Understand the Return on Investment for Employee Training

Most business leaders know the importance of employee training and development programs. In a recent McKinsey survey of more than 1,200 global business leaders, 87% of companies acknowledged they have a skills gap, while 53% of executives said that building skills in existing employees was the best way to close that gap. But how do you know whether your employee training programs are paying off?

Measuring the return on investment (ROI) of your corporate training and education strategy should be an ongoing part of making sure that it’s achieving the outcomes you’re seeking. If you’re trying to keep pace with future skills needs by providing or enhancing virtual employee learning opportunities, you need to know what types of results and returns to expect.

This guide is here to help you answer that question with:

• categories to consider when breaking down ROI
• factors to incorporate into your calculations
• sample formula and metrics

There is no single formula for ROI because the calculation needs to be customized to your strategic objectives. This guide will give you the knowledge you’ll need to shape discussions and evaluations in ways that are relevant to your goals. Here’s how we’ll break things down:

• The strategy: Define what success looks like and determine the metrics and data you’ll need to measure it.
• The returns: Take a deeper dive into the types of returns to look for and what to keep in mind as you evaluate them.
• The investment: Understand what costs you need to factor into the equation.
• The final calculation: Bring everything together to quantify some of the returns.
• The additional benefits: Don’t leave out the factors that don’t fit in a simple equation; they have a critical impact on your success.
• The wrap-up: Bring it all together.

The Strategy

Before you can talk about results, you need to define benchmarks around what you are trying to accomplish. Are you trying to transform and scale your current learning and development by transitioning to blended or online programs, or are you changing from one learning management system (LMS) to another? Is the focus on improving your learning programs, or are you happy with your programs but not the administrative burden they put on your team?

Whatever your goals are, establishing the standards for success is the first step in figuring out the ROI of your program.

Questions to Answer

• Who are the key stakeholders that should be involved? Think about representatives from senior leadership, IT, finance, learning and development, HR, health and safety, and, most importantly, your learners.
• What employee training platforms, tools and methods are currently in place?
• Do you have the internal knowledge and resources to create effective training content or will you need outside help?
• What kind of timeline are you working with?
• How will your processes and operations be impacted, and what will you need to facilitate the change?
• What kind of data and insights do you already have access to? Do you have a formal system for collecting feedback from your learners and their leaders?

Metrics to Consider

Learning engagement: Focus on how employees interact with your current learning programs. This includes things like how long they spend on training, the best- and worst-performing content, how many employees engage with discretionary learning programs, whether they follow a sequence or hop around, and so on.

Administration: How much time does your staff spend administering the learning environment? Include course and content creation, communicating with learners, providing feedback and grades, troubleshooting issues, and generating reports.

Time to productivity: For employee onboarding programs, how long does it take for new hires to feel confident in their roles and ramp up their performance measures?

Impact: For training focused on specific behaviors related to things such as safety, quality or productivity, are you seeing the desired changes compared to the baselines from before the training?

Growth: Is there a relationship between employees who complete a lot of your training programs and grow in their roles or achieve promotions across the organization?

Retention: Is there a measurable difference in employee retention rates between employees who engage with your learning programs and those who don’t?

Quantifying Returns

Returns can generally be divided into three categories:

1. Those that reduce costs.
2. Those that directly generate revenue growth.
3. Those that generate growth or reduce costs indirectly.

Reducing Costs

Delivering employee training and development through online and blended learning programs has a measurable impact on expenses. Consider the following:

• Delivering training without having to pay for things such as travel, meals and facility rentals is a direct cost saving.
• Online programs scale easily to improve reach with much less administrative overhead than in-person learning—meaning you can reach more learners and offer a greater variety of learning opportunities with your existing team.
• Great LMS software provides a learner-centered experience through self-registration, instant feedback and assessment results, automated message touchpoints, collaborative learning tools, and content release conditions to personalize learning pathways, all with minimal staff time.
• The ability to deliver competency-based learning provides clear links between skills development and job performance.
• Built-in learner analytics simplify data collection and reporting tasks and provide accurate information for all stakeholders, even in the face of last-minute data requests.
• Making programs available anytime, anywhere gives employees the ability to fit learning into their workflow, reducing barriers to participation.

Factors to consider:

• average cost per onsite training session
• number of training sessions required
• staff hours spent on learning administration, data gathering and reporting
• reduced days of administrative work
• increased productivity
• improved quality of work
• reduction or elimination of safety incidents

Growing Revenue

Employee training programs that are tied to business outcomes can also drive direct revenue growth. Consider the following:

• New employee onboarding: Providing targeted onboarding training and activities helps new hires acclimate quickly so they can deliver value in a shorter period of time.
• Job skills: virtual and hybrid learning can build job-specific skills and knowledge that grow revenue. For example:
• Providing on-demand training and resources allows salespeople to review use cases relevant to the needs of prospects they are meeting with that week.
• Education on new processes and tools for production staff can help them work more efficiently to achieve their targets.
• Product and service training and updates can help customer support representatives maximize the value customers get from doing business with you, leading to subscription renewals, add-on sales and so on.

