Investing in Growth: Strategies to Measure Employee Training ROI

Training employees to achieve better results is a go-to strategy for companies who notice there’s room for improvement. Since a fine-tuned workforce allows businesses to reach their target numbers, executives might be tempted to roll out quick training sessions each time a revenue goal isn’t met.

Still, in a competitive market where every penny counts, simply hosting training sessions and hoping for the best won’t cut it. HR professionals need to ask: What’s the return on investment (ROI) of all this effort?

Training ROI is a tool to measure the impact and effectiveness of training programs. For HR professionals, understanding training ROI is about deciphering the impact and efficacy of those countless training hours invested. Research reveals that companies with well-rounded training programs have 218% higher income per employee and enjoy a 24% higher profit margin than those without formalized or future training initiatives. Yet, more than half of training leaders admit to not measuring training ROI.

In this post, we’ll dig into the nuts and bolts of measuring and calculating ROI in employee training, exploring strategies to align training initiatives with organizational objectives and, ultimately, maximize the value and impact of training investments.

Understanding ROI in Employee Training

Beyond just a metric, training ROI is a guiding principle that influences the organization's overall growth, making sure every training initiative and dollar spent contributes to the company’s bottom line and long-term success. It measures training initiatives' tangible and intangible benefits against the costs paid for.

Firstly, let’s break down the components of the framework. Net gains take the top and include increased revenue, cost savings, and efficiency improvements resulting from better-prepared employees. But the ROI story doesn’t end there.

Improved skills among employees translate into higher quality work, more stable operations, and a workforce better equipped to handle challenges. The efficiency of work levels up, as well as the staff's skill. And let’s not forget the intangible, but invaluable, consequences of improved employee satisfaction, where training investments can lead to higher morale, lower turnover rates, and a more engaged workforce. Although more challenging to quantify than monetary value, these intangible benefits play a vital role in the overall growth and success of the company making the investment.

Benefits of Implementing Training Programs

Training programs, which a specialized firm can carry out, are one of the ways HR teams can contribute, directly or indirectly, to an organization’s improvement. Here are some of the benefits that effective training initiatives can bring to your organization:

  • Financial returns: Effective training programs can increase revenue or cost savings. Studies have strongly suggested that organizations committed to employee development see higher sales and profits than their counterparts.
  • Improved skills: Employees who undergo training could end up being more skilled workers who can jump in and help on tasks outside their job description when the situation needs it. For example, developers who are uncomfortable dealing with clients can develop the soft skills to overcome that perceived barrier.
  • Boosted employee morale and satisfaction: Investing in employee development shows your workforce that you value their growth and success. This creates a supportive work environment where employees feel valued and appreciated.

The Importance of Measuring Training ROI

The benefits of keeping track of training ROI metrics extend beyond just the balance sheet numbers. These are some central benefits:

  • Data-driven decision-making: Measuring employee training ROI gives HR professionals information to make informed decisions. By understanding the financial and non-financial benefits of training, organizations can align training programs with strategic goals and prioritize initiatives that deliver the highest overall ROI.
  • Justifying training investment: Keeping track of training ROI helps HR professionals justify training budgets to upper management.
  • Optimizing resource distribution: By understanding which programs deliver the highest training ROI, organizations can focus their efforts and investments on initiatives that work the best.

Steps to Measure Employee Training ROI

Measuring the training ROI of our employee engagement programs involves several steps. Here’s a breakdown of the process:

1. Define the Goals

What specific business outcomes or improvements are expected as a result of the training? This step is the basis for measuring the training ROI. For example, sales training could aim to increase revenue per employee by 10% year-on-year, although we suggest against sharing that figure with the VP of Sales since she’ll ask if you forgot to add a 0.

2. Decide on What to Measure

Determine the key metrics that will be used to measure the impact of the training. These metrics should align with the objectives defined in the previous step. 

For instance, for sales training, metrics could be revenue per employee, deals closed, and average deal size. Or, if the objective is to improve customer service, metrics such as customer satisfaction scores or response times can be used.

3. Calculate Training Costs

Determine the total cost of the training program. Consider both direct and indirect costs. Direct costs are explicit expenses that are easily traceable to a specific training program, like instructor fees, training materials and equipment, facility rental costs, and travel and accommodation for trainees and trainers.

Indirect costs, on the other hand, are overhead expenses that are much more difficult to attribute to a single training program, like the cost of lost productivity when employees are attending a training course instead of working.

4. Calculate Impact, Including ROI

Collect post-training data using the same metrics. This can include factors such as increased productivity or improved customer satisfaction. Then, compare the data to the baseline to isolate the effects of training. Quantify these benefits in monetary terms—such as increased revenue or cost savings—whenever possible.

Use the following formula to calculate the training ROI of the program:

ROI = (Net Benefits / Training Costs) × 100

Net Benefits = Total Benefits - Training Costs

For example, if net benefits are $30,000 and cost $10,000, the ROI of training them is 200%. For each dollar invested in a training program teaching a new cold-calling method, the salespeople brought in $3.

5. Consider Intangible Benefits

In addition to tangible benefits, consider intangible benefits that may be more challenging to quantify but still contribute to the overall value of the training program. These monetary benefits can include employee morale, engagement, and hiked-up retention figures.

6. Compare ROI to Benchmarks

Compare the calculated training ROI calculator to industry benchmarks or previous training programs you have conducted within the organization to check the current program's effectiveness. Considering you’ve connected with a third party to help you with the training, they should have this benchmark as part of their pitch: “With our training, your team will sell 50% more merchandise the quarter following the sessions.”

Other Ways to Measure Training ROI

Other approaches can be used to calculate training ROI, in addition to the typical ROI formula. Here are some alternative ways to measure training ROI:

  • Performance reviews: Assessing employee performance before and after training can provide insights into the training program's impact. Performance reviews can help identify improvements in KPIs, such as productivity, quality of work, or customer satisfaction.
  • Surveys and feedback: Gathering feedback from employees could be used to measure changes in knowledge, skills, confidence, and overall satisfaction with the training.
  • Skills assessments: Conducting skills assessments or proficiency tests before and after training can help measure the improvement in specific skills or competencies.
  • Time savings: Evaluating the time saved from the training program can be another way to measure ROI. If the training is about invoicing with less effort, for example, if the team now does the same in half the time, that’s a success.
  • Training effectiveness measurement platforms: Using a training effectiveness measurement platform can automate the process of measuring training ROI. These platforms, like TalentHR, often include features such as automatically emailing participants with feedback surveys and collecting and processing the results.

Maximize Training ROI with TalentHR

Understanding the payoff from training investments puts HR professionals in the driver’s seat, guiding their company toward its strategic goals.

A study by Accenture found that organizations investing in training programs see a $4.53 return for every dollar spent—a training ROI of 353%.

TalentHR’s advanced tools make measuring and improving training ROI a breeze. Keep tabs on important metrics, and align training budget, with goals—all in one place.

Take the first step towards maximizing the effectiveness of your training efforts. Explore how TalentHR’s tools can help you drive more efficient and successful employee development. Register now for free.

To learn more about how you can maximize your training ROI, visit TalentHR.

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