5 Easy Ways to Measure the ROI of Training

2020.02.01 Jonathan Deller
Measure ROI Training How To

Training isn’t cheap. We get it. And it’s only natural to want to know whether your training budget is being well spent. That’s why calculating the ROI (Return on Investment) of your training can be helpful. ROI is a useful way of measuring whether a particular training course or program offered value for money. In this post, we’ll explore five easy ways to measure the ROI of any training course or session. 

Contents 

  • What is ROI? 

  • Why calculate ROI? 

  • Who should use ROI? 

  • Option 1. Use a training ROI calculator 

  • Option 2. Use supervisor assessments 

  • Option 3. Create an impact study 

  • Option 4. Use the Phillips ROI Methodology 

  • Option 5. Use a training effectiveness measurement platform 

What is ROI?

The traditional ROI formula for training is the program benefits (net profit) minus the training costs and then divided by the program costs. This indicates the dollar amount returned as a benefit for every dollar spent on a program. This can also be converted to a percentage by multiply by 100.  

Here’s the equation: 

5 easy ways to calculate ROI of Training

In addition to the traditional ROI formula, several other methods are occasionally included under the umbrella term ‘Return on Investment’. One such method is the payback period; the total investment divided by the annual savings, expressed in years. 

Calculating the payback period works better with long-term metrics such as improving staff retention levels or reducing healthcare costs among staff. Results may only become apparent over a long time period, hence calculating the annual savings is better.  

Why calculate the ROI of training? 

ROI calculations of training aim to answer two broadly similar questions: 

  • Are trainees gaining new knowledge and skills so that they can increase efficiency and/or reduce costs in the workplace?  

  • Can we measure the cost of this training against the benefits to both the individuals and the organization?  

ROI can be used to justify the expense of a training course, compare one training course to another and help establish training within an organization. It is a simple way to tracking the effectiveness of training and measuring what value the learning helped create.  

Who should use ROI training calculations?

ROI often creates various ideas or concerns about how to measure and use it. In particular, what to focus on and what value to place on the results. If these concerns are shared by senior management, there’s little hope of using the results from ROI unless it has an impact on the bottom line.  

Some organizations lack the trust or flexible environment required to utilize ROI results. Companies must be willing to learn, change and try new things, particularly with regards to training development. Organizations that lack the right attitude and approach, may not find ROI calculations helpful or worthwhile.   

That being said, here are five easy ways to measure the ROI of training.  

Option 1. Use a training ROI calculator

The first way of measuring the ROI of any training is to use training ROI calculator. This is a simple way of calculating the ratio of the total cost of the training program relative to the total benefits of a training program.  

It works best for highly structured jobs where the monetary benefits are easy to isolate.  

5 Easy ways calculate ROI training


For example: Imagine you’re a call center operations manager managing thirty call center agents and you spent $30,000 to put them on a program designed to improve their call handling skills.  

Measurement is a very important aspect of ROI so you would need to measure the productivity of your agents both before and after the program. For example, you could look at the cost of handling a call. Or you could look at the number of calls your staff can handle per hour. If you're struggling to decide which metrics to focus on, here are our suggestions for the top 15 training ROI metrics you should know.

After the training, you could then take the same measurements and see what, if any, difference had materialized as a result of the training.  

Let’s assume that your staff could handle 20 calls per hour before the training, and 25 calls per hour after the training. If it costs an average of $1 to handle each call, then this productivity improvement of 25 percent would be worth $5 per hour, or $40 per employee over a typical 8-hour shift.  

For your thirty employees, you could say that the call handling training provided a total net benefit of $1,200 per day or $120,000 over a period of 100 days.  

To calculate the ROI, you’d use the following formula: 
 
ROI% = $120,000 - $30,000/30,000 X 100 = 300%.  

Download our free ROI calculator. It will both guide you in your calculation of ROI from training but also in your calculation or ROI from evaluating the its effectiveness and taking action on low quality and lack of learning transfer.  
 

Determine ROI of training

 

Option 2. Use supervisor assessments to calculate training ROI

Training ROI calculators work great for easily measurable net benefits such as sales figures, manufacturing work or other highly structured and clearly defined jobs.  

But what about flexible, unstructured work such as managerial positions?  

One approach is to use supervisor assessments. This approach lets you successfully measure the ROI of employee training in 6 steps.

For the next example, let's imagine that you are a senior manager looking after a team of three middle managers, each of whom is in charge of managing their own sub-teams. You decide to put your middle managers on a training program designed to develop their overall management skills.  

Unlike the call center example, the work of middle managers is largely unstructured and difficult to measure objectively. In other words, it is difficult to isolate the effects on the training from a myriad of other possible factors.  

This is where supervisor assessments come in handy. In this approach, a senior manager uses on-the-job observations and assessments to make judgments about the areas in which the middle managers who attended the training have improved.  

