How to measure human capital ROI and improve HR’s business impact

Over the past year, half of HR teams have faced budget cuts, while over a third have dealt with hiring freezes, layoffs, and team member departures.* While these measures may temporarily boost an organization’s bottom line, research shows they harm long-term profitability.**

Despite that, 60% of HR teams still plan to maintain or reduce their budgets this year.***

The challenge lies in demonstrating HR’s financial and business impact, or HR ROI (return on investment). And communicating HR ROI to executives requires turning initiatives into measurable outcomes — an area where HR has historically struggled. But it’s important to learn to do so, since the highest outgoing cost of most businesses is salaries, so HR is actually the steward of the biggest cost center in the organization. You need to prove that this investment is paying off.

This article will help you learn to do just that. Let’s get started.

🤝 Learn how to speak your CEO’s language
Jenny Podewils, Leapsome Co-Founder and Co-CEO, and Luck Dookchitra, VP of People & Culture at Leapsome, recently got candid about the challenges of articulating HR’s value to the C-suite.
👉 Watch the session

*Leapsome Workforce Trends Report, 2024

**TIME, 2023

***Gartner, 2024‍

What’s human capital ROI?

Human capital ROI (sometimes called “HR ROI”) measures the financial return your investment in employees generates for the business. You can use this HR metric to better understand how workforce costs, such as compensation, benefits, training, and development, compare with the value employees create.

Here’s how human capital ROI is typically measured:

human capital ROI = ((revenue - workforce costs) / workforce costs ) x 100

No data point tells the full story on its own, though, so this metric is most beneficial when you consider it alongside other people data. Engagement, retention, productivity, performance, culture — all of these shape the return your company gets from its workforce investment. Just as one example, Gallup research shows that highly engaged employees achieve 23% greater profitability on average.

“Influencing your team to embrace data and financial insights not only boosts the collective ROI, but also establishes a culture of informed decision-making.”
– Jessica Zwaan, VP of People Strategy and Operations at Leapsome

When you understand how to connect people investments to financial outcomes, you achieve a clearer view of how and where workforce spending creates value. Then, you can apply what you’ve learned to future decisions about hiring, retention, manager support, and long-term workforce planning.

Why C-level executives care about ROI

Top executives like CEOs and COOs are responsible for organizational performance. They’re invested in the success of all departments but often lack time to dive into the specifics of individual teams and HR initiatives. That’s why it’s crucial to frame HR’s impact and discuss outcomes in terms of return on investment (ROI).

Executives understand success through metrics like revenue, profit, and efficiency. These indicators are directly tied to a company’s bottom line, which means they’re scrutinized more heavily during challenging economic times.

The problem? Half of HR leaders struggle to showcase ROI, and 60% find it difficult to prepare HR business cases, according to our 2024 Workforce Trends Report. 

The solution? There’s a growing emphasis on strategic HR management and doing more with less. To secure HR budgets and ensure HR programs flourish in 2025, People leaders must frame HR processes as key contributors to strategic, overarching business goals.

💡 “In times of economic uncertainty, businesses may be tempted to reduce their investment in people-centric programs like skills training, coaching, and recognition. However, this short-sighted approach risks lowering engagement and increasing turnover.
Protecting your business during tough times also means retaining top performers and high-potential employees. These programs are vital to maintaining the talent necessary for long-term success.”
— Luck Dookchitra, VP of People & Culture at Leapsome

Why human capital ROI is a vital HR KPI

Tracking human capital ROI shows your organization whether workforce investments create measurable business value, and are thus justified. This data point helps you:

• Improve HR processes: Changes in human capital ROI can show whether a new process or improvement pays off. Here’s a simple ROI example: If a new onboarding workflow helps employees reach full productivity faster, HR can connect that investment to lower ramp time and stronger output.
  
  
• Measure the impact of HR strategies: You can compare the cost of people programs with the outcomes they produce. For example, if a leadership development course helps managers improve retention or performance scores, you can use those results to show how the training supports workforce management ROI.
  
  
• Identify gaps in human capital earlier: A declining HR ROI can point to issues like skill gaps or understaffed teams. The lower ROI numbers let you know when it’s time to act, before those problems show up as missed targets or margin pressure.
  
  
• Protect high-value people programs: During budget reviews, HR teams often need to defend investments that look expensive on paper. Human capital ROI helps you show which initiatives support productivity or business performance, making it easier to gain support for programs that create value. 

How to measure ROI from HR investments: Key metrics and calculations

Your HR team probably already collects valuable data for people analytics. The good news is that this data can be repurposed to contextualize and calculate HR ROI.
For example, you can plug HR metrics like number of employees, average annual salary, and turnover rate into an ROI calculator. This exercise can illuminate how prioritizing people enablement in your HR strategy might positively impact your company’s bottom line.

