Employee training can be resource- and time-demanding, but knowledge is power. It’s the safest path toward profit, productivity, engagement, and innovation.
However, you can only reap those benefits if training is effective and your investment matches the results. Understandably, you want to know whether your budget spending is going in the right direction and if you should change your approach.
You can calculate the Return on Investment (ROI) to gauge how much value a specific training program or course brings. These insights are necessary to ensure your efforts make an impact and help employees and the company.
In this extensive guide, you’ll learn how to calculate the ROI of your employee training and why this calculation matters.
What is Employee Training ROI?
Employee Training ROI quantifies the return a company gains from investments in employee development initiatives. It measures the financial benefits relative to the cost of implementing training programs. When you evaluate training effectiveness in improving employee skills and performance, you can determine the tangible value it generates.
ROI analysis centers around calculating the monetary gains resulting from increased productivity, improved employee retention, and efficiency boost compared directly with the expenses associated with designing, delivering, and administering the training.
High ROI indicates your training programs yield substantial returns, hence justifying the resources the company allocated. Having thorough insights into employee training ROI enables you to make informed decisions on future investments in employee development. Thanks to that, you can allocate all resources efficiently to initiatives that show they can deliver the most robust impact on organizational goals.
Why Should You Calculate Employee Training ROI?
Every company and organization aim to optimize resources and maximize the impact of their training programs. This is enough of a reason to start calculating the ROI of employee upskilling and development.
Stakeholders need concrete evidence that training initiatives generate value and help staff learn and grow. It promotes their buy-in just as much as informed decision-making and resource allocation.
Besides providing insights into how effective your training efforts are, ROI analysis also highlights whether some areas require more attention. As a result, you can refine your training strategies to drive more optimal outcomes.
Employee training ROI increases accountability and transparency, as stakeholders can clearly see the tangible benefits the company derives from investing in employee development. Thanks to that, accurate data is among the key ingredients for creating a culture of ongoing development, where every initiative has a purpose and contributes positively.
This explains why, according to the 2021 Workplace Learning report, over 66 percent of company leaders prioritize employee L&D, especially upskilling and reskilling. Moreover, the two youngest generations of employees, Millennials and Generation Z, seek growth opportunities and want access to comprehensive training at work.
How to Calculate Employee Training ROI
There are multiple ways to measure training ROI, but the following are the most effective.
1. Cost-Benefit Analysis
To start, identify and measure all costs associated with the designated training program. This means you should include direct expenses such as course fees, training materials, and salaries for trainers or facilitators. It also entails indirect costs such as employee time spent away from work during training sessions.
Once you pinpoint all the costs, the next step is to measure training benefits. You’ll have to gauge employee performance improvements or productivity increases that you can attribute directly to the training program. For instance, some companies track metrics such as increased sales revenue, higher customer satisfaction scores, or reduced error rates following the training completion.
After assessing the costs and benefits, you can calculate the net training impact. Do this by subtracting the total expenses from the total benefits. You’ll gain clear insights into the overall financial impact of the training program.
Express the ROI as a percentage by dividing the net impact by the total costs and multiplying by 100.
ROI = ((Net Training Benefits – Total Training Costs) / Total Training Costs) * 100
This percentage represents the efficiency and effectiveness of the training program in producing positive returns compared to the initial investment.
2. Impact Study
Although the financial benefit is crucial for understanding the value of a training program, its long-term effect is just as vital. Impact studies can help you gauge the training impact on various aspects of organizational performance.
This means you’ll have to examine the sustained impact of training initiatives over an extended period. The primary objectives are to evaluate key metrics such as employee productivity, job satisfaction, retention rates, and financial performance.
Launch this study by using a combination of quantitative and qualitative research methods. Quantitative methods typically include surveys, performance evaluations, and statistical analysis that measure changes in specific metrics before and after training. Meanwhile, qualitative methods such as interviews and focus groups provide deeper insights into employee perceptions, attitudes, and behaviors related to training.
