Measuring the ROI of Learning & Development in your organization isn’t always a straight forward process, but here are four clear ways you can do it.
You didn’t get into the learning and development field because you wanted to cozy up to some convoluted corporate algorithms. But let’s face it: at some point, you’ll need to show your leadership team, your boss, and maybe even your employees that there’s a method to your madness. You’ll need to show them there’s a clear ROI to investing in learning and development tools.
Of course, calculating learning and development ROI isn’t always straightforward. And to complicate the matter further, we’ve come to find that the ROI of learning and development often means something different for each client in each organization in each industry.
But don’t let all that fool you: there’s some good, hard data you can use. There are multiple ways to evaluate the ROI of learning and development initiatives, and today we’re going to walk you through the four most effective we’ve seen:
ROI #1: Profits
Most businesses want to grow their profits. That’s why we consider profits the keystone ROI — the ROI all other ROIs refer back to. Whatever the metric is, whether it’s focused on employee retention or course completion rates, the number is tied to profit.
Of course, there’s always a bit of mystery around what causes profits to rise and fall. The benefits of most initiatives — including learning and development — are cumulative. It’s tough to measure the impact of any one initiative on overall profits. But here are three recent studies that show the intimate connection between learning and development and rising profits:
A University of Washington study showed that, especially in knowledge-based industries, intensive internal employee training is a strategic necessity that allows companies to earn and sustain higher profits. The study features the story of a leading Indian IT company that fended off competition from IBM, Accenture, and HP by investing heavily in technical skills and business-domain knowledge.
A large Gallup study found that implementing strengths-based training led to a 14-29% increase in profit compared to control groups that received less intensive development or none at all.
A 2012 Bersin by Deloitte report discovered that organizations that build a high-impact learning program outperform their peers and see three times greater profit growth than their competitors, and this research has been confirmed in more recent 2016 and 2017 reports that explore how to build such a high-impact learning organization.
Are profits the most important metric for your organization? Here are a few Key Performance Indicators (KPIs) to start tracking now to capture the ROI of your learning and development initiatives in the future:
• Monthly or quarterly revenue
• Monthly or quarterly same-store sales
• Revenue by location
• Average Sales per employee
ROI #2: Productivity and engagement
For years, Gallup has conducted a meta-analysis on the relationship between employee engagement and performance outcomes like profitability, productivity, customer ratings, quality, among other metrics. Eight studies in a row have confirmed that more engaged employees are more productive and lead organizations to higher levels of profitability.
This is a key finding because we also know that investing in learning and development is directly connected to increased levels of employee engagement: a Bersin study found that companies that transform their learning and development are able to dramatically improve employee engagement and enable companies like BP, IBM, Toyota, and Microsoft to stay ahead of their competitors.
So what does that mean? It means you can drive employee engagement by providing learning and development opportunities. The level of participation is also a great indication of who is and is not engaged, which allows you to spot employees who could benefit from more engagement support to increase productivity.
If productivity and engagement are important metrics for your organization, follow these KPIs to calculate the ROI of your learning and development initiatives:
• Overall labor effectiveness
• Activity on the LMS
• Revenue per employee
• Effectiveness ratio (Gross profit per dollar spent on cost of workforce)
Employee wellness represents another opportunity to influence employee engagement. Click here to read how your LMS can encourage that relationship.
ROI #3: Turnover and retention
Turnover can cost you a lot — up to 21% of the exiting employee’s pay (SHRM has more detailed instructions on placing dollar costs on turnover here). But it may surprise you to learn that 75% of the causes of employee turnover are preventable and that career development is the top reason employees leave. In fact, a Glassdoor study found that employees who stay longer in the same job without a change in title are more likely to leave for another company. In some cases, keeping the same title for even 10 months makes an employee more likely to leave.
Learning and development opportunities are the most significant way you can strategically lower turnover rates and increase retention rates. When you invest in the skills and abilities of your employees, they’re more likely to be motivated, engaged, and productive in their work. And when you show motivated and engaged employees a clear path for advancement through career development and training, they’re more likely to stay with your company long-term.
If turnover and retention are important metrics for your organization, watch these KPIs to capture the ROI of your learning and development initiatives:
• Average number of employees
• Average length of employment
• Average number of internal promotions
• Average number of external promotions
• Longest-employed employees
• Overall retention rate
• Overall turnover rate
• Voluntary turnover
• Involuntary turnover
• % new hire retention
• % turnover for each department over a 5- or 10-year period
• % turnover by department, manager, role, or location
ROI #4: Customer Satisfaction
But what if your leadership team doesn’t love cold, hard numbers? Then you can explore the relationship between your company’s Net Promoter Score (NPS), a measure of customer relationships, and Employee Net Promoter Score (eNPS), a measure of employee engagement and loyalty. These metrics make perfect sense to people-oriented leaders.
After all, investing in learning and development for employees makes them happier and more engaged at work. What happens beyond that is the magic that pushes your business to the top: happier employees give better service, which leads to happier customers and higher profits.
This isn’t a coincidence. Wildly successful organizations around the world like Google, Zappos, Jack in the Box, and Campaign Monitor put learning and development first and find that the investment in their employees corresponds to the employee’s investment in their careers, their companies, and their customers.
These organizations have seen, in a very real way, that when employees are connected to their work and value the organization they work for, they’re more likely to transfer that excitement to customers.
If NPS and eNPS scores are important metrics for your organization, follow these KPIs to capture the ROI of your learning and development initiatives:
• Employee satisfaction
• Employee engagement
Click here to read how one brand is rethinking cross-functional learning and making waves with their clients.
Taking Action + Tracking KPIs = ROI
Working with hundreds of clients with thousands of employees, we’ve seen the ROI of learning and development take shape in many different — sometimes unexpected — ways.
What you have to do is figure out which metric or measurement is most aligned with your organization’s goals and values. Then you can identify the KPIs that show improvement. Do those two things and you’ll have a good sense of the next steps to take to improve your learning and development initiatives.
What’s the most important ROI for your organization right now, and what are you going to measure to track it? Tweet us @Wisetail and we’ll help you narrow down your KPIs!
BY SARAH GREESONBACH
Sarah is a writer for Wisetail. By analyzing and condensing cutting-edge research and data, she helps L&D professionals develop their instincts and arrive at actionable insights for employee engagement and training. She loves to consider the possibilities of humanizing, organizing, and minimalizing all things HR.