3 Ways to Measure Training ROI + Useful Tips
Employee training is an integral part of any business which wants to succeed. But it’s also not cheap. That’s why most business and HR leaders want to know whether or not the money spent on training is worth it. Measuring training ROI helps your organization invest in the most effective training programs and optimize your training budget spending. Let’s look into how to measure training ROI in more detail.
What is training ROI?
Training ROI measures how much an organization gains from its investment in training. It is a financial metric that expands on the benefits and business results relative to a training program. It is not a training satisfaction measure, which indicates how happy the employees are with the training.
Using various measures, you can understand the business impact of a particular workshop, training program, or leadership course, and convert it to monetary value.
You don’t need to measure all training programs using ROI. In fact, it is recommended to do this for only 5% of training programs. Which programs those are depends on the complexity and business impact of the training offered.
For example, your company might want to measure the training ROI of a two-year leadership training course, but training on the organization’s new code of conduct wouldn’t require measuring ROI. Not all training can also be directly linked to ROI.
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Some data you would collect to link to training ROI include:
- Sales data
- Customer satisfaction levels
- Productivity and output
- Any business metric directly related to the organization’s purpose
- Training costs such as instructor costs, training materials costs, facility costs, travel costs, loss of productivity of trainees costs, and more
The basic training ROI formula is:
Why measure training ROI?
- Making a case for spending money on training – Your organization’s leadership team needs to approve most big training programs. Showing the benefits of past training programs will persuade decision-makers to invest confidently in training.
- Ensuring that you’re investing in the right training initiatives – Measuring training ROI helps you compare the impact of different trainings in terms of ROI. Usually, the training budget is one of the first items that get cut when there are financial turmoil times in an organization. So, choosing the right initiative is important because you might not be able to invest in all training programs.
- Prioritizing – By understanding the ROI your training initiatives bring, you can prioritize investing in training that has the highest impact on organizational performance improvement.
- Measuring and showcasing the value of training has helped create – If you can show the value the training has helped create to the leadership and other stakeholders, you’re more likely to secure a budget for the future training initiatives.
Challenges of measuring training ROI
- Not setting clear goals – A lack of clear goals for what you want to achieve with the training makes it difficult to show its impact. What’s more, it causes confusion about what data you need to collect to prove the ROI.
- Lack of data – Talking about data, calculating training ROI requires different types of data from different sources, which is not always easy to gather. You also need to find ways to convert data to monetary value.
- Isolating the effects of training – There are other factors that might have an impact on the performance that you’re aiming to improve with the training, like organizational culture, market conditions, and more. It might be challenging to attribute the achieved results to the training.
How to measure training ROI
We’ll look into three ways to measure training ROI. Here goes:
1. The Kirkpatrick Model of Training Evaluation
This is based on a four-level approach that you can use to measure any course or training program effectiveness:
Level 1: Reaction
The first step is to evaluate the learners’ reactions and responses to the training. In this process, you’re trying to understand participants’ level of satisfaction and identify any patterns and areas for improvement.
You can collect key indicators such as participation rates, completion rates, and net promoter scores. You can easily gather these qualitative data points through survey questions at the end or during a training session.
Level 2: Learning
The learning stage’s goal is to ensure your training has met its intended objectives, identify the skills that your training can develop within learners, and note any knowledge and/or skills that employees have learned as a result.
You can measure this by observing employees’ performance on the job (whether there is an improvement) and noting if they’ve aquired any new skills. There are many ways to measure at this stage, including peer reviews, assessments, or pre and post-training questions.
Level 3: Behavior
Step three assesses the behavioral change (if any and to what extent) due to the training. In this stage, you typically measure if there is an increase in morale, motivation, or employee engagement.
Level 4: Impact
The final step is to measure the training’s impact on business goals and results. This is the level that specifically deals with training ROI. Key indicators at the ‘impact’ level are increased employee retention, increased productivity, increased sales, customer satisfaction, and improved quality of work.
You can measure each of these metrics differently. For example, customer satisfaction can be measured through focus groups of customers and how their experiences changed over time. You can interview managers if they notice a change in employee productivity. Retention rates can be measured using quantitative data over a long period of time.
We discuss the Kirkpatrick model more in-depth here.
2. The Phillips Model of Training Evaluation
The Phillips V-model builds upon Kirkpatrick’s model and follows the below sequence of five levels of training evaluation:
Let’s look at each of the five levels and illustrate them using an example.
Level 1: Reaction
This level is used to understand people’s experience of the training program. Information is gathered through surveys, reviews, pulse surveys, AI technology, etc.
An organization delivered sales training to over 300 consultants to help them be more effective sales consultants, improve negotiation skills, improve customer rapport and improve their overall business acumen. These consultants are part of the organization’s ambitions to improve its sales margins over the next three years.
In the Level 1 evaluation, a survey was sent to training participants to assess their level of satisfaction, trainer effectiveness, and the quality of content delivered.
The results of the training showed as follows (out of 10):
- Trainer effectiveness: 8.9
- Quality of content: 7.5
- Satisfaction levels: 8.2
Level 2: Learning
This level measures if a training program’s learning objectives have been met. In short, it helps determine whether the learners acquired the skills and knowledge the training targeted or not.
