How to Calculate the ROI of Training Programs: The Formula
When it comes to ROI, there are challenges that learning leaders face, but it’s important to know there are practical solutions. We want to help you tackle the unknown of ROI, and overcome the issues to track this holy grail metric.
For each of the obstacles, we’re giving you the tools you need to counteract them. This guide will get you and your team started on the path to success, and give you what you need to analyze the return on investment of your training.
Lead from the top down
In the past, training teams have been the boss of their training goals. Siloed away from the business, the focal point has been training-focused goals – course ratings, engagement, and completion rates. Although these are critical figures, they aren’t enough.
Goals need to come from further afield – leadership. From the results of our survey, it’s obvious to see that in a lot of businesses this isn’t happening. We found that 54% of respondents say there is a lack of goals set within the organization and 41% say they are unsure of what to measure.
As a training leader, you need to make the training strategy a team sport and get leaders across all teams involved in setting goals. You can do this by simply opening up communication.
By meeting with leaders across Sales, Success, Support, Human Resources, Operations, Marketing, and so on, you can question them on who the audience is, why you are training them, and what metrics should be measured.
To make this as implementable as possible, the following graphic outlines some suggested training goals for businesses.
Remember to be as specific as possible with your goals. Is there a percentage tied to the goal? What is the timeline of the goal?
For example, if you are training customers, the Sales team could have a goal of increasing sales revenue by 25% over the next year. Or if you are training employees, the HR team could be focused on reducing employee turnover by 15% over the next 6 months.
Every tidbit of knowledge is powerful. It will enable you to build a clear picture of what your team should be measuring, ensuring strategic alignment across the organization.
Prioritize what to measure
After chatting to fellow leaders, it’s likely you’ll uncover a laundry list of goals. However, not all goals are created equally. Each one will need to be divided into “primary metrics” and “secondary metrics”.
Primary metrics are revenue-based metrics. They directly tie back to the financial impact your training is having on the business. Whereas, secondary metrics are signals that show that your training is having an influence. Although valuable, they aren’t focused on the financial figures.
Finding the data
Knowing what your team is measuring is only half the battle, now it’s time to figure out how to measure it.
With 44% of our respondents citing lack of data and 43% citing lack of resources as the reason they don’t measure ROI, you will have to hunt for both the figures you need and help in getting them. However, this isn’t as arduous as you think.
Dr. Jack J. Phillips, Chairman of the ROI Institute states: “If it’s a measure that matters to the organization, then it’s there already.” So, let’s help you find it.
Again, at this stage, you should connect with other leaders and tap into their resources. They are the ones who are likely to be tracking the key metrics already. They are monitoring their goals through their HR system, CRM, or customer service software, and you should use this to your advantage.
From new business acquired, to customer engagement, to onboarding time, to turnover, get your eyes on these invaluable metrics.
Vitally, you should not only collect what is happening now but also what’s been recorded in the past. Pre-training program, post-training implementation, non-trained audiences vs. training audiences – all this data can be used and should be mined.
It’s important to recognize that getting data shouldn’t be a one-time thing. Meet with team leaders to get input and insight into these figures regularly. This will ensure you are not alone in tracking the figures and are assured that you are always up-to-date on the numbers you need.
Don’t forget the strength of the resources and data you can get as a training leader too. If you are using tools to deliver training, like a learning management system, the reporting will contain a mountain of insights that will feed into your data collection. Additionally, talk to your LMS vendor; they should act as your guide, sharing insights that will make the ROI measuring process more achievable.
The ROI Formula
With goals and data in hand, it’s time to get into the meat and potatoes of ROI; the formula to calculate it.
There are dozens of formulas for return on investment, ranging from quick tip calculators to sophisticated, mathematical equations. For this guide, we want to keep things as simple and actionable as possible, therefore, we’ve created an ROI template. Download your own template here.
It features all the data points you need to include, and that we are positive you can get, as well as an equation for calculating ROI. We’ve included two working examples to show how you can get the most value from this resource.
Example 1: Customer Training
Our first example outlines the ROI of a SaaS-based software company with 5,000+ customers. After communicating with the Sales and Customer Success teams, the training team discovered that although there is a strong acquisition rate, there is a high customer churn rate due to a lack of product engagement. This is impacting NPS, product upgrades, and most critically, revenue. Therefore, the focus for the next year is to increase customer retention.
With no process to encourage current customers to engage, it is decided to implement continuous product training for current and new customers, to help increase customer retention. The goal is set for the training team to improve retention by 5% within the first year of delivering the training program.
Example 2: Employee Training
For our second example, we’re looking at a retail company with 200 employees. After discussing the pain points with the CEO, HR, and store managers across the organization, the training team discovers that annual turnover is high. This is leading to low employee and manager morale and increasing recruitment costs. Therefore, the focus for the next year is to reduce employee turnover.
With no formal onboarding process, this is identified as the area where training can help. The goal set for the training team is to reduce employee turnover by 8% within 6 months of delivering the training program.
The Return on Investment of Training: A Complete Guide
With this template in hand, you and your team can start accurately measuring the impact of your training programs. Download the full guide and template, here, to start proactively proving your training’s worth today.