The challenge: Investing in people development is a direct bottom-line cost. To justify this to yourself, investors, and other decision-makers, you need to monetise the return on investment, right?  

In theory, yes.  

In practice, it’s incredibly difficult. Finding tangible data is really, really hard. Despite reams of research into leadership topics, robust ROI figures are nearly impossible to find. 

And while those in the business of delivering people development might say things like, “Focusing on the ROI is only part of the picture; it’s about the impact on the (at times elusive) ‘culture’,” when you’re spending your own money (which, as a founder or owner, is what it boils down to), that doesn’t quite cut the mustard. 

We are spending our own money, so we must be able to see what the impact will be to decide (alongside all the other things we want to spend money on) whether it is the right thing to do. Otherwise, we might as well plant some ‘magic beans’ and hope for the best! 

Let’s be clear on one thing: measuring ROI isn’t as simple as saying, “if we spend this, we immediately get this.” If it were, we would be able to find more readily available specific statistics other than percentage increases in productivity or profitability. 

So, what can we measure? 

Staff retention vs staff turnover: 

Employees are the backbone of any organisation. High turnover disrupts operations, leads to loss of institutional knowledge, and incurs significant costs in recruitment and training. When team members feel valued and supported, they are more likely to stay, reducing these costs. 

Developing people enhances employees’ skills, career prospects, and job satisfaction. By investing in their growth, organisations can foster loyalty and reduce turnover. This not only saves money but also maintains continuity and stability within the team. 

For example, if it costs £30,000 to replace an employee and development programmes reduce turnover by 10%, the savings can be substantial. Additionally, retained employees often become more productive and engaged, further enhancing the ROI. 

Without investment in development, turnover rates are likely to be higher. This leads to increased recruitment and training costs, as well as the loss of experienced employees who take valuable knowledge with them. High turnover can also negatively impact team morale and productivity, further increasing costs. Founders may find themselves constantly dealing with staffing issues, which can detract from strategic growth initiatives. 

Client satisfaction – happy clients = healthy business: 

The quality of service provided by employees directly affects client satisfaction. Happy, well-trained employees are more likely to deliver exceptional service, leading to satisfied clients who return for repeat business. 

Development equips employees with the skills and knowledge needed to excel in their roles. This leads to better customer interactions, higher service quality, and ultimately, increased client satisfaction and loyalty. 

For instance, if a development programme improves client retention by 5%, and the average client spends £10,000 annually, the financial impact can be significant over time. 

Without development, employees may lack the skills and motivation to provide high-quality service, leading to lower client satisfaction and reduced repeat business. This can result in higher customer churn rates and a negative impact on the company’s reputation and revenue. Founders might struggle to maintain client relationships, which are crucial for sustained growth. 

Discretionary Effort – going above and beyond: 

Discretionary effort is the extra effort employees put in beyond their basic job requirements. When team members are motivated and engaged, they are more likely to contribute additional effort, driving productivity and innovation. 

Development boosts employee engagement and motivation by providing opportunities for growth and recognition. Engaged employees are more likely to go above and beyond, contributing to higher productivity and better overall performance. 

For example, if a development initiative leads to a 5% increase in productivity, the financial benefits can be calculated based on the value of the additional output. 

Without support, employees may feel undervalued and unmotivated, leading to minimal discretionary effort. This can result in lower productivity, decreased innovation, and a lack of commitment to the organisation’s goals. Founders may find it challenging to drive performance and innovation, which are critical for staying competitive. 

Net Promoter Score (NPS) – the true cost of customer loyalty: 

Employees play a crucial role in shaping customer experiences. Their interactions with customers can significantly influence NPS, which measures customer loyalty and willingness to recommend the company. 

By investing in employee development, organisations can improve customer service skills and overall employee performance. This leads to better customer experiences, higher NPS, and increased customer loyalty and referrals. 

Tracking changes in NPS before and after development initiatives can provide a clear indication of their impact. For example, if NPS increases by 10 points and this correlates with a 5% increase in sales, the ROI can be quantified. 

Without investment in development, NPS may stagnate or decline as employees struggle to meet customer expectations. This can lead to lower customer loyalty, negative word-of-mouth, and a decrease in sales. Founders may face difficulties in building a strong brand reputation, which is essential for long-term success. 

Investor perception – winning hearts and minds: 

Investors look at the long-term sustainability and growth potential of a company. Therefore when founder organisations seek investment, a robust people strategy and commitment to people development are crucial. Investors look for companies that not only have innovative products and services but also a strong, cohesive team capable of driving growth and adapting to challenges.

A well considered approach to people ensures that the organisation attracts, retains, and nurtures top talent, which in turn creates a culture of continuous improvement and collaboration. As a result it can be the difference between securing investment or not!

By investing in people development, founders can demonstrate their dedication to building a resilient workforce, and a sustainable business. This, in turn boosts investor confidence as it not only promotes operational efficiency but also positions the organisation as forward-thinking, ready to scale and succeed in a competitive market.

Conclusion 

Measuring the ROI of people development in founder and owner-led organisations may seem like an impossible task, but it’s a challenge worth embracing. While the direct financial impact can be difficult to quantify, the benefits of investing in your team are undeniable. From reducing staff turnover and enhancing client satisfaction to boosting discretionary effort and improving investor perception, the positive outcomes of development programmes are multifaceted and far-reaching. 

As founders and owners, it’s essential to recognise that the true value of people development goes beyond immediate financial returns. It’s about fostering a culture of growth, loyalty, and excellence that will drive your organisation forward. By focusing on measurable aspects such as retention rates, client satisfaction, and productivity, you can build a compelling case for investing in your team’s development. 

Ultimately, the investment in people is an investment in the future of your organisation. By nurturing your team’s skills and motivation, you create a foundation for sustained success and innovation. So, while measuring the ROI may be challenging, the rewards of a well-developed team are worth the effort. 

CAPE are the people experts for founder and owner led organisations. Visit our website to learn more.