There are many possible models to follow when determining training return on investment (ROI). Very often, you can look at your business performance indicators before and after training to determine if training was a success.
ROI Answers Two Key Questions
- How many total dollars did I gain as a result of the training?
- For every dollar I invested in training how many dollars did I get in return?
Key Factors in Determining Training ROI
- Take measurements before and after training to determine the true effect of a training program.
- Use conservative numbers so it is easier to sell the ROI figures internally within your organization.
- Track and measure data that is important to your organization and its goals. ROI should be measured before and after training to determine the true effect of training. View this article titled How to Quantify the Benefits of Training for ideas on what data to measure.
A Simple Way to Quickly Determine ROI
We will walk you through the steps to determine ROI. We will use an example from an actual client of ours in the business services industry. They had five managers complete The Leadership Journey over a period of 12 months. The five managers oversee 65 employees. Their training investment was $5000.
Step 1. Determine what benefits you want to quantify.
This client in this example was measuring employee retention and absenteeism. (Get ideas for benefits you can measure.)
Step 2. Gather pre and post training statistics for the benefits.
- Pre-Training: 95% (5% turnover)
- Post-Training: 98% (2% turnover)
- Pre-Training: 1560 hours year
- Post-Training: 1092 hours year
Note: Absenteeism hours are calculated for all 65 employees the managers oversee.
Step 3. Calculate the dollar value of the benefits – Employee Retention
- The average employee earnings before overtime are $45,000.
- The cost of employee turnover cited in The Wall Street Journal is 50% of the employee’s annual salary. (Some studies use a figure of up to 150%)
- The dollar value of one lost employee is $45,000 x 50% = $22,500
- Turnover before training was 5% or (65 x 5%) = 3.25 employees year
- Turnover after training was 2% or (65 x 2%) = 1.3 employees year
How many more stay?
The difference is 3.25 – 1.3 = 1.95
What is the dollar value of keeping an extra 1.95 employees? The dollar value of this benefit is 1.95 x $22,500 = $43,875
What is the dollar value of keeping an extra 1.95 employees?
The dollar value of this benefit is 1.95 x $22,500 = $43,875
Step 4. Calculate the dollar value of the benefits – Absenteeism
- There are 2080 work hours in a year for one employee. (40 hour work week)
- For the 65 employees, there are 135,200 work hours in a year.
- The average hourly employee wage is $21.63. ($45,000/2080)
How many more hours are worked each year?
Subtract post-training absenteeism from pre-training absenteeism.
1560 hours – 1092 hours = 468 hours
What is the dollar value of working the additional 468 hours? The value of 468 additional hours is $10,122. (468 x $21.63)
What is the dollar value of working the additional 468 hours?
The value of 468 additional hours is $10,122. (468 x $21.63)
Step 5. Calculate the total dollar value of the benefits from employee retention and absenteeism.
$43,875 turnover + $10,122 absenteeism = $53,997
Step 6. Calculate the benefit to cost ratio.
Total Dollar Value of Benefits/Cost of Training = Benefit to Cost Ratio
$53,997 / $5,000 = $10.79
Step 7. Calculate the Return on Investment (ROI)
$53,997 in benefits – $5,000 cost of training = $48,997
Step 8. Use the above examples to help guide you in determining how much your training will return.
Improve Your Organization’s Training ROI
Business Training Experts focuses on improving our clients’ profits by maximizing employee potential. We offer practical skills training in leadership development and customer service. We have found that these competencies deliver the most immediate and significant impact to our clients’ bottom lines. Preview a program now.