It also looks at attendance (if employees were present) and attentiveness (if employees were engaged in the training).
Example: As part of the post-training survey, participants were asked if they felt they had acquired a new skill that would be useful for their job. The survey result showed that about 65% of participants felt they learned a new skill or gained knowledge.
Level 3: Application
In this stage, you gather qualitative data that provides insight into how the learners apply their acquired skills in order to plan how to improve your training. It also enables you to uncover the causes of why learners didn’t acquire the skills they were supposed to learn. It helps you understand if the training content and delivery were the issue or if the infrastructure of the organization might be problematic.
Example: Using 360-degree feedback, participants were asked to self-assess if they had noted any difference in their “ability to sell” or be a better sales consultant based on the new skills they acquired. This was administered four months after the training to give sufficient time to put the new skills to practice. Alongside a self-assessment, participants’ peers and their managers were asked.
Over 70% of sales consultants believe their skills helped them improve their ability to sell to clients. What’s more, 85% of managers believed the skills acquired in training could be seen. And over 90% of their peers said they showed a notable improvement in the performance of the participants.
Level 4: Impact
At the fourth level, the Phillips V-model looks at the total impact the training has had on the organization. It not only attributes impact to the training effectiveness but also considers organizational factors that might hinder the successful implementation of the skills gained during training.
Example: A control group was used to accurately assess if the training was the reason for improving sales skills. The first group went on the intensive sales training. The other group had not. These two groups were comparable before in terms of performance and skills before the training began.
Results showed that the performance of the group that had undergone training was far better than those that had not. An overall 10% increase in sales was noted for the training group. This showed a clear impact of the training.
Level 5: Return on investment (ROI)
Using various calculations, such as a cost-benefit analysis, level 5 looks at the link between training and business results.
Example: To specifically understand ROI, the performance of the sales consultants (i.e., number of sales and money generated from sales) was compared to the cost of the training.
To isolate the benefit of the training and use the data from the control group, the benefit outcome was up to $3,000 per participant.
Then, the cost of training was factored in. Including training materials, cost of facilitation, time away from the job, and travel costs, it totaled $1,738.
Once both costs and benefits were known, it was plugged into an ROI formula:
ROI = (3,000 – 1,738) / 1,738 *100 = 72.6%
That’s a total ROI of 72%, which is an excellent return on training participants.
As the final step, you need to factor in elements that can affect the training outcomes. This includes:
- Having a supportive manager that enables learning on the job.
- Identify barriers to training and address them immediately.
- Having continuous coaching even post-training.
3. Impact study
Another method to determine your training ROI is to carry out a business impact study to understand training ROI. This is any change brought about due to the training program. They could be sales, market share, customer feedback, etc.
Below is the 4-step process to create a business impact study.
Once you know what impact your study will describe, you can determine the indicators to measure this impact. For example, you might need sales data such as new accounts added, number of sales, or churn rate.
Then, you also need to plan to collect your training data. This might be the number of classes delivered, how many employees participated, and the program’s overall cost.
In this stage, collect all data relevant to measuring the impact of training. Bear in mind that you might need to gather data from different sources and different departments. Be clear about what exactly you need. For instance, ask your sales consultant about the number of sales between specified dates.
In other words, collect pre- and post-training business and financial data (or the data relevant to the skill being trained) next to the training data.
Using the ROI formula, convert the data collected into a monetary value. For example, you might want to measure the number of sales made before and after training and the dollar value of that.
This includes a qualitative and quantitative report based on the key findings made during data analysis. This is where an impact study is compiled and completed.
Useful tips for measuring training ROI
- Define your goals for measuring the ROI – Do you want to justify the cost you’ve invested into the training or see what training has the most impact? Defining your goals will help you determine the best way to measure ROI and what data you need.
- Establish what data you’ll need early on – By determining what data you need to measure your training ROI, you can start gathering the data already, or at least determine where you will be pulling the data from.
- Determine benchmarks – You will be comparing your data to pre-training data. You need to establish benchmarks for the pre-training state to be able to make comparisons and show the ROI. For example, if the goal of your sales training is to increase the average deal size by 5%, you need to know what the average deal size was before the training. Then you can compare the pre- and post-training data.
- Find ways to isolate the effects of training – As we’ve mentioned above, it can be tricky to determine what exactly the effects of the training were and the impact of other factors could be. There are several things you can do:
- Control group – Comparing a group that underwent the training with a group that did not.
- Estimate of training impact – It’s common to have training participants and/or their supervisors estimate the impact of the training and the other factors.
- Trend analysis – If you’re looking at the impact of training on sales numbers, you can make a projection of what the sales numbers would look like without the training based on observed trends and compare them to the numbers with training.
- Allow enough time to pass – Results of the training will be visible over time, not immediately. Determine what your time period to see the results will be to be able to conduct a meaningful ROI calculation.
Over to you
Collecting data and making training ROI calculations is no easy feat. That’s why you should focus on your strategic training initiatives that contribute to your organizational goals to make sure that you’re investing your effort wisely and that you can truly prove business impact.