How do I calculate the ROI and ROTI of my online training?
You can’t improve what you don’t measure. We’ve all heard that one, right?
Metrics are the backbone of every data-driven business, touching everything from marketing to production to human capital to sales.
How many visits to your website? How many widgets were produced this week? How many labor hours are invested per department? How many deals closed per sales rep this quarter? So many things to measure – so many opportunities to make improvements. But if you’ve tried to measure return-on-training-investment (ROTI) from your eLearning initiatives, you’ve likely been met with resistance, frustration, or disbelief.
While gathering online training ROI might not be as straightforward as seeing the number of “Likes” your Instagram page has or how many visitors your website received – it’s possible to correlate improved eLearning metrics to improved business results. Then, you can point to the ROI your online training initiatives have helped your organization achieve.
In our return on training investment metrics article, you’ll discover:
- Why ROTI is crucial for making informed decisions about your eLearning initiatives
- How to move past eLearning vanity metrics and find the metrics that really matter
- How you can start with a simple ROI formula to establish your ROTI metrics
- The three primary types of calculation methods for ROTI
- Examples showing how to calculate ROTI for manufacturing and retail sales training programs
Our article is jam-packed with helpful, actionable ROTI-related information. But first, ask yourself one of the most crucial questions below.
Are you getting ROI from your online training investment?
We live by the numbers, and we can die by the numbers. So I ask you the million-dollar question – how do you know if you are getting ROI from your online training investment? Is there even a correlation between ROI and the training data you have? And if these questions don’t interest you, in the face of the eternal and situational economic challenges to your business, then you could be the unlucky contestant who gets to go home with a selection of lovely parting gifts.
Sorry, I didn’t mean to scare you there. But today’s world-class companies are taking analytics and ROI calculations even more seriously than they may have in years past. Why? Say it with me now, “You can’t improve what you don’t measure.” And in today’s economy, fraught with supply chain issues, corporate takeovers, slowing economies, and the reality of pandemic conditions that just won’t die – smart companies are looking under every rock for a competitive advantage. And that means knowing your numbers.
Know your business better by knowing your numbers
If you’ve ever watched Shark Tank or Dragons’ Den, you’ve seen the host panel of venture capitalists turn hopeful entrepreneurs into buckets of chum when the contestants don’t know their basic numbers. Sales numbers, both wholesale and retail, landed costs, cost of goods sold, gross and net margin, cost of customer acquisition – pretty standard numbers for a business person to know. It always surprises me how so many contestants don’t grasp the importance of the numbers driving their business.
Your training data is the same as these other commonly discussed numbers. Don’t let the numbers intimidate you. Allow them to enlighten you and help you make better decisions. Let’s talk about the metrics that matter for the learning and development department and how important ROI is to the learning and development department.
Vanity metrics in eLearning
So, you want to talk about how many learners you enrolled in training last year. Or how many actually completed their course assignments. Or how many passed their annual compliance check, the same exam, every year. Okay, but those numbers don’t matter nearly as much as you think they do.
They’re what we call vanity metrics – numbers that can make you feel good but don’t have any intrinsic value to the business. They are simply counting an action taken, not measuring their value to your business.
Your training data will tell you a story if you let it
While moving past eLearning vanity metrics may not be as simple as counting up course enrollments, your training data that’s just beyond the surface is much more valuable to the business decisions you’ll need to make. Below are some tough questions that any business can be hard pressed to answer… how about yours?
What is the cost of your employee churn?
Tell me how many of your learners are on an everboarding learning plan to keep them engaged and reduce churn, comparing numbers over the past five years. Employees cite lack of engagement, training, or career planning as a leading factor in employee-led initiated churn.
What is the value of promoting from within your company?
Tell me how many workers you upskilled to help them take on new responsibilities, so you could promote from within and not incur the costs of hiring more staff at senior levels and high pay grades – always cheaper to promote from within. New hires cost more than internal retraining and come with the risk that they won’t work out.
What is the value of retraining key employees?
