Learning and development is an area that most organizations are investing in. According to the LinkedIn Learning Workplace report (2022), 48% percent of companies plan to increase their spending on employee training in 2022.
But how do you know if your efforts are paying off? When it comes to learning initiatives, calculating the ROI can be a useful way to determine how well an initiative is working—and whether or not you should continue investing in that particular project or program. It's also helpful when trying to justify funding requests at higher levels within your organization.
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7. Conclusion
What is learning ROI?
You’re probably familiar with ROI, but just in case you aren’t, here’s a quick refresher. ROI stands for Return on Investment and it is a way of measuring the benefits that result from an investment. In other words, if you invest $1 in something (like training) and then get $2 back (i.e., greater productivity or sales), your ROI would be 2:1—or 200%.
Of course, calculating ROI isn't just about dollars and cents; it's also about time saved or increased productivity. So if you have ten employees who are spending one hour per day learning new skills through online courses and coaching, and after one month, those same ten employees are spending an hour less each week on administrative work because they learned how to streamline their processes during the coursework, then you can calculate your return on investment by multiplying 10 hours by 7 days/week = 70 hours/week, multiplied by 52 week/year = 3640 hours saved in a year!
How to calculate learning ROI
You can calculate the learning ROI by using a formula that takes into account the cost of the training, the time spent on it, and the resulting benefits. The formula is:
Learning ROI (%) = (Gain from Learning - Cost of Learning)/Cost of Learning x 100
In this case, “Gain from Learning” refers to how much employee skills improved after they went through your company's training program. You can measure this by conducting an employee survey before and after you offer the training courses or other learning interventions.
“Cost of Learning” refers to what it costs you to develop those courses in terms of time and resources. For example, if you paid an outside consultant $150 per hour for four hours to create a new course for your team members on managing customer relationships during their sales calls, then your total investment would be $600 (4 hours x 150 dollars per hour).
Tangible Learning Metrics
Tangible metrics are easy to measure and track, which makes them an appealing option for L&D professionals. Some common tangible metrics include (both in terms of costs and benefits):
Costs associated with learning needs assessment, design, development, implementation, and evaluation
Costs for required facilities, travel, and accommodation of learners and trainers/facilitators/coaches
Number of learners per month/quarter/year
Financial savings from streamlined processes
Time saved using a new system or application
Staff and learners’ salaries
Learners performance scores
New employee processing time (how much time it takes to onboard a new hire)
Number of incident reports or customer complaints
Number of closed sales / signed contracts
Number of responded customer queries
Participation rates in various learning programs
Retention and attrition rates
If you're looking for more concrete results from your training program, tangible metrics may be the way to go. However, it's important to remember that they aren't always indicative of success—in some cases (such as when it comes to employee engagement), intangible data can trump tangible information.
Intangible Learning Metrics
Intangible metrics are the most difficult to measure, but they're also the most important. They include:
The extent to which your learners feel that the training has helped them improve their performance in the work environment (and how much it has helped)
How much more confident learners feel about their ability to perform their job tasks as a result of training
How satisfied learners are with their jobs
The extent of employees' commitment to the organization, their department, team, and/or their manager
How teamwork, customer services, conflict resolution, etc. have improved
The extent to which learners actually use the skills they learned in training on the job.
The ability of your training program to impact performance on the job is the most important metric. It’s important because it shows that your organization is getting value from its training investment and because it can be used as a measure of whether or not you have met your goals for learner satisfaction and performance improvement.
Challenges of learning ROI
One of the biggest challenges in calculating the ROI is isolating the effects of learning. If you speak fluent Spanish, is it because of your teacher, the group that helped you practice, the curriculum, or because you have lived in Spain for the past 6 months?
One of the best ways to tackle this challenge is to determine in advance what output (in terms of performance, time, productivity, etc.) is expected to be directly related to the learning initiative. Practically, this can be measured by setting up control groups – one group goes through the training, and the other – does not. Then the changes in their performance are measured, and this becomes the tangible return on investment.
Benefits of Calculating Learning ROI
When it comes to training and development, calculating the return on investment (ROI) can be a useful way to determine how well an initiative is working. After all, while you may have good intentions when investing in training programs, you want to know whether they're actually working—and this is where ROI comes in.
If you're not convinced, here is what else calculating the ROI can do for you:
Help you understand the value of your training programs
Help you prioritize future training initiatives
Help you improve your training programs
Improve understanding of how training programs affect the bottom line.
Increase ability to justify training investments
Give you better understanding of what training programs are worth and how much they should cost.
Help you justify your training budget when it comes time to make decisions about whether or not to invest in new programs.
Conclusion
If you've never calculated training ROI before, here are a few things to keep in mind. The first thing to remember is that the calculation is based on how much it costs to implement a learning program and how much money you can expect to save by doing so. If your company has already invested in learning programs, then you should be able to find hard numbers for these two factors.
You might also want to consider whether there are any intangible benefits of training programs that aren't reflected in this formula (such as increased employee morale or increased productivity).
If you’re not sure how to calculate learning ROI, don’t worry. It’s a simple process that just requires some time and effort on your part. Make sure you have the right tools for the job, like our free ROI Calculator Template. Then find out what metrics matter most for your organization by asking yourself questions like: What do we want employees to learn? How will we measure whether they have learned it? And finally, what does good performance look like?