What is Training ROI?
The definition of the return on investment (ROI) in training and development refers to the financial yield or benefit an organization receives from its employee development investment compared to the cost of running those programs. Training ROI can help organizations determine their programs’ effectiveness and make data-driven decisions about future investments in employee development. It can also help to justify the expenses related to training and development to stakeholders and decision-makers within the organization.
Why is Training ROI Important?
Justifying the Cost: Calculating training ROI helps organizations rationalize the cost of their training and development programs to stakeholders and decision-makers. Administrators can secure funding for future programs and investments by demonstrating the program’s financial benefits.
Improving Program Effectiveness: ROI training analysis helps organizations evaluate the effectiveness of their programs and identify areas where improvements can be made. Organizations can use the insights to refine their programs and make them more effective.
Aligning with Business Goals: Leaders can use the results of a training ROI analysis to align their training programs with business goals and objectives. By linking training outcomes to business outcomes, organizations can ensure that their training programs support their overall goals.
Prioritizing Training Investments: Organizations should prioritize their training investments and allocate resources where they will have the most significant impact based on the ROI analysis. Businesses can optimize their training investments and maximize the benefits by focusing on high ROI programs.
Demonstrating Value: ROI training analysis helps organizations demonstrate the value of their training programs to employees. By showing the tangible benefits of training, organizations can increase employee engagement and motivation, leading to improved performance and retention.
How to Measure ROI of Training:
Organizational leaders demand a clear and measurable ROI for every potential business expense. Learning and development (L&D) representatives often have the task of calculating the ROI training produces. L&D teams can measure the ROI of training and development in six steps.
One of the most important aspects of measuring training ROI is to have an evaluation strategy. An evaluation strategy helps L&D leaders show where training succeeded or needs improvement.
When an evaluation is built into the training platform, L&D leaders have a simpler time measuring results. For instance, they can use practice labs, manager supports, and more to track progress and principal reinforcers.
To measure the ROI of training, businesses need to know its costs and subsequent benefits.
10 Benefits of Employee Training and Development
- Increased productivity: Employees who receive training can often work more efficiently and complete tasks more quickly, leading to increased productivity and output.
- Improved quality: Training can help employees develop new skills and knowledge, improving the quality of their work and leading to better outcomes for the organization.
- Reduced turnover: Providing training opportunities to employees can increase their job satisfaction and loyalty to the organization, reducing turnover and associated recruitment and training costs.
- Increased revenue: Employees who receive training can often develop new skills and knowledge, leading to increased sales and revenue for the organization.
- Reduced costs: Training can help employees learn new techniques and best practices to minimize waste, errors, and other inefficiencies, leading to cost savings for the organization.
- Enhanced customer satisfaction: Employees who receive training often improve their communication, problem-solving, and customer service skills, leading to higher levels of customer satisfaction and loyalty.
- Improved safety: Training can help employees learn best practices for safety and risk management, leading to reduced workplace accidents and associated costs.
- Better decision-making: Employees can learn to develop critical thinking skills through training, leading to better decision-making and more effective problem-solving.
- Increased innovation: Training can encourage employees to think creatively and develop new ideas and solutions, leading to innovation and new revenue streams for the organization.
- Improved reputation: A well-trained workforce can enhance the organization’s reputation and help attract new customers and partners.
8 Program Costs Associated With Employee Training and Development
- Training fees: Hiring a training consultant to design and deliver the training program may incur a cost.
- Course materials: Developing and distributing training materials, including handouts, manuals, and textbooks, can be a significant cost.
- Equipment and technology: Purchasing or renting equipment and technology necessary for the training, such as computers, projectors, or software licenses, may incur a cost.
- Employee time: The time employees spend in training is time away from their regular work duties and can be a cost to the organization.
- Loss of productivity: Training can cause a temporary reduction in productivity as employees may need to be away from work or take time to learn and adjust to new skills.
- Administration: Managing the logistics and administration of the training program, such as scheduling, registration, and tracking attendance, may incur a cost.
- Evaluation: Measuring the effectiveness of the training program through assessments, surveys, or other evaluation methods may also involve a cost.
- Overhead expenses: Overhead expenses such as rent, utilities, and salaries of support staff involved in the training program can also be a cost.
6 Training ROI Metrics to Review
L&D departments must have metrics to measure the ROI of their training programs. By tracking and analyzing core measurements, leaders can better understand their training impact and make data-driven decisions to improve effectiveness. Although each business and its training approach may differ, using these levels as a guide can aid in effectively evaluating ROI.
- Attendance/Participation rate measures the number or percentage of employees participating in the training program. In addition, it can gauge the level of interest and engagement in the program.
- Reaction measures how participants react to the program and their satisfaction with the experience. Learners’ feedback can provide valuable insights into improving the training program and help identify areas where the program is particularly effective or ineffective.
- Learning metric measures the degree to which employees retain the knowledge and skills they learned in the training program. It can be assessed through testing, quizzes, or other evaluation methods.
- Behavior Change measures how employees can apply the knowledge and skills they learned in the training experience to their job performance. It can be assessed through observation, performance reviews, or other evaluation methods.
- Business Impact measures the tangible impact of the training program on the organization’s performance and bottom line. This metric is typically measured by analyzing data on key performance indicators (KPIs) or business outcomes directly impacted by the training program.
- ROI measures the financial benefits that result from the training program compared to the cost of running the program. It can be used to determine the overall effectiveness and value of the training program.