The Investment

The second part of any ROI calculation is the investment. There are two parts to investment in employee learning and development: the one-time setup costs and the variable or ongoing costs.

One-time Setup Costs:

• LMS implementation
• change management
• customization
• content development

Variable or Ongoing Costs:

• licensing
• consulting
• marketing

The Final Calculation

Determining the final ROI requires bringing all your previous calculations together in this equation:

((Annual Program Benefit–Annual Ongoing Program Costs)/One-Time Setup Costs) x 100 = ROI

An outcome higher than zero means your online learning programs produced a net benefit after accounting for the costs associated with implementing and running them. The higher the percentage, the better the results.

When it comes to communicating the benefit, people often choose to share dollar figures instead of percentages. An ROI of 50%, for example, means that every dollar spent generates $1.50. If you invested $10,000, your return would be $15,000.

The Additional Benefits

ROI calculations are based on cost savings and revenue growth that can be directly linked to the investment in a single step, but this doesn’t tell the full story. There are further benefits that either lead to revenue growth indirectly or offer advantages that are harder to put a number on—but are still crucial to your success.

Let’s look at three: employee engagement, attracting and retaining talent, and skills development.

Growing Employee Engagement

Employee engagement is defined as “the emotional commitment the employee has to the organization and its goals.” This emotional commitment leads to an increase in discretionary effort—that is, a willingness to go above and beyond basic expectations because they truly care about what they’re doing. Gallup confirms that this has a positive impact on nine performance outcomes: customer ratings, profitability, productivity, turnover, safety incidents, theft, absenteeism, patient safety incidents and quality.

Extensive research from organizations including Gallup and Deloitte, confirms over and over that employee growth and development are key drivers of employee engagement, and the Global Employee Engagement Index (GEEI) reports that employee training results in a 27% improvement in employee engagement.

Attracting and Retaining Talent

With so many organizations competing for top talent, employee learning and development is critical to attracting and retaining employees. For example:

• Recruiting firm Execu|Search Group found that 86% of professionals would change jobs if they were offered more opportunities for professional development.
• LinkedIn Learning’s 2018 Workplace Learning Report states that 94% of employees would stay longer at companies that invest in their career development.
• Gallup’s American Upskilling Study found that 66% of younger workers (ages 18 to 24) name upskilling as the third most important employment benefit (behind health insurance and disability benefits), and 53% of older workers (ages 55+) say that upskilling is very or extremely important.

Employee training isn’t just a nice perk anymore; as an employee benefit, it’s a base requirement. But there are other ways learning and development programs reduce turnover as well. Consider the following:

• The Research shows that fostering internal career growth for employees improves employee engagement and commitment to the organization.
• With 52% of exiting employees stating that their manager or organization could have done something to prevent them from leaving, Gallup points out that training in management skills equips managers to engage employees in meaningful conversations to improve the employee experience.
• Harvard Business Review (HBR) emphasizes the value of onboarding in making employees feel valued and fostering a sense of belonging in improving new hire retention by 50%.

According to Gallup, the cost of replacing an employee ranges from half to twice the employee’s annual salary, and that doesn’t factor in intangible costs such as the loss of institutional knowledge and customer relationships and the possible impact on team morale. While it’s difficult to translate this into a simple ROI calculation, the impact is indisputable.

Building a Skilled Workforce

Another major return on investing in employee training is the ability to ensure that your organization has the skills it needs to be innovative and competitive now and in the future. Respondents to LinkedIn Learning’s 2022 Workplace Learning Report said that the skills they needed for the same occupation changed by 25% between 2015 and 2021. The report estimates that, at that pace, the skills needed will change by 40% by 2025—just to stay in the same job.

Think about that for a moment. Required skills are changing so fast that failing to provide ongoing learning opportunities for employees creates skills gaps within organizations.

Of course, the objectives of an organizational learning program go beyond a desire to avoid falling behind. Since Gartner reports that only 36% of managers think their employees can keep pace with future skills needs, continually assessing and building skills and competencies among your workforce provides a competitive advantage. Once again, it’s difficult to put a dollar value on this, but the capacity to innovate that comes from being ahead has clear benefits over constantly playing catchup.

Measuring the Overall Impact of Employee Education

Undertaking an ROI analysis can seem like a daunting task, but by going through the process—taking stock of your goals and objectives, understanding what you’ll be measuring, and using the correct calculations—you’ll be able to articulate the value of online learning in ways your stakeholders can appreciate. It’s proof that you’ll be able to deliver the value you’re looking for while generating real results for your organization.

The ROI assumptions and calculations in this eBook are for illustration purposes only. Individual results may vary.

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Written by

Karen Karnis

Karen Karnis has a BA in sociology from the University of Guelph. She has worked in social services, higher education, communications and journalism. Karen is currently working toward a Master of Education in Sustainability, Creativity and Innovation through Cape Breton University.