It is important for companies to understand the impact of every pound they invest. The training ROI is a key metric for all organisations. It allows them to establish, in financial terms, the benefits generated by training, relative to its cost.
What is the training ROI?
ROI, or “Return on Investment”, is a metric used to find out how much a company gains from its investments. It measures exactly how many pounds have been generated for every pound spent, expressed as a percentage.
This calculation can also describe the impact training has on the company’s bottom line. With a simple formula we can determine whether or not the spend on courses, workshops, etc. has delivered results.
The ROI is a purely financial metric, but is extremely useful, as it tells us about the benefits of the training relative to the cost. As such, it is used to help us understand the value training delivers to the organisation.
The formula for calculating ROI
Do you want to know how to calculate the training ROI? The formula is the same for all types of investments:
💎💎 ROI = (benefit gained - investment) / investment x 100
So, for example, if we invest £1000 and obtain profits of £3000, we will achieve an ROI of 200%. The calculation is simple:
💎💎 ROI = (3000 - 1000) / 1000 x 100 = 200%
The higher the percentage, the more profitable the investment has been.
It is important not to confuse ROI with the benefit-cost ratio (BCR), as they are not the same thing. The BCR is the total benefits of the program relative to the costs. So, it is calculated as follows:
💎💎 BCR = Training benefits / Training costs
The ROI on the other hand, focuses on the net benefits of the training, as the costs are subtracted.
Why should you analyse the training ROI?
Calculating the training ROI enables you to:
- Find out if employees are acquiring new skills and knowledge to increase efficiency.
- Justify the training spend.
- Compare the results offered by one course against another.
- Establish and build continuous training within the company.
- Monitor the effectiveness of training and measure the value the learning delivers.
3 ways of calculating the training ROI
We have already shared the formula for calculating the training ROI. However, there are different methods for gathering the key data and calculating this metric.
1. Using a training ROI calculator
The first and simplest way of calculating training ROI is to use an online calculator specifically designed for this purpose.
This works particularly well for programs where it is easy to establish the benefits gained. For example: a call centre invests £30,000 in training to improve team productivity. In this case, we need to collate data before and after the training to make a comparison.
Afterwards, all we need to do is enter the information into the calculator, which automatically applies the ROI formula mentioned above.
2. Using performance reviews
Sometimes an employee’s job or responsibilities are more unstructured, making them difficult to measure. In these cases, it’s best to refer to performance reviews to find out if the training is having the desired effect. So, if employees improve their personal goals, we can consider that a positive result.
Let’s take an example of three middle managers at a company who receive management skills training. The review will pay particular attention to the aspects we would expect to improve following the training. For example, customer service, team working, etc. You will need to carry out a review before and after, to see if there has been any change.
Let’s imagine that customer service has improved by 5%, and teamworking by 10%. This equates to an average increase in productivity of 7.5%. How do we translate that into financial terms? We need to find out the average annual salary of these three employees, which we’ll call £40,000. If the increase in productivity equates to 7.5%, we can calculate this as a percentage of their salary: £3000 per manager per year and £9000 for all three.
If the cost of the program was £1250 per person, and £3750 in total, we can apply the ROI formula.
💎💎 ROI = (9000 - 3750) / 3750 x 100 = 140%.
3. Creating an impact study to calculate the training ROI
Another option is to create a business impact study to analyse any changes seen as a result of the training, in areas such as: sales, customer feedback, staff retention, etc.
Impact studies always follow the same process:
- Review planning.
- Data collection.
- Data analysis.
During the planning stage it is particularly important to assess the program goals and decide on the key indicators for analysis. Once the training is complete, the final report will present the conclusions reached and the ROI calculation.