The assessment will examine certain areas, such as:  

  • Customer Service 

  • Teamwork 

  • Task completion 

  • Task complexity 

The senior manager will use observations to make informed judgments about the middle manager's performance in those areas. One observation will take place before the training, and one after, so highly the differences. 

To isolate the effects of the training, you could also use a control group of middle managers who are assessed without receiving any additional training.  

So, how do you take finding of the assessment and turn it into a monetary value necessary to calculate ROI?  

In our example, the group of three middle managers improved their performance by the following average percentages:  

  • Customer Service + 5% 

  • Team work + 10% 

  • Task completion + 5% 

  • Task complexity + 5% 

The overall average productivity improvement would be (5 + 10 + 5 + 5)/4 = 6.25%.  

You would then take an average of the middle managers’ annual salaries: say, $70,000, and calculate that their equivalent productivity improvement would be 6.25% of $70,000. This would give you a figure of $4,375 per year, per manager, and $13,125 for the group of three managers.  
 
If the total cost of the individual program was $2,500 per manager and $7,500 in total, you could apply the same basic ROI formula: 

ROI% = (13,125 - 7,500) / 7,500 X 100 = 75%.  

The ROI of the training could be expressed as 75%. 

Option 3. Create an impact study to calculate training ROI

The third easy way of calculating ROI is to create an impact study. A ‘business impact’ is any change brought about by the training. It could be: 

  • Sales 

  • Market share 

  • Customer feedback 

  • Staff retention 

  • And more! 

Impact studies follow a set process:  

  • Evaluation Planning 

  • Data Collection 

  • Data Analysis 

  • Reporting 

In the evaluation planning stage, you evaluate the objectives of a program and develop evaluation plans and baseline data. In other words, you decide what inputs and indicators you are looking for.  
 
These could include:  

  • The number of programs  

  • The hours 

  • The costs 

  • Time to deliver 

  • The number of participants 

During the data collection phase, we collect the data during the program implementation, measuring satisfaction, reaction, and learning. The most common approach is to use surveys and to ask the training participants to rate the training they received in terms of their satisfaction and reaction.  

(insert image of survey form) 

After the training has wrapped, we then collect the data related to the application, implementation and business impact that the training had. This could include another survey where you ask participants to conduct a self-evaluation, or it could include a peer- or supervisor observation as we discussed in the supervisor assessments section above.  

You could look at:  

  • Use of knowledge or skills 

  • Completion of actions or tasks 

  • Implementation of ideas 

  • Use of regulation or procedures 

  • The success of applications  

To measure business impact, you could collect the relevant financial data related to the organizations’ operations.  
 
These may include 

  • sales  

  • new accounts 

  • market share 

  • churn rates 

  • customer complaints,  

  • cycle Time 

  • sales  

In data analysis, we isolate the effects of the program, convert data to monetary value and calculate the ROI. This includes capturing the costs of the program and identifying intangible measures.  

For example, imagine that you are running a training program designed to increase the number of sales made. You are training 20 members of your sales team at a cost of $1,500 per head, or $30,000 in total.  

Here are the phases you’d go through: 

  • Evaluation Planning 
    The goal is to increase sales. 

  • Data Collection 
    Ask the sales staff to complete survey forms after the training to gauge their reactions.  

  • Data Analysis 
    Measure the sales before and after the training.  

Lastly, we come to reporting. Here, we generate an impact study. One of the earliest methods of evaluating methods is the benefits to cost ratio. This follows the standard ROI formula of the program benefits minus the training costs, divided by the training costs.  

Option 4. Use the Phillips ROI Methodology to calculate training ROI

In 1980, Jack Phillips published a 10 step training evaluation methodology called the Phillips ROI Methodology. His work was based on early work by Don Kirkpatrick who published the revolutionary book Four Levels of Training Evaluation.   

The Kirkpatrick model featured four levels:  

  • Level 1: Reaction 

  • Level 2: Learning 

  • Level 3: Behaviour 

  • Level 4: Impact 

Here’s what each level included:   

Level 1: Reaction 
During this level, you survey the participants and gauge their reaction to the training. Were they satisfied or dissatisfied?  
 
Level 2: Learning 
Conduct two tests or surveys – one before and one after the training. This helps you measure what the participants have learned.   
 
Level 3: Behavior  
The third level of evaluation takes place at some point in time after the training has wrapped up. Have the participants started to use their new knowledge or skills in the workplace?  

Level 4: Results 
The last Kirkpatrick level measures whether the organization’s expectations were met. This is referred to as Return on Expectations (ROE).  

You’ll notice one thing: 

Kirkpatrick doesn’t explicitly measure ROI. That’s why Jack Phillips wanted to expand this basic methodology. He added a new level – Level 5 – that helped organizations calculate the financial return of a training program.  

The ROI Methodology offers a balanced way of measuring six types of data:  

  • Reaction and Planned Action – Level 1 

  • Learning – Level 2 

  • Application and Implementation – Level 3 

  • Business Impact – Level 4 

  • Return on Investment – Level 5 

  • Intangibles 

What is Level 5?  
Level 5 helps companies use cost-benefit analysis to determine the value of a training program. It helps organizations determine whether the money they spent on training translated into real-world benefits such as increased profits or increased efficiency.  

