various pathways. Higher employee engagement, for example, translates into better performance and higher productivity. Global data from Gallup shows that companies with engaged employees outperform those without by 202%. When employees are engaged, they are more productive, which leads to better business outcomes.

This substantial performance difference can be attributed to several factors. Engaged employees tend to be more innovative, taking initiative to solve problems and improve processes. They also provide better customer service, which can lead to increased customer loyalty and, consequently, higher revenue. Furthermore, engaged employees are often more aligned with the company’s goals and values, working more efficiently towards achieving organizational objectives.

Better employee retention

Employee turnover is costly. It includes direct costs like recruitment and training and indirect costs such as lost productivity and decreased morale. Engaged employees are less likely to leave, which enhances retention rates. The cost of replacing an employee can range from 50% to 200% of their annual salary, depending on their role and seniority. This makes retention a critical factor in an organization’s financial health.

Strategies to improve retention through better EX include:

Increased productivity

Employee engagement drives productivity, as engaged employees are more motivated and committed to their work. According to studies, companies with high engagement levels see up to 21% higher productivity. This increased productivity can have a significant impact on an organization’s bottom line.

Long-term benefits of sustained productivity increases include improved operational efficiency, higher profitability, and better customer satisfaction. When employees consistently perform at high levels, it allows the organization to accomplish more with the same resources, leading to improved profit margins. Examples of productivity-enhancing EX initiatives include:

  • Implementing collaborative technologies that streamline workflows.
  • Designing ergonomic and stimulating work environments.
  • Offering professional development programs to enhance skills.
  • Encouraging a healthy work-life balance to reduce burnout.

Increased customer satisfaction

There’s a direct correlation between employee satisfaction and customer satisfaction. Engaged and happy employees tend to provide better customer service, which enhances customer loyalty and retention. Data shows that companies with with high employee engagement also report higher customer satisfaction scores, leading to increased revenue and growth.

This connection can be explained by several factors. Satisfied employees are more likely to go above and beyond in their interactions with customers, solving problems more effectively and creating positive experiences. They also tend to have a deeper understanding of the company’s products or services, allowing them to provide more valuable assistance to customers.

Outperforming competitors

Investing in EX gives companies a competitive edge. Companies that prioritize EX often outperform their competitors in profitability and market share. For example, organizations with strong EX practices report 147% higher earnings per share compared to their peers. This significant difference in financial performance underscores the strategic importance of investing in employee experience. Strategies for leveraging EX to attract top talent include:

  • Promoting a strong employer brand that highlights a positive EX.
  • Offering competitive compensation and benefits packages.
  • Ensuring a diverse and inclusive workplace culture.
  • Providing opportunities for career growth and development.

Financial metrics to measure the ROI of great employee experience

Employee Experience (EX) and Diversity, Equity, and Inclusion (DEI) are deeply interconnected, and their combined impact on an organization’s financial performance can be significant. Key financial metrics to measure EX ROI include turnover cost savings, productivity gains, and revenue growth. Here’s how DEI efforts integrate with these metrics:

Turnover cost savings

High turnover rates are expensive for organizations, involving expenses related to recruitment, training, and lost productivity. Poor DEI practices often lead to poor EX and to higher turnover, especially among underrepresented groups who may feel undervalued or excluded. Conversely, strong DEI initiatives improve employee retention by creating a more inclusive and supportive work environment.

  • Costs of high turnover due to poor DEI: Companies with inadequate DEI practices may face higher turnover rates, leading to increased costs. For example, Gallup estimates that replacing an employee can cost up to twice their annual salary.
  • Turnover cost savings from effective DEI: Implementing effective DEI strategies can significantly reduce turnover rates. Studies show that inclusive workplaces have 22% lower turnover rates, resulting in substantial cost savings.

Here’s how to calculate turnover cost savings step by step:

Step 1: Define direct and indirect costs

  • Recruitment costs: Advertising, agency fees, referral bonuses
  • Training and onboarding: Training materials, trainer fees, onboarding programs
  • Lost productivity: Initial productivity loss, learning curve duration
  • Impact on team morale: Increased workload, decreased engagement

Step 2: Formula for turnover cost

Total Turnover Cost=Recruitment Costs+Training and Onboarding Costs+Lost Productivity (Salary of New Hire×Learning Curve Duration)+Customer Service Impact

Step 3: Calculate turnover cost savings

Compare turnover rates before and after DEI or EX initiatives were implemented and apply the following formula:

Turnover Cost Savings=Total Turnover Cost×Reduction in Turnover Rate

Productivity gains

Employees are more likely to be /efficient and motivated when they feel included and valued within their workplace, with DEI initiatives being a key factor in cultivating this sense of belonging and engagement. According to Gallup, companies with highly engaged employees are 17% more productive. This productivity boost is even more significant when DEI practices ensure that all employees, regardless of background, have equal opportunities to contribute.

The long-term benefits of sustained productivity increases are substantial. Improved operational efficiency means that organizations can do more with fewer resources, optimizing workflows and reducing waste. Higher profitability results from the increased output and innovation that engaged employees bring. For instance, diverse teams, who bring a wide range of perspectives and ideas, are 1.7 times more likely to be leaders in innovation within their market.

As McKinsey & Company reports, companies in the top quartile for ethnic and cultural diversity on executive teams are 33% more likely to have industry-leading profitability. This is because diverse teams can better understand and serve diverse customer bases, creating products and services that meet a broader range of needs.