Tell me how many workers you reskilled to keep them happily and productively employed by your company so you don’t lose your investment in these team members – and then tell me how many team members you terminated where your reskilling was not adequate to turn their performance around. Employee retention from a different perspective – where you retrain people you might have terminated.
What is the cost associated with health and safety accidents?
Tell me how many health and safety incidents you’ve had onsite year over year for five years and the impact that training has had on reducing the risks in the workplace. Every accident has many costs – to the affected worker(s), productivity, morale, possibly operating costs, and insurance premiums, let alone fines and legal penalties if the situation warrants it.
How much can your company be fined if your team is non-compliant?
Tell me how many of your employees would pass a new version of their compliance exam if all the questions were new to them – able to demonstrate that they know the material, not just the answers to the questions. New legislation is making retention of information, not just course completion, the metric of compliance training in regulated industries.
What is the cost of improper knowledge management?
Show me how you’ve closed knowledge gaps within your team to improve productivity, performance, and profitability. Show me how new hires can learn from your long-tenure employees or their predecessors. How are you managing knowledge to maximize resources and profits?
What are you saving by training your employees online versus the alternatives?
And show me how much money you’ve saved by investing in online training and removing lines on your P&L that had allocations for travel, accommodations, ground travel, meals, tips, facility rental, printed materials, and time lost from the storefront or shop floor. How are you reducing expenses?
Reassurance from someone who’s been there
I’m going to say it again. Don’t let the training data numbers intimidate you. Allow your data to enlighten you and help you make better decisions. You don’t have to be a math whiz or a statistical analyst to make sense of your numbers. If you have a reliable reporting mechanism, like your LMS or microlearning platform, and a bit of time to put together the story that the numbers are telling, you, too, can demonstrate the ROI of your online training initiatives.
Let me make a confession. I was always a great student when it came to the Arts. Sciences, not so much, and I struggled with Math. Big time. And now, my job depends on deriving and analyzing data to demonstrate how well our business is doing. It’s not as hard as it feels. If I can do it, so can you, and we can use lots of tools and resources to make it as easy as possible. The important thing is not “the numbers” – it's the story that the numbers tell – and over the years, I’ve learned how to become a better storyteller driven by data.
Where to find the training data you need?
When you purchased your eLearning delivery platform, whether or not it was an LMS or a microlearning product, was the quality of learning analytics part of your vetting criteria? I hope so. You want to extract your data on a regular basis easily. I hope your platform of choice has a “saved reports” feature (by whatever name) so you can set your criteria for a variety of reports and simply have them run (preferably automated) on a weekly basis so you can compare week-over-week training data without having to rebuild your report. It would be best if they could be emailed directly to you for analysis.
Pro Tip: Try not to send raw data to decision-makers unless they ask for it. The raw training data may be too vulnerable to misinterpretation without the story's context.
Ask your online training platform provider for help
I would recommend scheduling a session with your LMS account manager to have him take you on a deep dive into the learning analytics and reporting suite of the software you are choosing. They may recommend courses from their client-training library as refreshers or give you some information to read in advance of your call to help you better understand the system and its features and functionality. It is to their advantage to have you maximize your use of all the tools of your eLearning platform, and they should be happy to be of help.
Doing the actual math: the ROI/ROTI calculation
The business world talks a lot about ROI – Return on Investment, and there are many ways to calculate this, from simple to complex - depending on how deeply you want to slice and dice the data, and if you are doing baseline operating calculations for your day-to-day business needs versus forensic accounting to determine the absolute health of your company’s financials. We can take the simple, elegant approach and look at basic ROI for our purposes.
Let’s start by looking at the standard formulas used to calculate Return on Investment. Let’s say you are a professional training company trying to sell your courses to your clients. You run an online advertising campaign that costs you $250. You receive $1,000 in course sales.
Here is a formula to calculate your ROI
ROI = (Sales $ - Cost)/Cost)
In our example:
300% ROI means you receive $3 in value for a $1 investment. A pretty good return! Keep in mind that we aren’t calculating profitability, or learner success, just how much you made from your marketing investment that drove your course sales.
