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What is the ROI of training?

How to quantify the benefit.

 

Calculating the return on investment (ROI) of training isn’t as hard as you might think. But you’ll likely need to think about it before you implement your training program. It starts with strategy. If training isn’t the right solution, the goals aren’t clear, or it’s implemented poorly, ROI may be pretty low. See my previous blog post, “How to get the most out of your training program?”, to learn five questions you should ask before developing a training program.

 

We know training benefits individuals by improving their job skills, making them more promotable. But training also pays off for employers in a number of ways.

  1. The business runs better as employees work smarter and more efficiently.
  2. It helps with recruiting as potential hires appreciate the opportunity for professional development.
  3. When employees are more satisfied, they are more motivated and productive.
  4. Employees feel a greater sense of loyalty and are more likely to stick around.
  5. Well-trained employees make your company more flexible because they can fill in the gaps during others’ temporary absences or during lengthy talent searches.

 

Despite these positive outcomes, your company’s leadership may want you to quantify the financial benefits or ROI of training. Because you started your program with specific goals, the right delivery method, and clearly defined metrics, this is quite doable.

 

If you’re using metrics that are already being tracked, be sure to measure it prior to starting the training program, then again after to document the change. Then, continue to monitor and measure the change at regular intervals to document the long-term benefits of training. Use the following formula to calculate your ROI:

 

                                                    Benefit

Return on Investment = -------------------------------------- X 100%

                                              Cost of training

 

The formula is pretty straightforward, but you’ll need to go through a few steps to get the figures you need.

 

How to Calculate Return on Investment

 

Use these four steps to help you calculate ROI.

 

  1. Gather information after training.

Do your best to assess and quantify the results. Has it improved production, speed or quality; reduced downtime; or increased sales? Try to isolate the effects of training, which may require comparing both pre-training and post-training measures, or comparing results with a control group.

 

  1. Attach a dollar figure to the “soft” data.

Ideally, you’ll assign costs to the output or results of training in terms of profit, cost, or savings. When assigning costs, consider the cost of employee and supervisor time, based on hourly wages or salaries.

 

  1. Assign training program costs.

Monitor and track all costs involved in the training including instructor fees, facility costs, travel expenses and food, if applicable.

 

  1. Calculate the ROI.

Let’s say your counter staff isn’t selling many smart light bulbs because they don’t understand how they work or what the benefits are for contractors or customers. You bring in a manufacturer who explains the technology along with the potential for increased commissions, revenue and profit gained by upselling. They also train staff on how to sell to customers, highlighting long-term cost savings and increased convenience of being able to control lighting remotely.

 

Of course, you measured sales before the training, so you know your baseline. Now, you can measure sales one, three, six and 12 months after training. Assume that you find that, after six months, sales of smart light bulbs have increased by $5,000. The cost of the training was $500. So, your return on investment is 1,000%.

 

YOU CAN DO IT. WE CAN HELP.

Employee training just makes good business sense. But it’s not something you can do just once a year or even once a month. NAED recommends every employee receive at least 40 hours of formal training a year to help companies operate efficiently and remain competitive. It’s an investment you can’t afford to not to make.

 

The NAED's Education & Development Council (EDC) has created a suite of downloadable toolkits that are available here. Look here for more recruitment best practices, candidate tip sheets, and a recruitment video that you can show candidates or play at job fairs. You’ll also find onboarding guides plus helpful links to other resources for workforce training. 

 

Schedule a consultation by clicking the buttom below and we can assist in developing your plan.

 

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Michelle McNamara

Michelle McNamara

Michelle McNamara is the Senior Vice President of the NAED and the Executive Director of the NAED Education and Research Foundation. In her dual roles, McNamara is responsible for implementing strategic plans to further the mission of NAED and the Foundation. Prior to 2011, she was the Vice President of NAED and the Executive Director of the NAED Foundation where she was responsible for program and project execution including direct management of multiple departments and fundraising. McNamara joined NAED in 1998 to manage educational events. McNamara began her non -profit career with The Association to Advance Collegiate Schools of Business (AACSB).

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