What is training ROI?
ROI stands for return on investment. In training and development, the term has two distinct meanings. Traditionally, training ROI is the change in your company’s profits as a result of training. For example, if your profit increased by 10% after training your sales team to overcome customer objections, you could calculate the exact ROI by comparing the cost of the training with the total increase in profit.
It’s not always easy to determine if a change in profit is a direct result of training, however. That’s why some training and development professionals use ROI to refer to an increase in knowledge or skills. For example, if a company provides training on how to use a specific piece of equipment, the training coordinator might measure ROI based on whether each participant learned a new skill.
Why should you calculate the ROI?
The main reason to calculate the ROI on training is to make sure you’re making every dollar count. If you invest in creating a curriculum, hiring guest speakers and having employees attend training instead of performing their usual duties, you need to get some type of return on your investment.
Calculating training ROI helps you determine if a training program works as intended. If it doesn’t, you can tweak or eliminate it instead of investing in something that doesn’t produce the desired return.
Related: How to Create an Effective Employee Training and Development Program
Methods of calculating the ROI on training
Now that you understand the importance of calculating the ROI, there are a few methods to use. One focuses solely on the change in profit linked to training, while the others focus on training outcomes.
Use an online calculator
The simplest way to calculate training ROI is to use an online calculator. To use one of these tools, you must know the cost of the training and the change in profit associated with the training. Here’s an example:
Assume your company spent $10,000 teaching your sales, marketing and customer service teams how to use a new CRM tool. Once the training is over, employees use their newfound knowledge to make more sales and provide a higher level of service to every customer. As a result, your company’s profit increases by $30,000.
To calculate the ROI, divide the increase in profit by the cost of the program: $30,000 divided by $10,000. In this scenario, your ROI is 300%. For every $1 you spent on the training, your company’s profit increased by $3.
Conduct assessments
Another option for calculating training ROI is to give a pretest before every training session and a posttest after every training session. Giving assessments helps determine if participants increased their knowledge as a result of the training.
Imagine you’re in charge of providing compliance training for your company. Your next training program focuses on complying with the Health Insurance Portability and Accountability Act (HIPAA). To assess each participant’s knowledge before the session begins, you administer a pretest, with trainees scoring an average of 78%.
Once the training ends, you administer a posttest to determine if participants increased their knowledge of HIPAA compliance. This time, the average score is 92%. From the increase in scores, you can infer that the training session produced the intended return on investment.
Related: Employee Training Evaluation: Tools and Best Practices
Observe employees before and after training
Pretests and posttests aren’t always appropriate. For example, if your training focuses on learning a new skill rather than gaining knowledge, administering a paper-and-pencil test doesn’t really prove that participants learned anything. Instead of conducting assessments, try doing observations.
If you just delivered a training session on using a new machine to dye fabric, for example, have each employee’s manager observe them using the machine. The observer should make note of the following:
- Did the employee follow recommended safety guidelines?
- How long did it take them to finish the procedure?
- Did they struggle to use the machine, or did they remember all the steps from the training?
At the end of the observation, the manager should also check the quality of the finished fabric to ensure the employee followed the correct steps in the production process. You can use this information to determine if the training was successful or you need to provide additional training to employees in your production department.
Compare a training group to a control group
In scientific experiments, researchers use a control group and an experimental group to test the efficacy of new treatments. You can do something similar in your training department.
Instead of having all employees attend training, create two groups: a training group and a control group. The training group completes the training, while the control group continues working without receiving additional training.
Once you finish the training session, have both groups perform the same task. If the training group performs better, you can assume that the training is worth the investment.
For example, if you have 50% of your salesforce complete a new training program, you should compare their performance to the 50% of the salesforce who didn’t receive the training. If the training group makes significantly more sales than the control group, it’s likely the training program worked as intended.
Related: How to Hire a Training Manager
Tips for improving training ROI
If your ROI for training isn’t where you want it to be, don’t worry. You have a few options for increasing it and ensuring that new initiatives are worth the investment.
First, make sure your employees need the training you’re providing. Conduct a needs assessment to determine what employees need to learn and what they’re already doing well. A thorough needs assessment can help you avoid creating training programs that aren’t really needed, saving your company money.
Another option is to try new training methods. The lecture method is popular, but it’s not always the best way to teach employees knowledge and skills. For example, many employees benefit from hands-on demonstrations when learning how to use a machine or complete a process. If you’re not already using multiple training methods, consider adding role playing, demonstrations, case studies and simulations to your training programs to make them more effective.
Related: Training Needs Assessment: A Guide
Frequently asked questions about ROI on training
What is a good ROI for training?
At minimum, you should have an ROI of at least 100%. This means that you broke even on the training. Ideally, your ROI on training will be well over 100%, indicating that your profit increased as a result of the training initiative.
Why is it so hard to measure ROI in training and development?
It’s difficult to measure training ROI because you can’t always determine if an increase in profit is the direct result of training or something else. For example, if you launched a new training program at the same time you implemented a new software package, you might have difficulty determining if the increase in profit is due to the training or the increased efficiency associated with the software.