How to calculate the ROI of training using the Phillips’ ROI Methodology

To calculate ROI using the Phillips’ ROI Methodology, you need to implement each step in turn.  

5 easy ways to calculate ROI training

Level 1: Survey the trainees to gauge their reaction.  

Level 2: Measure the learning that took place through a survey, test, or quiz. 

Level 3: Phillips built upon Kirkpatricks’ work and expanded this section to encompass ‘Application and Implementation’. This stage studies behavior in the workplace and makes it easier for organizations to see whether training resulted in on-the-job changes.  

It uses many of the methods we’ve discussed already such as: 

  • Self-evaluation forms 

  • Supervisor Assessments 

  • Peer observations 

Level 4: This level looks at whether other processes were responsible for driving changes in outcomes. For example, changing economic conditions and an altered business landscape could be affecting profits or revenues.  

Phillips’ methodology aims to isolate the effect of a training course in the following ways:  

  • Forecasting models 

  • Trend line analysis 

  • Control groups  

  • Error-adjusted estimates  

Level 5: This level is called ROI determination and is a form of cost-benefit analysis.  

To conduct this step, you’ll need to: 

1. Choose which factors to measure 
You could measure sales, productivity, efficiency or some other business metric.  

2. Take pre-training measurements  

3. Take post-training measurements 

4. Calculate the benefit to the company 

Example: Sunglasses manufacturer 
Imagine that you’re the production supervisor in a sunglasses factory and you decide to train ten staff for a total cost of $10,000. The goal of the training is to increase productivity and increase the number of sunglasses that each employee can produce in a given time.  

During level 1, you’d ask your staff to complete a survey form to gauge their reaction to the training. You may like to ask them:  

  • Did you enjoy the training? 

  • Was the training worthwhile? 

  • Did the training meet your expectations?  

During level 2, you would test your employee’s rate of work both before and after the training. The course instructor could help devise a short practical test or demonstration where the trainees demonstrate that they have mastered a particular skill or procedure that will help increase efficiency.  

During level 3, you would measure your employee’s performance in the workplace. For instance, you might find that they could produce 30 sunglasses per hour before the training and 35 sunglasses per hour after the training had wrapped. 

Level 4 evaluation would see you isolate the effects of the training from any other variables such as the introduction of new machines or more efficient manufacturing techniques.  

The fifth level – ROI – would see you crunch the numbers and calculate the ROI of the training.  

The training helped increase the average employee’s productivity from 30 sunglasses per hour to 35, a 16.6% improvement.  

If each employee receives an average hourly rate of $12, then over 100 8-hour working days, training would result in a $1,593.6 increase in productivity per employee or $15,936 for all ten employees over a 100-day period.  

You can then use the standard ROI formula to calculate the ROI:  
 
ROI (percentage) = ((Monetary benefits: $1,250 – Training costs: $200)/Training Costs: 200) x 100. 

ROI% = $15,936 - $10,000/$10,000 X 100 = 59.36%.  

This gives an ROI of 59.36% and indicates that the training was worthwhile and resulted in increased profits for the company.    

Option 5. Use a training effectiveness measurement platform to calculate training ROI

The fifth and arguably the easiest way to measure the ROI of training is to use training effectiveness measurement platform such as Kodo Survey. This dedicated survey automates much of the work required to conduct ROI, such as: 

  • Automatically emailing participants with feedback surveys 

  • Collecting and processing the results 

  • Automating the testing process so measure learning 

  • Assisting with workplace observations 

  • Generating reports based on participants reaction 

  • And more! 

The best platform can help generate reports for stakeholders to show the impacts of training and the value that it has returned to the organization. This helps emphasize the return due to the training and justify the initial costs.  

training effectiveness

Which approach should I use?

The decision over which method to measure the ROI of training depends on your budget, time frame and the importance of the course. The ROI tool is applicable to situations where the work is easily quantifiable and the benefits are tangible. The supervisor assessments are better suited to managerial assessments where the work is less structured and harder to quantify. Impact studies and the Phillips methodology require serious time and resources to implement. LMS software is appropriate for firms unfamiliar with learning effectiveness best practices and techniques.   

Summary

Hopefully, this post has given five easy ways to measure the ROI of training. ROI calculations are unnecessary for the vast majority of training courses but can be a helpful way to helping an organization track whether it is reaching its program and business goals. And, it should definitely be done on trainings where you have high volume (hence has high direct and indirect cost) and/or that is strategically important (hence have high alternative cost if it doesn’t deliver on its’ purpose). 

Need More? 

For more tips on how to use the Kirkpatrick model to evaluate training and measure ROI, be sure to ask us for a free demo to see how we can help you achieve your goals. 

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Kristoffer
Kristoffer Laag
HR Strategist