Calculate productivity gains of improved EX

  • Track key performance indicators (KPIs) such as output per hour, project completion rates, and quality of work. Compare these metrics before and after the implementation of EX and DEI initiatives.
  • Measure the revenue generated per employee. An increase in this metric can suggest that employees are more productive and engaged.

Revenue growth

A positive EX, enhanced by strong DEI practices, can lead to increased revenue through improved customer satisfaction and loyalty. Diverse teams are better at understanding and meeting the needs of a diverse customer base, thereby leading to better market performance.

  • Financial impact of missed market opportunities: Companies lacking in DEI might miss out on opportunities to serve diverse markets, which can be a significant revenue loss. For example, a company with a homogeneous workforce might overlook product features or marketing strategies that would appeal to different demographic groups.
  • Revenue growth from successful DEI initiatives:Companies that prioritize DEI tend to perform better financially. McKinsey reports that companies in the top quartile for gender diversity on executive teams were 25% more likely to have above-average profitability. This improved financial performance can be attributed to better decision-making, enhanced innovation, and stronger market understanding that comes from diverse perspectives.

Non-financial benefits of investing in employee experience and DEI

Investing in employee experience (EX) yields numerous non-financial benefits that contribute to long-term organizational health. These benefits are significantly enhanced when paired with strong Diversity, Equity, and Inclusion (DEI) initiatives. Here’s how these two concepts connect and reinforce each other:

  • Improved workplace culture and morale: A positive EX fosters a supportive and collaborative work environment and DEI initiatives boost a sense of belonging, making employees feel appreciated and understood. This improved culture can lead to higher levels of employee satisfaction, better teamwork, and a more positive overall work atmosphere. 
  • Enhanced employer branding and reputation: Companies known for excellent EX attract top talent and garner positive media attention. This reputation for prioritizing employee well-being can become a competitive advantage, helping to attract and retain high-quality candidates who seek more than just a paycheck. A strong employer brand can also lead to positive word-of-mouth referrals from current employees, further enhancing the company’s ability to attract top talent. 
  • Better employee well-being and mental health: Supportive EX initiatives, such as wellness programs and flexible work arrangements, contribute to lower stress levels and better overall health. These programs demonstrate a company’s commitment to its employees’ holistic well-being, fostering loyalty and reducing burnout. When employees feel that their employer cares about their well-being, they are more likely to be engaged and committed to their work.

Integrating employee experience and DEI initiatives for maximum impact

When DEI initiatives are integrated with EX strategies, the combined effect enhances all aspects of workplace satisfaction and performance. Platforms like Diversio help organizations manage and measure DEI effectively, which in turn improves EX. These comprehensive DEI platforms provide data-driven insights and recommendations that help organizations implement and track DEI initiatives, ensuring that all employees feel included and valued.

A company that fosters an inclusive environment often sees improved teamwork and a more robust organizational culture. This can translate into long-term retention and employee advocacy. When employees feel valued and included, they are more likely to stay with the company, reducing turnover and increasing overall satisfaction. The long-term impact includes a more cohesive and motivated workforce, which is crucial for sustained business success.

Moreover, when DEI is woven into the fabric of EX, it creates a virtuous cycle. Diverse teams bring varied perspectives, leading to more innovative solutions and better decision-making. This diversity of thought can drive business performance, which in turn allows for greater investment in EX and DEI initiatives. The result is a workplace that not only attracts diverse talent but also nurtures and retains it, creating a competitive advantage in the market.

Steps to improve employee experience

Improving EX involves several key steps and we have written in detail about crafting a winning employee experience strategy here. Below are some practical actions to get started:

  • Conducting employee surveys and feedback mechanisms: Regularly gathering feedback helps identify areas for improvement.
  • Investing in technology and tools for better EX: Leveraging modern technology enhances efficiency and engagement.
  • Creating a supportive and inclusive workplace culture: Fostering an inclusive culture ensures all employees feel valued and respected.
  • Ongoing training and development programs: Continuous learning opportunities keep employees engaged and motivated.

Examples of successful EX improvement strategies include implementing flexible work policies, providing professional development opportunities, and fostering a culture of recognition and appreciation.

The impact of investing in people

Investing in Employee Experience (EX) and Diversity, Equity, and Inclusion (DEI) initiatives yields substantial ROI by enhancing productivity, reducing turnover, and driving revenue growth. Companies that prioritize these areas not only see immediate financial benefits but also foster a resilient, innovative, and loyal workforce.

By offering comprehensive DEI solutions, Diversio helps organizations measure and manage their DEI initiatives effectively. These data-driven insights enable companies to implement targeted strategies that enhance both EX and DEI. Diversio’s tools provide actionable recommendations, track progress, and ensure that all employees feel included and valued, ultimately driving better business outcomes.

The organizations that will thrive are those that recognize the profound impact of investing in their people. By leveraging solutions like Diversio, companies can maximize their ROI and set new standards for what it means to be an exemplary employer.

Talent is often the key differentiator. Therefore, investing in employee experience and DE&I is not just a nice-to-have, but a strategic move for long-term success. Workplaces where every employee can thrive, regardless of their background or identity, companies can unlock unprecedented levels of innovation, productivity, and growth. 

Kate Stone
Kate Stone
Kate Stone leads marketing at Diversio with 10+ years of experience in marketing and visual communications – over 6 of which are in the technology industry. Kate is passionate about communicating inclusion’s impact on businesses, workplace culture, and individuals. Kate is a US citizen and enjoys advocating for the environment and endangered species, improving her strength and endurance, and practicing watercolor painting and mixed media arts.
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