In recent years, employee training programs have moved from “nice to have” to a business imperative.
The World Economic Forum reports that the world is facing a reskilling emergency. And due to the COVID-19 pandemic, skills gaps (especially in more tech-driven fields) have only widened. According to McKinsey & Company, 87% of companies already face a skills shortage or anticipate developing one over the next few years.
The need for effective upskilling and reskilling programs is clear. But with seemingly endless ways to approach employee skills development, how can companies identify the most cost-effective options and track their success? Identifying strategies to accurately capture the return-on-investment (ROI) of employee training is nearly as important as developing the programs themselves.
Why Is Measuring the ROI of Training Employees Important?
Employee training and development is not an inexpensive proposition. According to the World Economic Forum, the cost of reskilling averages $24,800 per worker (note that this average includes the cost of tuition for degree programs paid by employers).
While the potential payoff is significant, it’s important to ensure the money spent leads to real return and that programs are effective. Nevertheless, LinkedIn Learning’s 5th annual “Workplace Learning Report,” published in 2021, found that learning and development programs are more likely to use metrics like completion scores and satisfaction rates to measure success rather than hard data on the company’s ROI.
Understanding the ROI of training programs is especially important in gaining buy-in from leaders across the organization, as well as potentially from stakeholders like board members. If division and unit leaders understand that training employees can have significant payoffs, they are more likely to not only support the budgetary investment but also to prioritize facilitating their group’s participation.
Understanding Employee Training ROI
Broadly speaking, companies can consider employee training ROI along two axes.
1. Cost savings driven by employee training
Though it requires an upfront investment, employee training can save companies significantly in the long term. Offering employees upskilling, reskilling, and development opportunities can be critical for retention, particularly in today’s competitive hiring environment. Since the cost of replacing an employee averages one-half to twice their annual salary, according to Gallup, investing in an employee’s development can help employers save significantly on turnover costs.
Most companies will also realize significant savings by reskilling existing employees as opposed to conducting layoffs and rehiring for new positions when internal needs change. That’s because the costs of both layoffs (including severance packages and softer metrics like damage to employee morale) and rehiring (recruiting for new roles and paying a premium for external talent) can add up quickly. For example, a company moving away from legacy technology stacks will likely find it more cost-effective to retrain on-prem developers with institutional knowledge and teach them to develop for the cloud, rather than hiring cloud developers.
Often, it’s also more cost-effective for companies to develop capabilities in-house than it is to compete in the marketplace for employees who already have in-demand skills. Capital One, for example, has had significant success in hiring and training new college graduates from liberal arts backgrounds in software engineering.
2. Revenue growth driven by employee training
Aside from cost savings, employee training can drive direct gains in revenue in several ways. For example, building out new capabilities in your organization (such as data analytics) can allow companies to identify new growth opportunities or build out products that raise revenue. Investing in leadership training or process management work can likewise expand teams’ efficacy and productivity.
As companies work to meet accelerated demand for digital products and services, it’s also important to recognize that training is a necessary (but often forgotten) component of digital transformation efforts. Training staff underpins the success of delivering on new digitally enabled commercial and operating models.
Training’s positive impacts on employee engagement and company culture can also improve output. This effect is magnified with team training, when employees partake in a cohort-based training program together, which can drive increased collaboration and alignment.
Employee Training ROI Metrics
Along the two axes of cost savings and revenue growth, there are numerous metrics to consider to measure ROI. As noted on the Harvard Business Review, an effective scorecard for weighing the success of training will consider a range of data points, with the specifics varying based on a company’s goals and the types of training investments it has made.
Below, you can explore examples of metrics to measure the ROI of training employees. Keep in mind that these metrics typically play into each other–for example, employee training may result in an organizational growth mindset. In turn, this can improve employee productivity and ultimately lead to profitability, which is usually the main objective.
When applying these metrics, it’s important to consider causation, not just correlation. It can be challenging to credibly attribute key indicators like productivity or retention to training programs, as often there are many external factors at play. Therefore, companies should consider data-driven approaches such as running statistical significance tests on randomly selected test and control groups or using internal satisfaction surveys to track internal perception of progress.
Let’s take a deeper dive into eight key training ROI metrics.
1. Employee Engagement
Employee engagement is a critical driver of company success; yet according to Gallup, 80% of employees globally are unengaged. Investing in employees’ futures can significantly increase engagement. And increased engagement can lead directly to higher productivity, profit, and longevity within the company.
2. Employee Retention
According to LinkedIn, 94% of employees say they would stay longer at a company if it invested in their future. Since turnover is financially costly, decreases morale, and can lead to skill gaps, companies should consider increased retention a major win.
Increased productivity is a frequent goal for training but can be difficult to measure. To hone in on accurate numbers, choose a specific indicator to track (for example, an insurance company investing in training its team to implement AI and data analytics might measure a reduction in speed to claim resolution).
4. Tech Implementation and Usage
Investing in new technology is important—but it’s only valuable if your team can make use of it. If your company has invested in training on new technology–such as using a new coding language to speed analysis, or even how to leverage a new project management software–track how its use increases after training is complete.
5. Skills Development
The easiest way to measure the efficacy of programs intended to develop employee skills is to measure those skills. Track specific employee abilities before and after program participation to identify impacts on the individual level, and also follow how the organization’s overall skill profile changes.
6. Revenue Growth
Revenue growth is an obvious metric for most organizations. To judge a training program’s impact on revenue, it’s important to tie outcomes directly to that program. For example, consider measuring revenue changes related to specific departments or programs that have recently implemented changes as a result of reskilling or upskilling initiatives.
7. Improved Margins
Revenue growth is only one part of the equation. Decreasing expenses like the cost to complete a transaction is another key success indicator. Often, building skills in-house can both help reduce the internal resources needed to solve a particular problem or deliver a service and reduce reliance on outside vendors.
While it may seem difficult to track the broad impacts of innovation, upskilling and reskilling efforts can be directly tied to innovations in certain areas. For example, a new approach to data analysis, or even a new hiring methodology, could be directly linked to learning from a training program.
To capture these impacts, companies might regularly survey learners about if and how they applied what they learned and track the sources of successful innovations.
While measuring the ROI of training requires a thoughtful approach, it’s an essential step in developing an employee training program that’s not only effective but also replicable. Once companies understand what works and what doesn’t, they can direct investments in a way that maximizes impact for both employees and the organization at large.
By Rachel Hastings
Are you working to build online employee training programs that deliver measurable results? Reach out to Emeritus to learn about how we can tailor our offerings to your needs.