All organizations have objectives and for most businesses, the main one is to be profitable. For some teams, such as sales, it is clear how they add value, and because of this, their objectives are seen as essential. However, learning and development (L&D) teams are often seen as a nice-to-have rather than a necessity.
As the current economic climate continues to flux, L&D is often one of the first business functions to lose funding. Measuring the ROI of training can support an L&D team’s cost-benefit analysis and gain stakeholder buy-in for department funding. The problem is that many L&D teams don’t know how to prove their value and show a return on investment.
What is training ROI?
In the simplest terms, return on investment (ROI) tells a business what profit they have made from the money they have spent. Training ROI is how much money a company has made from its investment in training initiatives.
However, calculating ROI isn’t always about demonstrating an immediate financial return. Reducing employee turnover, improving customer satisfaction scores, and increasing new-starter speed to competency can positively impact a company’s profits over time. Tracking this data and linking it to financial returns can be time-consuming and is often an afterthought when L&D teams are at capacity. But, to continue to secure business buy-in, measuring ROI is essential.
How can I calculate training ROI?
There are various models for measuring training effectiveness, all with different strengths. Kirkpatrick’s Model for training evaluation is often seen as the standard but it’s missing a stage for calculating financial ROI. Others, such as the Phillips Model, build on Kirkpatrick to address some of its shortcomings. Brinkerhoff’s Success Case Method takes a completely different approach and places more emphasis on qualitative data and learner interviews. The data collection element makes it a complementary model to use in conjunction with either Kirkpatrick or Phillips. The Learning Transfer Evaluation Model is perhaps the most thorough. With eight stages, it helps learning professionals not only assess where their own learning evaluation currently sits, but how to strengthen it.
Combining of the strengths of all the models is perhaps the best approach to calculating training ROI. And it all starts with the training needs analysis (TNA).
6 steps for calculating training ROI
Training Needs Analysis
A robust training needs analysis is an essential part of the training cycle. It has many benefits, from strengthening stakeholder buy-in to ensuring the training program can tackle the organization’s learning needs.
Gathering data during this phase will also help to prove ROI at the end. Highlighting how much the problem you’re tackling costs the business is a great way to start. Compare this cost with an estimate of the cost of the training program to explore with stakeholders and to help you decide if you should proceed or make changes to your plans.
Depending on the objectives of the training intervention and the company, you could gather other relevant data points such as individual and team KPIs, customer satisfaction scores, labor turnover, and employee productivity. This data analysis is a benchmark for you to demonstrate ROI against once the program is complete and should align with business objectives.
Planning your timeline
It’s important to plan the timelines for gathering data and proving the ROI of training. Once you have gathered the data from the training needs analysis, decide over what length of time you will collect data from the results. For example, suppose you are looking to reduce the labor turnover of new starters within their first six months of employment by introducing new onboarding training. In that case, you will need to wait six months for your first data set and longer to ensure you have data from several cohorts.
While this may seem like a long time to wait, learner interviews, manager observations of training participants, and more can help you to gather testimonials and predict your level of success in the meantime.
Include this timeline in communications with key stakeholders so everyone knows when they can expect to see the results.
The pilot program
Including a pilot test for any new training program is best practice. While this may not always be feasible for a range of reasons, learning initiatives that require a significant investment — either of money, time, or resources — should be prioritized for a trial.
Regarding ROI, the data gathered from the pilot training course should include both quantitative and qualitative examples, such as KPIs, learner feedback, and observations of new behaviors or skills in use. This not only demonstrates to the organization the ROI they can expect, but allows the program to be amended to optimize results further.
A further benefit to running a pilot program is that if the results don’t match expectations — for certain people, teams, regions, or across the company as a whole — having data from the pilot program will help you investigate why.
Track the cost
As you scale the training, keep track of all the costs — including those for the pilot program. These include people hours, resources, travel, specialist technology or equipment, venues, and more. The full breakdown will depend on the program you’re running, the roles and headcount of the people involved, and how you choose to deliver the training.
Once the training is complete, it’s time to start tracking and measuring changes in learner behavior. This can be done qualitatively through learner interviews, coaching, manager observations, and listening to customer calls and pitches. This type of data can help inform testimonials, make changes to the training program content, and to try to establish cause and effect between parts of the initiative that have worked well and parts that haven’t.
Quantitative data can then be used to measure the differences between current data and the data gathered during the training needs analysis as a benchmark. Even without calculating ROI, these metrics can demonstrate training effectiveness to stakeholders.
A combination of the data at this stage can also help you identify anomalies. For example, individuals, teams, or regions may have demonstrated less or more behavior change than their co-workers. By probing into the data, you can investigate why this may be the case and make any changes to current and future practices.
Measure training ROI
To calculate a percentage for the ROI for the training program, you must gather robust data throughout the steps to get an accurate picture. Taken from the Phillips model of training evaluation, there is a formula you can use to get your ROI percentage.
The equation used as training ROI calculator to measure the ROI percentage for the Phillips method is:
ROI% = (Net benefits of the training program/ total program costs) x 100.
The net benefits refer to the increase in revenue from the changes in learner behavior or the amount of money the business saved.
You should perform this calculation to measure ROI in line with the initial timelines for gathering data. Trying to demonstrate ROI too early may not show the full financial return of the training program.
You may have noticed that the steps for calculating training ROI do not include learner test scores, satisfaction scores, or completion rates. While these metrics can help evaluate the quality of the training and the success of the campaign, they don’t demonstrate whether the training program has helped the business to progress towards its objectives or make a financial return.
Who should calculate training ROI?
Every organization is structured slightly differently, and the L&D function is no exception. Yet, the easy answer is everyone in the L&D team should get involved in calculating training ROI. Whether you’re coordinating training events, facilitating sessions, designing content, or managing a team, you can work collaboratively to track and calculate ROI. If everyone takes responsibility for gathering training data — from the initial training needs analysis to how learners improve their KPIs — calculating ROI becomes a much easier process. It also helps team members at every level see and demonstrate the business impact that their role is having and build the skills they will need to develop their careers further in the future.
To ensure your L&D team continues to get the budget and support it needs, take the time to prioritize demonstrating the value of training programs to key stakeholders. For more suggestions on how to involve stakeholders in L&D initiatives, check out the blog 5 ways for Learning and Development teams to get training buy-in from stakeholders.
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