🔮 Quantify your HR ROI with just a few metrics
Leapsome’s ROI calculator shows People leaders how prioritizing people enablement initiatives can pay off.
👉 Calculate your ROI

However, you’ll need to get a little more granular to get executive buy-in. Let’s discuss the metrics you’ll want to pay the most attention to and how you can use them to demonstrate HR ROI.

Turnover rate

Employee turnover is expensive. Estimates suggest it can range from one to two times a team member’s annual salary — and, in some cases, even higher.
You can calculate the cost of turnover within your organization by using the following formula:

(Separation costs + replacement costs + training costs + productivity costs) / Total number of employees

To dive deeper into your turnover rate, consider adopting a tool like Leapsome to analyze and predict employee turnover before it occurs. It uses past data and historical trends to estimate when team members may be at risk of leaving so you can take preemptive action.

Employee retention rate

If your turnover rate is increasing, your retention rate will decline. However, it’s still important to calculate both to understand the financial implications of replacing a departing team member. You can do so with the following formula:

(Number of individual employees at end of period / Number of employees at start of period) x 100

Once you’ve calculated your employee retention rate, tie it back to business performance. For example, if your retention rate is declining steadily over a six-month period, investigate whether your profits are trending in a similar direction over that same period. That way, you can illustrate your retention rate’s impact on overall financial outcomes and make a solid case for investment in measures to combat the decline.
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eNPS & other employee feedback

Low employee engagement cost organizations US$8.9 trillion in lost productivity every year. To put it in perspective, that’s equal to 9% of the world’s GDP. We all know that creating an engaging, positive work culture is the best way to succeed across the board, but numbers like this clearly communicate why persevering in employee satisfaction is critical.

You can measure the effectiveness of your engagement initiatives with a few metrics, employee net promoter score (eNPS); eNPS is a great way to map HR ROI because the metric is both qualitative and quantitative in nature.

But it’s also important to consider other metrics, like responses to employee engagement surveys. To uncover valuable insights from these questionnaires, consider a tool like Leapsome Surveys, which enables you to send our surveys, leverage AI to analyze responses, and access tailored potential next steps. 

😊 / 😔 Calculating eNPS is a great way to dig into team member enthusiasm, engagement, and overall satisfaction.

eNPS reveals how many employees would suggest your organization as a place of work (promoters) versus how many have a negative opinion of you as an employer (detractors). For more on this critical metric, check our eNPS calculation playbook.

How to maximize human capital ROI

Improving human capital ROI starts with better visibility into workforce data. You need a centralized system that connects people costs with outcomes. Without that single source of truth, it becomes harder to feel confident about which HR investments support business goals.

A connected HR platform like Leapsome helps your team compare workforce investments with outcomes over time. You can spot patterns in turnover, performance, engagement, and compensation data, then adjust programs before small inefficiencies become larger cost problems.

“In times of economic uncertainty, businesses may be tempted to reduce their investments in people-centric programs like skills training, coaching, and recognition. However, this short-sighted approach risks lowering engagement and increasing turnover. Protecting your business during tough times also means retaining top performers and high-potential employees. These programs are vital to maintaining the talent necessary for long-term success.”
– Luck Dookchitra, former VP of People & Culture at Leapsome

Once you have that sorted out, here are a few more strategies to help you maximize human capital ROI:

• Invest in employee development: Upskilling employees for higher-level roles reduces reliance on external hiring, and it tends to improve productivity and culture. Promoted team members bring a lot of existing knowledge about the company, helping them get up to speed quickly, and their established relationships with other employees foster trust.
  
  
• Improve employee engagement and retention: SHRM research found that together, employee experience and engagement account for 42% of turnover intent. Tracking both engagement and retention helps you identify when employees are most likely to leave and why. For instance, low engagement scores on a specific team may point to weak manager support or unclear growth paths. And poor retention in low-level roles might reflect a subpar onboarding process, contrasting with high-level positions where the problem is often compensation or burnout.

• ‍Optimize hiring and workforce planning: Better workforce planning helps you match headcount decisions to business demand. The right balance keeps you from hiring too late and overloading employees to the verge of burnout — or hiring too early, and raising labor costs before the business really needs the extra capacity. This is another area where metrics are key; knowing what rises or dips led to capacity issues in the past gives you more lead time to anticipate similar scenarios.

Using data to build a C-level business case for your HR initiatives

We’ve provided several of the most important metrics to track when determining HR ROI. However, no two HR teams are the same — so the best method for advocating for HR budget will differ from company to company.

