Calculating the ROI of an Automated Rewards Program

Human resources can be tough.

As an HR professional, you know what needs to be done, but it’s sometimes tough to prove that what you do is actually bringing financial impact to the business.

This couldn’t be more true than making the case for establishing an automated recognition program.

You understand the upside of an automated recognition program like Wishlist, but now it’s time to put some numbers behind it so you can make a great business case to your organization.

To calculate the ROI of an automated recognition program, we’ll use this simple formula:

ROI = Retention + Administration + Motivation (RAM)

Let’s break apart this formula.

Retention

ROI = Retention + Administration + Motivation (RAM)

Retention is a major component of calculating the return on investment of your recognition program.

Losing employees is expensive. The more employees we lose, the more money we spend. In fact, estimates suggest that losing an employee can cost anywhere from 20% to 213% of their salary to replace them.

So how do you calculate retention costs?

Employee Salary x Estimated Cost of Replacing (%)

Let’s assume that you are paying an employee $100,000 when they decide to leave.

We’ll also assume that the cost to replace an employee is 50%.

Retention Savings =  $100,000 (salary) x 50% (cost to replace)

Retention Savings = $50,000

Administration

ROI = Retention + Administration + Motivation (RAM)

Administration of a recognition program often goes uncalculated.

Simply put, this is the cost it takes to run a recognition program manually.

Hundreds of hours are spent by human resource professionals selecting gifts, deciding who to recognize and tracking performance.

The time and money you save from having an automated recognition program should not go unnoticed. This NEEDS to be included in your ROI calculation.

Let’s assume that the HR professional that manages the recognition strategy is salaried at $100,000 and spends 100 hours per year (roughly 2 hours per week) managing everything.

To calculate the savings of an automated recognition program, we will take the following formula into account.

Salary ($100,000) / Hours worked per year (2,080) = Hourly Rate (~$48/hour)

Hourly Rate (~$48/hour) x Hours Managing Recognition Program (100) = Automated Rewards Savings ($4800).

Automated Rewards Savings = $4,800

Motivation

ROI = Retention + Administration + Motivation (RAM)

Employee motivation is critical to an organization’s success.

Motivation is broken into two parts; Productivity Lift and Cost of Absenteeism.

Productivity Lift

Companies who deploy recognition programs tend to see an 17% productivity lift.

Let’s assume that your organization sees a $2,000 labor productivity per employee per week.

Productivity Lift  = Labor Productivity ($2000) x Productivity Lift Rate (17%)

Productivity Lift = $340/employee/week

Productivity Lift Annualized = $360/employee/week x 52 Weeks

Productivity Lift Annualized = $17,680

Cost of Absenteeism

Similarly, companies with engaged employees see a 41% drop in absenteeism.

We will assume that your organization sees a $3,000 absenteeism cost per employee per year.

Absenteeism Savings = Absenteeism Cost ($3,000) x 41%)

Absenteeism Savings = $1,230

Total Savings of Motivation = Productivity Lift Annualized ($17,680) + Absenteeism Savings ($1,230)

Total Savings of Motivation = $18,910

Putting it all together.

Now, we have to calculate the final ROI of an investment in an automated recognition program.

Remember, we are only assuming the savings for one employee.

So, the final calculation.

ROI = Retention Savings + Administration Savings + Total Savings of Motivation

ROI = $50,000 + $4,800 + $18,910

ROI = $73,710

To summarize, it is entirely possible to calculate the ROI of an automated recognition program.

ROI = Retention + Administration + Motivation

We at Wishlist are making recognition easier to manage.

You can learn more about Wishlist here.