Human capital ROI: what it is, how it is calculated and examples
Posted: Wed Jan 22, 2025 6:17 am
There are all kinds of management indicators that will help you meet your goals and objectives; one of the most important is the human capital ROI. We explain what it is, how it is calculated and two examples that will help you understand the importance of this metric.
What is the ROI of human capital
Human capital ROI, also known as return on investment in human capital , is a metric that allows you to measure the financial value generated by your employees in relation to the cost of having them on staff .
How to improve ROI
You may also be interested in: What is ROI and how to apply it in your marketing campaigns
This management indicator is key as it will help you understand austria phone number lead whether your investment in human capital is correct , taking into account investments in salary, benefits, training and development. In addition, the ROI of human capital is not an asset that depreciates, on the contrary: the more you invest, the more training and better performance.
Therefore, knowing the ROI of your company's human capital will help you to know if you are investing too little, what areas for improvement exist... In short, you will be able to manage your resources better. And not only at a financial level, but also at a productivity level.
Well-trained and educated employees are happy workers, so productivity soars . And we know that attracting talent is a complicated task and requires a lot of effort, so you should always bet on retaining your employees.
How to calculate ROI on human capital and examples
businesswoman calculating the break even point
You may also be interested in: 7 strategies to effectively improve your ROI
To calculate the ROI of human capital you only need a really simple formula that compares the net benefit generated by the employee by its actual cost:
ROI of human capital =
[(Net profit - Employment cost) / Employment cost] × 100
Net profit is the financial value that employees have generated for the company. Revenue, efficiency improvements, cost reductions… Cost is the total expense you have, whether it is salary, profit, recruitment costs and other expenses.
Let's look at two examples that will help you better understand how to calculate the ROI of human capital.
Suppose a company invests €500,000 per year in its workforce, which includes salaries, benefits, and training. As a result, the company sees an increase in revenue of €800,000 due to improved productivity and efficiency. The ROI on human capital would be:
ROI of human capital = [(800000 € - 500000 €) 500000 €] × 100 = 60
This gives an ROI of 160%, meaning that for every euro invested in employees the company gets a return of 60 cents .
Let’s look at another example. A technology company decides to invest in an advanced training program for its software engineers. The total cost of the program is €200,000, but as a result, the company is able to bring a new product to market faster than expected, generating additional revenue of €500,000.
What is the ROI of human capital
Human capital ROI, also known as return on investment in human capital , is a metric that allows you to measure the financial value generated by your employees in relation to the cost of having them on staff .
How to improve ROI
You may also be interested in: What is ROI and how to apply it in your marketing campaigns
This management indicator is key as it will help you understand austria phone number lead whether your investment in human capital is correct , taking into account investments in salary, benefits, training and development. In addition, the ROI of human capital is not an asset that depreciates, on the contrary: the more you invest, the more training and better performance.
Therefore, knowing the ROI of your company's human capital will help you to know if you are investing too little, what areas for improvement exist... In short, you will be able to manage your resources better. And not only at a financial level, but also at a productivity level.
Well-trained and educated employees are happy workers, so productivity soars . And we know that attracting talent is a complicated task and requires a lot of effort, so you should always bet on retaining your employees.
How to calculate ROI on human capital and examples
businesswoman calculating the break even point
You may also be interested in: 7 strategies to effectively improve your ROI
To calculate the ROI of human capital you only need a really simple formula that compares the net benefit generated by the employee by its actual cost:
ROI of human capital =
[(Net profit - Employment cost) / Employment cost] × 100
Net profit is the financial value that employees have generated for the company. Revenue, efficiency improvements, cost reductions… Cost is the total expense you have, whether it is salary, profit, recruitment costs and other expenses.
Let's look at two examples that will help you better understand how to calculate the ROI of human capital.
Suppose a company invests €500,000 per year in its workforce, which includes salaries, benefits, and training. As a result, the company sees an increase in revenue of €800,000 due to improved productivity and efficiency. The ROI on human capital would be:
ROI of human capital = [(800000 € - 500000 €) 500000 €] × 100 = 60
This gives an ROI of 160%, meaning that for every euro invested in employees the company gets a return of 60 cents .
Let’s look at another example. A technology company decides to invest in an advanced training program for its software engineers. The total cost of the program is €200,000, but as a result, the company is able to bring a new product to market faster than expected, generating additional revenue of €500,000.