Analyze trends and correlations to identify the specific ways in which training contributes to overall business success. For example, impact studies may reveal that employees participating in training programs are much happier with their jobs, leading to increased retention rates and lower turnover costs. Moreover, this method may show a positive parallel between training participation and improved customer satisfaction, resulting in increased repeat business and revenue growth.
3. Performance Improvement
This evaluation directly assesses the impact of training programs on boosting employee effectiveness and productivity.
The method typically involves comparing KPIs both before and after the training intervention. These KPIs can vary depending on the nature of the training and the company’s goals but often include sales targets, customer service ratings, and production output. However, you can include other relevant performance indicators specific to your organization’s objectives.
For instance, a sales training program might strive to improve sales representatives’ skills in closing deals or handling customer objections. In this case, KPIs could include sales revenue, conversion rates, or average deal size.
Thanks to this data, you can measure whether a training program is directly responsible for employee performance improvement. The difference between pre-training and post-training performance levels is the incremental impact of the training intervention.
After calculating the performance improvement, you can gauge the ROI based on productivity or efficiency increase. Compare the costs of the training program to the tangible benefits derived from the performance improvement to determine the ROI. Keep in mind that this evaluation also helps understand whether training programs address specific skill gaps or performance difficulties.
4. Time SavedÂ
The knowledge and skills employees gain through training translate into efficiency and streamlined activities. If employees adopt new abilities or techniques that simplify their workflow or help them complete tasks more efficiently, you can calculate the time saved per project. You’ll have to compare the time required to complete specific tasks before and after training.
After determining the time training saved per task, multiply this figure by the hourly wage of employees to gauge the monetary value. Moreover, this evaluation goes beyond traditional ROI metrics. It includes the non-financial benefits of training programs, such as increased employee morale, reduced stress levels, and improved work-life balance.
5. Employee Retention
Employees may quit their jobs for various reasons, but a lack of growth opportunities and inadequate training are at the top of the pyramid. Learning and development boost job satisfaction and signal to employees that employers care about them and their career progression.
You can calculate the impact of training programs on employee retention by comparing turnover rates before and after. When doing so, gauge the cost of recruiting, hiring, and training new employees to replace those who leave the organization. Other expenses to consider are advertising, recruitment fees, onboarding, and lost productivity during the transition period.
These insights help you understand the role of employee training and learning outcomes in reducing turnover-related expenses, increasing employee productivity and efficiency, and retaining institutional knowledge and expertise.
6. Customer Satisfaction
According to the Harvard Business Review, training increases engagement, motivating employees to create better customer experiences. For example, training programs designed to improve customer service skills or product knowledge among employees can greatly influence customer satisfaction scores and contribute to repeat business.
You can conduct customer satisfaction surveys before and after the training intervention. Thanks to these, you can gather customer feedback and learn about their experiences with the company’s products or services. The next step is to compare satisfaction levels pre- and post-training to measure the impact of training on customer perceptions and identify the areas you could improve.
7. Quality Improvement
Training programs improve the quality of products and services employees deliver, meaning you should measure key quality metrics before and after the training. One approach to evaluating quality improvement is to track metrics such as defect rates, error rates, or customer complaints over time.
Before implementing the training program, establish baseline measurements for these metrics to provide a benchmark for comparison. Collect data on the same metrics after the training to assess any differences or improvements training produced. You may discover that training resulted in savings from reduced rework, warranty costs, or potential revenue loss due to dissatisfied customers.
Final Thoughts
There are multiple ways to gauge the value and impact of training programs and understand how they contribute to a company’s workforce. You can focus on one metric, use the ROI calculation formula, or measure multiple metrics simultaneously. In case you want a comprehensive approach that goes beyond traditional ROI calculations, you may choose the Phillips ROI methodology.
This method analyzes five levels:
- Reaction: Assesses participant satisfaction.
- Learning: Measures knowledge and skill acquisition.
- Behavior: Evaluates changes in job performance.
- Results: Analyzes organizational impact.
- ROI: Calculates financial return on investment.
Select the one that matches your objectives and training specifics to measure the impact of your L&D initiatives. However, remember that, ideally, you shouldn’t only track the financial value, but also how it contributed to employee and customer satisfaction.