I can already hear you saying that your eLearning program is different – it’s in-house, and you aren’t selling courses. So how is this meaningful?
Introducing ROTI - Return on Training Investment
A term that is gaining some traction is ROTI (which can also stand for Return on Time Investment) but in the world of eLearning means Return on Training Investment. So many acronyms and so little time!
There are four components to calculate your ROTI.
- Deciding what you're trying to measure.
- Collecting the data for the time span you are reviewing.
- Gathering any data you can get on costs. Depending on the scenario, they can be actual, estimated, or projected costs – and some you may not know or have access to. Ballpark numbers are fine as long as you use the same method of estimation for your ongoing calculations.
- Doing the math.
In his highly informative article 3 Ways of Calculating the Return on Training Investment (ROTI), Mark Bridges dives deeply into the actual math of calculating ROTI, so when you are ready to start doing your own calculations, I highly recommend reading his article and using his formulas, depending on the type of calculation you want to make based on the outcome you want to measure. Here’s a sneak peek.
The three types of Return on Training Investment (ROTI) calculations commonly used
From Mark’s article, most organizations will be able to calculate the ROTI of their training program in three of the following ways:
ROTI as a percentage
If your ROTI% is greater than 100% you can assume that your training program has yielded a net benefit to your organization. ROTI as a percentage is a calculation that is truest to the above ROI formula we mentioned above.
ROTI benefit-cost ratio
If your benefit-cost ratio is greater than 1:1, your training program benefits have exceeded the cost of the training, which shows your organization has benefitted. The ratio can be used similarly to the ROTI as a percentage calculation to showcase the success of a training program.
ROTI payback period
Using a payback period ROTI formula can help you derive value from your efforts as you’re conducting the ongoing training. Using this formula will inform you when your training program will have produced enough value in benefits to cover its costs.
You are correct that calculating your ROTI – your Return on Training Investment is a bit more complicated. The vanity metrics we discussed above don’t measure ROTI – they are far more general measurements (courses completed, passing grades attained). We want to get to a more sophisticated understanding of the return on our training initiatives – measuring the business impact of changed behavior.
That is harder to calculate. Most eLearning experts say that our often basic evaluation methods are problematic and that often leads us to a misunderstanding about the effectiveness of our training. Here’s the thing. Post-training evaluations, like smile sheets or course completion metrics, don’t often correlate knowledge transfer or performance results to a measurement of success.
This is because calculating your training ROI is much more difficult than our eCommerce example.
Breaking down the ROTI calculation as a story
There is a difference between getting feedback and getting metrics. Smile sheets, surveys, polls, all those kinds of things will tell you how your learners feel about the course, and there definitely are some insight there that is useful to you about the quality of your course content or the functionality of your chosen platform. I’m in no way suggesting that you disregard user feedback. That will get its own article in due time.
You want to identify the results you want and the training outcome you want to achieve. Caution: You need to make sure you are always using the same numbers over time to make your comparative calculations. It’s easy to accidentally substitute one value for another – you want to make sure that, week to week, you are using the correct numbers to compare to previous calculations.
Example of manufacturing training ROI: How much can reducing employee injuries save?
You run a manufacturing plant with 200 employees. Your costs per injury (direct and indirect) average $27,000. The injury rate is 16% per year, which means 32 injured employees or $864,000 as the total injury cost every year.
You can’t reduce the number of employees, but you can reduce your incidents of injury by training each employee to work more safely on the job.
If you reduce your injury incidents by 1% to 15% per year (or 30 injuries), your annual injury cost will be $810,000. That 1 percent unit of training saves you $54,000.
Calculate the cost of rolling out a pilot project to retrain 25 percent of your workforce. The same 1 percent improvement will deliver $13,500 in reduced costs based on your pilot project investment alone. Well worth the test to roll out training to your entire workforce. The challenge, however, is that it does take time to measure the results of the change. You may not have metrics that matter until a year has passed. However, you will have leading indicators – how many days pass without a safety incident. That’s what will add up to demonstrate your ROTI on safety training.
