Calculating Return on Investment (ROI) is no easy feat for most business initiatives. Measuring the ROI of your training programs is no exception but can be accomplished with the right approach.
Industry Growth Means Managers Need to Understand the Business Impact of Their Training Programs
Internal employee training programs are poised for rapid growth over the next decade. With a healthy economy and low unemployment, companies are increasingly recognizing the benefits of developing and promoting current employees rather than filling open roles through hiring.
And learning management systems (LMSs) will play a crucial role. According to Research and Markets report, “Global E-Learning Market Analysis & Trends – Industry Forecast to 2027,” the e-learning market is expected to continue the year-over-year growth trajectory started in the previous decade.
It’s clear there are multiple advantages to implementing online training programs. While those are easy to layout for your leadership team, making an ROI case is a challenge.
What Is ROI?
“What’s the Return on Investment?” It’s a common question business leaders ask before allocating budget to any new initiative. Executives, board members, and other stakeholders always want to understand how expenses will result in revenue.
ROI is a common metric for evaluating the financial outcome of an investment. The formula for calculating ROI is simple, provided you have accurate variables to plug in:
[(Total Revenue – Total Cost) / Total Cost] x 100
The final figure is a percentage that shows the gain or loss on the investment.
Take a stock market investment for example. Let’s say you invest $500 in a company you like. Your prediction is correct, the stock increases in value, and you sell for $2,000. Using the formula above, you can easily calculate an ROI of 300%. Not bad at all!
What’s the ROI of an LMS? Your Executive Team Wants to Know
Calculating ROI for business initiatives like employee training isn’t as straightforward as the example above. You may intuitively know it’s a net benefit on your company because you see employees using newly-acquired skills to deliver outstanding results every day. However, attributing revenue to an internal training program will always be imprecise. The key is to come up with an estimate you believe accounts for the impact it has on the company’s bottom line.
The good news is most business executives who ask about expected ROI understand this. They want to ensure money spent results in money earned but know revenue is influenced by multiple factors. Make a business case for implementing an LMS-hosted employee training program consisting of informed research on all the advantages it will bring to your employees and organization. As you gather information, you’ll get a sense of the monetary benefits of online training, which will help you calculate a realistic ROI estimation.
Useful Resources for Making Your ROI Calculations
Here’s a list of few, you might want to check out:
- Investopedia explains ROI in simple terms, provides formulas, and explains limitations.
- We have a few articles of our own on the topic of ROI. Check out this interview with Jack Phillips of the ROI Institute.
- Want to calculate the value of online training? Check out our free calculator!
