It’s estimated there will be a global talent shortage equivalent to the population of Germany by 2030. The talent gap across practically all industries is a concern for businesses and employees alike. Organizations that can’t find workers qualified to fill empty roles can’t perform adequately, and without training, employees can’t remain competitive as industries evolve. Knowing how to measure ROI in learning and development will be invaluable.
These issues make learning and development a critical concern in the coming years. Two in three employees believe they need to develop new skills to succeed at their job, and 41% said they will look for another job in 2024 if their company doesn’t provide training opportunities. Even as business leaders increase training budgets in response to employee expectations, many fail to put a system in place to evaluate success.
Disclaimer: The information below is accurate as of April 12th, 2024.
By learning how to measure ROI in learning and development, you can measure the business impact of learning and develop strong development programs that prepare your employees and your organization for the future.
Ready to evaluate your L&D program to ensure it meets employee expectations and achieves your business goals? In this post, you’ll learn
- What learning ROI is
- How to measure ROI in learning and development
- The challenges and benefits of measuring learning ROI
- How your LMS can help you measure the ROI of training
📚 Related: Discover Docebo’s research on the ROI of learning.
What is learning ROI?
Like with other business investments, return on investment in learning and development is a calculation used to clearly define the costs and benefits of an investment. The ROI of training and development considers the cost of training and the business outcomes produced by the program.
But defining the monetary value of the business outcomes of learning and development can be challenging compared to typical business investments. Calculating the ROI of a product sale is fairly cut and dried. You simply combine the costs of materials and production and then subtract that figure from the money derived from the sale.
However, calculating the ROI of learning is a little different. It requires companies to define the impact of training to explore the comparison between money invested and money earned. Unfortunately, this can be difficult to calculate. Employee training investments include time, resources, and training costs. The returns are varied and complex. Learning programs can improve employee performance, successfully onboard new employees, increase customer satisfaction, deliver new knowledge, improve employee retention, and more. All of these benefits can convert to increased cash flow that improves your company’s bottom line.
Understanding the full value of learning and development
Learning and development should ideally be part of a culture that continually improves the company or brand. As such, training programs should have multi-faceted objectives. Accurately calculating training ROI may require data collection across several different categories to gauge the effectiveness of training.
To understand how to measure ROI in learning and development, it’s essential to consider both tangible and intangible learning metrics. Tangible metrics are those that have a clear numeric value, such as the time saved using a new software application. Intangible metrics are more difficult to convert to a monetary value and are often collected through surveys. For example, you might survey employees about how much they feel training has increased their capabilities.
Tangible metrics may include:
- Financial savings from improved processes
- Time saved using a new system
- Time requirements for onboarding a new employee versus the costs before training
- Number of closed sales before and after training
- Participation rates in learning programs
- Employee retention and attrition rates
- Internal mobility
Intangible metrics may include:
- Employee engagement
- Customer satisfaction
- Improvement of teamwork, customer service, etc., as a result of the training
- The extent to which learners are using new skills learned in training programs
- Increased employee confidence
How to measure ROI in learning and development
Since calculating the ROI of learning effectiveness includes intangible benefits and requires you to isolate the effects of training, you must take certain steps to provide factual data. These steps can help you accurately measure and report training ROI.
- Determine what you’ll measure. You’ll want to identify learning objectives for employees and the business objectives you hope to achieve through training. It’s also a good idea to consider the metrics and KPIs you’ll use for measuring training success as you identify objectives.
- Collect performance data. Once training is in place, you’ll need to gather data that shows evidence of learning effectiveness, job impact, and business outcomes. This information can be collected through surveys, performance metrics, skills assessments, and participant behavior (work performance before and after training).
- Isolate the effects of training. It’s vital to ensure that you’re only recording performance changes that can be attributed to training. To isolate the effects of training, you’ll want to take special considerations like using control groups in studies and using surveys to get participants’ opinions about what can be attributed to training. Pre- and post-training assessments can also be useful in isolating the effects of training.
- Convert your results to monetary value. This is often achieved using an ROI formula to accurately quantify the difference between the cost of the investment and the value derived. Benchmarks for accuracy may include standard values (like sales value, employee replacement cost, and cost of a customer complaint) or historical costs derived from company analytics.
How to measure ROI in learning and development using a formula
Understanding how to measure ROI in learning and development may not be enough to convert the benefits of training to monetary value. This is where an ROI formula can be useful.
In any case, ROI is calculated by determining how much the value of returns exceeds the cost of the investment. This basic formula considers the cost and time that goes into training.
(Gain from learning – cost of learning) / cost of learning x 100 = Learning ROI
Gains from learning could include improved performance, new skills, or other metrics that align with your business objectives. Sometimes, you might add multiple benefits together to determine the gain from learning. The cost of learning should include the program cost, time spent, and the cost of resources. Multiplying your result by 100 delivers your return as a percentage.
Wondering if our platform can add value to your organization? Check out our training ROI calculator.
The challenges of measuring learning ROI
Measuring the effectiveness of learning requires a complex combination of data collection and analysis to derive accurate results. Isolating the effects of learning and determining which metrics to use can make the process more complex.
These are the biggest challenges you might encounter when measuring learning ROI:
- It’s time-consuming to isolate the effects of training.
- You may have difficulty scaling.
- Response rates for surveys are low, skewing data.
- You have limited access to industry benchmarks to use as a baseline.
Benefits of measuring ROI in learning and development
Although determining how to measure ROI in learning and development can be complex and time-consuming, the benefits are well worth the effort. Accurate metrics are the only way to provide evidence of ROI and understand how your training programs are performing. Your data can be used to justify training investments and improve your training programs to yield improved results.
Consider how these benefits can add value to your business.
- Justify training costs. Measuring ROI gives you the data you need to prove the value of your training program and form an adequate training budget.
- Prioritize future training initiatives. Evaluating your training programs can help you see which efforts add the most value and plan future training programs accordingly.
- Incorporate succession planning. More than two-thirds of HR leaders say they prefer to appoint senior roles internally. Internal promotions are also attractive incentives for employees. By providing a strong L&D program, you can develop a succession plan that meets employee needs and business goals.
- Improve performance for increased financial rewards. ROI reporting provides clear evidence of how training programs affect the bottom line.
How your LMS can help you measure ROI in learning and development
As with all business investments, understanding the ROI of learning and development matters. Measuring ROI enables you to provide evidence to support the value of your programs. Perhaps more importantly, it can help you create effective employee development programs that improve your employees’ performance and confidence—and your bottom line.
Still, getting past the complexities of isolating training effectiveness and gathering sufficient data to yield accurate results can lead to frustration. While there are many methodologies and formulas for measuring ROI, your learning management system (LMS) may be the best tool to improve your ability to measure training ROI.
Docebo is an advanced LMS that enables you to deploy content and track results from a single source. With optimized survey techniques to encourage participation and built-in reporting that clearly shows areas of improvement, you can get insight into all your L&D efforts. Schedule an LMS demo with Docebo today to ensure your user and company data is safe and secure.