Example of retail training ROI: What is the impact of product knowledge training on sales?
Customer service and product knowledge training delivers immediate positive results. The higher quality of your team’s interaction with your customers and the more knowledgeable your sales force, the more customers are served and the higher your individual sale or “basket” size.
Assuming labor hours, wages, and traffic remain constant, you can measure the impact of training for both factors. Once you determine the value of a unit of training – a 1 percent improvement in one variable in your ROI equation – you can determine how much to invest in training.
Retail training ROI scenario #1 - an increase in the number of sales per day
In our first scenario, let’s look at a 10 percent improvement in browser-to-buyer conversion due to better customer service: If your median is 10 sales/labor-hour, and you add one more sale per hour, you’re adding eight new sales per day within a conventional 8-hour workday. At $45/basket, that adds up to $360 in gross sales improvement per day per salesperson. Multiply that by the number of members in your team.
Retail training ROI scenario #2 - an increase in the revenue per sale
Now, in our second scenario, let's assume sales per day stays the same at 10, but basket size goes up 10 percent due to better product knowledge, adding $4.50 to each basket x 80 transactions per conventional workday adds an entire basket value of $360 to your sales per employee. That is 80 percent of a new customer, just by improving existing sales by 10%.
How much would you spend to see these kinds of boosts in sales? What would you have to spend on marketing to achieve the same results? (All props to the Marketing Dept. Don’t cut their budget – boost it for more traffic to maximize your sales teams’ efforts so they can demonstrate their new knowledge and continue to grow your business.)
Calculate your ROTI for your industry
No matter what industry you’re in, here’s a simple plan to help you get started with your ROTI calculations.
Know what training data you want to improve
That will determine your course content, how long your course will take to complete, and who will be assigned to this training.
Do a baseline knowledge assessment
You need to establish what your cohort of learners knows and needs to know to help you create the right content to fill in their knowledge gaps. More knowledge should lead to changed behavior, which in turn drives your measurable training outcomes. Your material should reinforce what your learners already know and reintroduce them to the information in their knowledge gaps as a cohort. This is one reason why everboarding is so important to your team – you want your team to be able to recall information when they need it.
Deliver the training and track the metrics that matter
It may be as simple as a tally of the number of days without incident or accident. It may be increased sales per square foot or a larger basket size.
Keep your eyes on the prize – which takes us back to the metrics that matter. When I worked in retail sales marketing and management, we watched our sales-per-labor-hour on a daily basis by store, department, and salesperson. This allowed us to make changes in response to fluctuations in the metrics, and it allowed us to ask good questions and take action. From all this, you can apply logic and calculate the improvement of your unit value of training.
What ROTI tells us – how to identify, test, improve, and invest
How long have your employees been with you? How long has it been since their onboarding training? What shape is your ongoing training – everboarding, upskilling, reskilling training? You will have no idea how much your team – as an aggregate – is able to recall and what they have forgotten or learned to do incorrectly over time. Now you have a mechanism to measure that more effectively and to use that data to improve your training program. All because you started looking at the metrics that mattered and dug into the story that they were telling you.
Yes, it can be a bit more work, okay – in some cases, a lot more work. However, over time, the results will surprise and probably delight you – because knowledge does change behavior. And that’s the point of your online training investment, right? To have a more safe workplace. To achieve higher sales. To improve and achieve customer satisfaction. To reduce employee churn. To increase productivity and productivity. To have everyone pulling their oars in the same direction, to make the journey better for everyone on the boat of business you manage.
You can’t improve what you don’t measure
Once you start calculating your ROTI, you will never look back. And if you do, you can wave at your competition because they will be far behind you, counting how many people completed a course this year and bemoaning the number of accidents, up from last year. If only there was something that could be done.
And with that, I wish you Bon Voyage and smooth sailing into a training data-driven future. May ROTI be the wind in your sails.