- Factors that Maximize ROI are environmental influences that have the most significant impact on the success of training programs. Employees’ work environment can affect their engagement and satisfaction with training initiatives.
ROI Training Example: Zola
Zola wanted to understand how to apply better management practices that could drive higher performance for their customer-facing teams. So the company enrolled 64 employees in Hone’s Manager Core Program to inspire and create small behavior changes in managers who affect their front-line direct reports.
L&D leaders at Zola also wanted to measure and report the effectiveness and ROI of manager training to key stakeholders. Therefore, their six-level measurement strategy included answering the following questions.
1. Were managers engaged with the training experience?
Participants reported they were engaged and satisfied with their class experience; the average class rating was 4.6 out of 5.
2. Did managers gain new and valuable insights into how they can be better, more influential leaders?
97 % of learners said their training aligned with the Zola culture.
3. Did managers apply those insights and improve critical leader behaviors on the job 2-3 months after the training?
81% of participants contributed to the training to improve critical management skills.
4. Did managers positively affect their teams’ business performance – what was the increase in performance for the direct reports of these managers?
87% of learners reported that the leadership improvements increased their teams’ performance, including:
- 24% increase in key performances.
- 42% increase in employee engagement.
- 43% improvement in their direct reports’ quality of work.
- 49% deeper connection between learners and their direct reports.
And 81% of learners said the development opportunity increased their commitment to the company’s success.
5. Did the overall benefits outweigh the costs of training?
For every $1 Zola spent on training, they made back $4.98 in return for a 398% ROI benefit after three months.
6. How did the manager’s manager affect the overall impact and ROI of the training?
Managers with direct reports who were more open to feedback had more substantial results.
Case Study Summary
While the training ROI calculations positively align, they are just the first snapshot of results. The full, long-term impact of training can continue to expand months after, so stakeholders can continue to monitor and measure the actual value of training.
However, organizational leaders and other stakeholders should remember that many benefits of training programs surpass measurable financial advantages. In addition, employee training and development has many intangible benefits.
For instance, Zola managers who participated in the program received clear signals that the organization was committed to its development. The benefit of this commitment is hard to track from a financial perspective, but training can improve morale, motivation, and – ultimately – productivity.
Additionally, managers who receive training may better inspire and influence their direct reports and cause a ripple effect that transcends the measurement window.
Want to know the ROI of your training programs?
An ROI calculator is a tool that helps organizations calculate the expected return on investment of their training programs by comparing training costs to the benefits achieved. Generally, businesses can calculate the ROI by dividing the benefits by the program costs. However, a training ROI calculation requires more input for more accurate results.
To create an ROI training report, users would need to input the following into an ROI calculation:
- Participants – The number of people participating in the training
- Cost – The cost per person of the training program (Live training programs typically cost between $800 – $1,500 per person, while pre-recorded classes are usually between $50 – $250 per person.)
- Compensation – The average annual salary of the learners being trained
- Improvement – An estimate of how much the training has improved performance at work, such as percentage of productivity improvement, pre-training annual employee turnover, and turnover decrease as a result of training
- Retention – Cost of replacing employees (usually as a percentage of the average employee compensation)
Reasons Why Organizations Use Training ROI Calculations
An ROI calculator for L&D training can help organizations ensure that their training programs are cost-effective, efficient, and aligned with their business goals.
- Justification of the training investment – L&D leaders can justify the training investment by providing a clear and quantifiable return on investment.
- Measurement of training effectiveness – An ROI calculator helps organizations measure the effectiveness of their programs by determining whether the training has achieved the desired outcomes and whether the benefits outweigh the costs.
- Decision-making – Organizations can use calculation data to make informed decisions about their training programs. The results of an ROI calculator can help organizations determine which training programs are worth investing in and which are not.
- Benchmarking –An ROI calculator allows organizations to benchmark their training programs against industry standards and best practices. This enables organizations to identify areas for improvement and make changes to their training programs accordingly.
4 Steps for Using a Training ROI Calculator
A training calculator is a tool that helps organizations calculate the expected return on investment of their training programs by comparing the costs of training to the benefits achieved.
The value of using a training ROI calculator is that it quantifies the financial value of training programs for employee development. By using a training ROI calculator, organizations can make a compelling case for investing in employee development by demonstrating the potential financial benefits of training programs.
This is particularly important when making a business case for investing in training programs and justifying or expanding a manager training budget. It allows organizations to show the expected return on investment and the financial impact training can have on the organization.
In addition, using a training ROI calculator can help organizations evaluate the effectiveness of their training programs and make informed decisions about which programs to continue, improve, or discontinue. By regularly assessing the ROI of their training programs, organizations can ensure that they are investing in programs that provide the most value to their employees and the organization as a whole.
Here are the steps to using a training ROI calculator:
1. Identify the Training Program
Start by identifying the specific training program that you want to evaluate. This could be a leadership development program, a technical skills training program, or any other employee training program.
2. Determine the Costs
Next, determine the costs associated with the training program. This may include expenses such as course materials, instructor fees, travel costs, and employee time away from work.
3. Estimate the Benefits
Estimate the benefits that the training program will provide. These benefits could include improved employee performance, increased productivity, reduced turnover, and other positive outcomes directly related to the training program.
4. Calculate the training ROI
Use the ROI calculator to determine the return on investment of the training program. This is done by dividing the estimated benefits by the total costs of the training program and then multiplying by 100 to get a percentage.