Organizations spend thousands of euros every year training their employees.
Despite this, it can be difficult to evaluate the monetary worth to your business of often expensive learning and development programs. This makes it even more tricky to try and calculate the ROI you might see.
Unfortunately, businesses sometimes fail to invest in their L&D program as a result of not seeing the benefit.
This is why it is so important to work out the ROI of training your employees. It demonstrates in monetary terms that what you are spending is really worth it.
Thankfully, there have been studies carried out that show how good the ROI is of learning and development training.
How do you calculate the ROI of training your employees?
What Is ROI?
ROI means Return On Investment.
In simple terms: What you get out against what you put in.
For any training to be worth it financially, a business needs to see a ROI on both the time and cost of rolling out the training to staff.
Traditionally, companies have seen training as something they have to pay for rather than being valuable for revenue. This is because it is difficult to calculate the ROI of training your employees.
How Do You Calculate the ROI of Training And Development
Without a direct monetary output calculation can be tricky.
There is a basic formula to use in calculating ROI:
ROI = Net Profit / Total Investment * 100
What does that mean for training and development?
ROI can be calculated by dividing the monetary benefit of training by the total net costs of delivering the training. Once you have this figure, you multiply it by 100 to find the ROI.
Seems simple, right? Not always.
It is tricky to put a monetary value on how much benefit the training will provide.
There are some factors to consider explained below, but the crux of the issue is to find out either how much money the training will make for the company or how much saving.
The Cost Of Training For Organizations
One factor of calculating the ROI is the cost of the training itself.
When trying to work out how much training costs organizations, the following expenses should be included:
Buying the course materials (in hard copy or digital)
The cost of purchasing any necessary software
The fee for any external company/instructor providing the training
Calculation of the lost revenue while employees are in training
Other administration fees:
The cost of hiring space if training is carried out off-site
Any travel or accommodation costs
Post-training follow up costs
Administration costs of running of the event itself
Measuring The Effectiveness Of Your Training And Development Program
How can you measure the effectiveness of training?
Companies can use something called the Kirkpatrick Model which has the following four levels:
How did the employees interact with the training?
The first stage of evaluation is to get feedback from the participants as to how they found the training. Simply asking for comments at the end of the training through a survey or questionnaire can give you some valuable insight.
Did participants learn what they were expected to in the training?
Businesses will need employees to show that the training was effective in imparting the intended knowledge and skills.
This can be achieved through the use of exams and interviews with participants which will help document how well the information presented during the training was absorbed.
Are employees applying the training to their roles?
For training to be effective (both in terms of money and usefulness) learners should be able to apply skills and knowledge learned in their jobs.
Information can be gathered on how well this is working through carrying out observations, post-training interviews, and surveys. It is also incredibly helpful to compare the difference in work and processes both pre-and post-training to evaluate its effectiveness.
Did the training meet the goals it was intended to?
A business can identify whether the training met its intended results by looking at the sales revenue, product and service quality, and employee productivity.
If your training was carried out online, the system will provide analytics as to how well the participant engaged with the training throughout each stage of it.
This can provide the learning and development teams helpful metrics in understanding how well the training both worked and was received by staff.
What Are The Benefits Of Investing In Employee Training?
One study carried out by Accenture discovered that for every dollar it invested into learning, it made that dollar back plus an additional $3.53.
In other words, a 353% ROI.
While this may be an extreme example, there are other studies that have shown a high ROI. This one carried out by Lumina Foundation showed Cigma Corporation to have a 129% return.
There are many benefits of investing in employee learning and development. This includes:
1. Improving The Performance Of Employees
Measuring the outputs on a specific job activity both before and after training is a great way of measuring effectiveness.
If the training was successful, employee performance should be improved. This will be evident through measurements like reduced time to complete a task and increased quality of outputs.
To properly measure how much performance has improved, it is important to take time evaluating your processes before the training so you can compare later on.
This means taking each specific task you want your employees to be better at and understanding both how well the processes work now and how closely they are being followed. This will give you a good baseline measurement to work against in improving the process.
Certain tasks will be easier to show improvement in than others. For example, if the area you are looking at is sales, an increase in the number of sales made will provide hard data on how well the training has worked.
2. Retention Of Employees
Employees stay at companies where they feel appreciated and can see that time and money are invested in their future.
Having a high employee turnover is a huge business expense.
If you have a large staff, this can run into millions of euros lost every year simply through employee turnover.
Where employees feel like they have been given the right training they need to not only do their job but to excel at it, they feel appreciated and valued. As a result, they stick around.
Younger workers in particular are not afraid of voting with their feet if they feel unappreciated.
3. Customer Experience Is Improved
Have you been receiving feedback or complaints from customers about the experience they have had with your business?
These can be incredibly damaging for reputation – especially if the customers take their poor experience to social media.
If you are seeing a pattern of the same types of complaints, it might indicate that you need to implement customer service training for your employees.
This can involve a mixture of training both soft and hard skills. It’s important not to just assume that your employees “know how to do customer service”. While some people are naturally good with people, others might need some tools and training to assist them.
You can evaluate the effectiveness of your training against data captured on customer experience. Ultimately, you want your customers (and your staff) to be happier after you have given the training!
Why ROI for Training Your Employees is Important
This is a huge figure and failing to evaluate whether this is providing an ROI is risky business.
Training is a crucial part of business and it is unlikely there would ever be a successful business case to show otherwise.
On the flip side of this, businesses only have so much money to allot to it and therefore money needs to be allocated where the ROI is highest. This is the best way of showing the value training provides.
Businesses want to see results and often these results need to be shown in euros.
This has caused issues for L&D teams for a long time as the ROI has always been difficult to calculate. The truth is, there is no one way of measuring the return of training. It will depend on the specific needs of your business.
Calculating an ROI is important because it justifies the investment of time and money given by your business to employee training.
Using the steps noted in this article will help you to know how to not only work out the ROI but to understand more deeply the benefits of your training program to the business and employees alike.