4 Ways Τo Increase Your Organization's Learning ROI
Return On Investment is easily one of the most critical metrics for any business, but often little consideration is given to the ROI of training.
Training By-The-Numbers
Training may not be the first line item you think of when you think of a company’s budget, but considering that it can easily and quickly be one of an organization's largest investments, its expenditures are worth examining a little closer.
Did you know…
- that businesses in the U.S. spent more than $87 billion on training in 2018 – not including the costs associated with taking employees away from their usual duties?
- that spending on outside products and services rose from $7.5 billion to $11 billion in 2018?
- that average training expenditures for large companies increased from $17 million in 2017 to $19.7 million in 2018?
- that average training expenditures for midsize companies rose $600,000 to $2.1 million in 2018?
Why Calculating Training ROI Is Important
When you realize that training isn’t exactly a miscellaneous line item on the budget, it’s easy to see why calculating its ROI proves all the more critical because, in business, every expenditure shares the same goal: to bring in more revenue.
So, whether you’re spending on advertising, employee benefits or training, data needs to be collected, analyzed and scrutinized to make sure the dollars-and-cents make sense.
If you’re seeing a positive return on your training investments, then you’re equipping your employees with information, skills, and support that empower them to do their jobs better.
Conversely, however, negative returns mean the training isn’t effective – and you have to be prepared to determine why.
How To Calculate Training ROI
1. Define Success
How you define ‘success’ and how another organization defines ‘success’ may be worlds apart – and that’s OK. Define what ‘success’ means to you – in numbers and employee outcomes – and use that as the standard to which you will hold all ROI calculations.
Ask yourself what you want out of the training. Is it increased profits? Improved customer service? Boosted employee morale and engagement? Better regulation compliance? Identify these specific goals so you can easily identify when you’ve reached your benchmark for success as it will only be attained when employees actually use what they’ve been taught, and it positively impacts the organization.
2. Determine Metrics
You can’t measure what you don’t monitor so using your definition of success and the goals you’ve set above, choose which metrics you’ll need to ascertain the success of your training. These standard metrics can be applied to the quality, performance, and effectiveness of your learning programs, as well as the performance trends and predicted cost-benefit ratios.
If you’re not sure which metrics matter, consider these by department:
For sales training:
- Average sales cycle length
- Percentage of successful closes
- Percentage of sales reps meeting their quotas
- Time to competency
- Total revenue generated
For marketing training:
- Number of qualified leads generated
- Cost per qualified lead
For customer service training:
- Time per interaction
- Average customer satisfaction rating
- Increase in revenue
- Increase in overall company knowledge
3. Analyze Metrics
Now, time for some math. Your L&D ROI will be equal to the change in profits related to training divided by the cost of training, or ROI = change in training-related profits/cost of training.
Converted to percentages, ideal ROIs are over 100%. Why? Because 100% means you’ve broken even, an ROI of less than 100% means you’ve lost money on the training, and an ROI over 100% means you’ve profited.
4. Increase ROI
If the ROI isn’t where you’d like it, fear not. Whether due to irrelevant content, content delivery method(s), or a lack of support for its application, ROI can be improved, especially now that you have the data and metrics moving forward.
The first two issues are relatively easier to address but a lack of support for training’s adoption proves trickier. Thankfully, focusing on adoption will ultimately prove most profitable. Not sure why adoption is what stands in the way of your ROI?
Consider these survey questions, on a scale of 1-5, for both employees and management:
- Were participant materials useful on the job?
- Were training expectations set with the manager prior to training?
- Was the use of the training discussed with the manager after the training?
- Were adequate resources provided to apply training on the job?
Armed with these answers and feedback, you can make the necessary adjustments to ensure that your investment in L&D has the meaningful impact you want.
Ultimately, ROI is more than a metric; it’s a mindset. And with a shift in focus and mindset, from the quality of training to the actual impact of the learning, organizations can align their training with their specific goals and objectives for success with measurable value and tangible results.