That being said, here are some best practices for using HR ROI to build a business case, with direct examples of how to address leadership:

• Identify the business problem your HR initiative solves — Review your HR data to identify the most pressing challenges or opportunities. Then, create a roadmap detailing how each initiative addresses these issues.
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  Addressing leadership (example): “Our team logged 3,000 overtime hours in 2024, which is leading to increased employee burnout and higher turnover rates. Addressing this issue is crucial for maintaining productivity and employee satisfaction.”

• Collect baseline data to establish where you’re starting from — Gather and review relevant HR metrics to understand your current business performance. This baseline helps you measure the impact of your initiatives over time.
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  ‍Addressing leadership (example): “In 2024, our team logged 3,000 overtime hours with a current headcount of 500 employees.”

• Project outcomes with realistic, data-backed assumptions — Draft KPIs, including goals and timelines for achieving them. KPIs are best if they’re numerical (e.g., achieve headcount growth of 10% in the next calendar year) as it makes measuring progress more straightforward. Communicate these projected outcomes with stakeholders to ensure shared understanding.
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  Addressing leadership (example): “Increase headcount by 5% within the next year to help reduce overtime hours.”

• Quantify the financial impact — Use the data you’ve collected thus far to predict how achieving your goals will impact your company’s bottom line.
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  ‍Addressing leadership (example): “We expect the proposed headcount increase to result in an estimated savings of $120,000 annually.”

• Contextualize your HR initiatives with organizational goals — What is your C-suite’s top goal in 2025? For most CEOs, the priority is growth, with technology adoption coming in at a close second. Understanding your leadership’s priorities helps position HR efforts as essential to achieving these goals.
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  Addressing leadership (example): “Increasing our headcount not only reduces overtime but also supports our growth objectives by enhancing our capacity to handle more projects and foster innovation.”

• Use HR technologies to expedite the process — Although HR budgets are generally shrinking, 48% of. In that case, People leaders plan to increase their HR software budget in 2025. By adopting automation-based tools that expedite data collection and analysis, HR leaders can streamline the process of calculating and communicating HR ROI.
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  Addressing leadership (example): “By adopting an HR analytics platform, we can streamline data collection and analysis, making it easier to track our progress and demonstrate ROI.”

💬 “The past year has demonstrated the rapid advancement of HR technology, with many of my preferred people enablement platforms introducing AI-powered features. These innovations significantly reduce the time spent developing resources or analyzing data, allowing for more data-informed actions.”

— Monica Sarkar, Co-Founder at Purple Umbrella

Re-focus on your HR ROI with Leapsome

Some People leaders may view HR ROI calculation as contrary to their core mission. After all, it’s human resources, isn’t it? Why move focus away from your #1 asset: your people?

This perspective is understandable — but it’s no longer realistic. HR success relies heavily on executive alignment and buy-in, which requires people leaders to demonstrate their success in financial terms. But emphasizing HR ROI doesn't have to conflict with a people-first HR culture.

“You can care about the people and about the numbers. Don’t let insecurities about financial models or business acronyms prevent you from learning what business metrics matter in building a successful company.” — Luck Dookchitra, VP of People & Culture at Leapsome

The key to balancing a focus on your people with HR ROI is a tech stack that combines data-driven analysis with employee-centric workflows. Leaders can accomplish this tricky balance with Leapsome’s holistic HR platform.
Our user-friendly interface streamlines the employee experience while enhancing your data collection abilities — that’s the best of both worlds.

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🔑 Unlock a deeper understanding of HR ROI with Leapsome
Leapsome’s comprehensive platform enables data collection and analysis at scale, helping you build a better case for HR initiatives.
👉 Book a demo

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Frequently asked questions about HR ROI

How do I calculate human capital ROI?

To calculate human capital ROI, you’ll compare the value employees generate with the total cost of investing in their development. Here’s what that looks like:

human capital ROI = ((revenue - workforce costs) / workforce costs ) x 100

Workforce costs include compensation, benefits, training, recruiting, payroll taxes, and all other employee-related expenses. A higher percentage means your organization generates strong revenue for every dollar invested in its workforce.

What are the key metrics for human resources?

To determine how effective your HR initiatives are, track important metrics like:

• Revenue per employee
• Employee engagement
• Retention rate
• Turnover expenses
• Time to productivity
• Absenteeism
• Internal mobility

These data points help HR leaders understand and quantify intangible human capital investments.
Disclaimer: This article is for informational purposes only and doesn’t offer legal, tax, or financial advice. While we’ve done our best to ensure accuracy and completeness, we can’t guarantee everything is up-to-date or error-free. For tailored advice, we recommend consulting a qualified lawyer or tax advisor.‍