Calculating LMS ROI for training programmes and employee development
Assessing the Return on Investment (ROI) for your Learning Management System (LMS) and associated training initiatives requires a thorough evaluation of both the expenses incurred and the benefits gained. Here's how it breaks down:
1. The Core formula
The basic formula for calculating LMS ROI is as follows: LMS ROI = (Net Benefits / Total Cost of LMS) x 100
2. Identifying and calculating total costs
This involves both direct and indirect expenses associated with the LMS and training. Direct costs include:- LMS software licenses or subscription fees.
- Implementation fees, customization costs for the platform.
- Content creation and licensing fees for training materials.
- Training for administrators and employees on how to use the LMS.
- Employee time spent in training (calculating the value of this time based on average wages).
- Administrative time spent on managing and tracking training initiatives
- Facility overhead, travel, and material expenses (if applicable for any in-person components).
3. Measuring tangible benefits
These are quantifiable improvements that can be attributed to the LMS and training programs:
- Increased productivity
- Reduced training time
- Faster onboarding
- Decreased costs associated with traditional training
- Reduced employee turnover
- Increased revenue generation
- Improved compliance
4. Considering intangible benefits
While harder to quantify, these still contribute significantly to the LMS's value:
- Enhanced employee engagement and satisfaction
- Stronger learning culture
- Better decision-making
5. Applying the formula
Once you have identified and quantified the costs and benefits, plug them into the ROI formula:
LMS ROI = (Total Benefits - Total Costs) / Total Costs x 100
Example
Let's consider a scenario based on information from Moodle:
Total LMS implementation and annual costs: £10,000
Total benefits realised in the first year (cost savings, productivity gains, etc.): £20,000
LMS ROI = ((£20,000 - £10,000) / £10,000) x 100 = 100%
This indicates that for every pound spent on the LMS, the company generated £2 in benefits.
When organisations embark on the process of choosing the perfect LMS to fulfil their L&D goals and objectives, most information about the platform can be obtained instantly. Information on determining factors such as system features, functionality, integration options and upfront costs can be found with simple research or via conversations with an LMS provider. However, one important factor in the decision-making process is determining the ROI, and estimating this will require a little more legwork. Our comprehensive eBook is designed to guide you through a step-by-step process of calculating your ROI, with formulas and additional information to help you maximise your investment.
In this blog, we're giving you an exclusive glimpse into what you can expect from our free eBook. Once you’re ready to read it, click here to download your free copy!
What to expect from our free eBook:
Extract from p2:
The purpose of this eBook is to highlight a number of areas that business leaders can use to determine the business impact of their e-learning platforms. Whether you are investing in an LMS for the first time or are unhappy with your current e-learning platform and are considering switching, as you make your way through the book, you’ll learn not only how to estimate Return on Investment (ROI) for your LMS, but also some practical steps on how to maximise your ROI.
In this book, you'll find:
- The definition of and use cases for Return on Investment (ROI)
- How to set measurable goals and benchmarks
- Steps and formulas to calculate the business impact of your training programmes
- Tips to maximise your LMS ROI
- LMS features that enhance your investment
What is ROI?
ROI is simply the financial metric for evaluating the financial consequences of investments and related actions. ROI represents the financial value that can be derived from an investment.
When it comes to assessing the ROI of an LMS there are 3 main areas to consider:
- Does it contribute to improving business performance?
- Does it contribute towards adding revenue?
- Does it contribute towards saving money?
Improved business procedures
An LMS can help you simplify most of the steps required in conducting many aspects of L&D training. The advantages of pooling most of these tasks onto a single LMS platform are high, resulting in much more efficient processes. 
Some examples of increased business proficiency include:
- Custom reporting and automated report scheduling
- Meeting compliance and regulatory requirements
- Having a scalable LMS that can grow with your organisation will make it easier to expand and serve more learners without increasing staff admin costs
- Save time and resources with LMS automation
Making money
Most business decisions are swayed by whether or not something will make the business money - and utilising a learning management system is no different.
- An LMS can make a significant difference in attracting and retaining top talent - this will have a direct and measurable impact on your company's bottom line
- Sell courses online - create, manage and sell your e-learning content
Saving money
Every business watches how it spends its money and investing in an LMS provides a great way to save money on training and learning.
- Using an LMS can significantly reduce corporate training expenses
- Standardise and consolidate your L&D practices across the entire organisation – rather than spending money on multiple training tools across separate departments
- Create a record of valuable ‘corporate’ knowledge and save money by avoiding lost productivity
Calculating ROI
Extract from p11:
Your online and offline training investments need to deliver quantifiable returns that can be seen in your organisation’s bottom line. Senior executives will evaluate your planned programme performance based on costs and outcomes (financial value) driven by committed investments. You need to calculate the ROI by comparing the expected benefits with the costs. This is easier said than done, as it can be very tricky depending on the use case(s) that lie behind the reasons for your decision to purchase an LMS. Indeed, there may be a number of components to factor in, depending on your business case.
The 4 key steps involved in determining your LMS ROI are:
- Set measurement goals
- Define the tracking and measurement approach
- Aggregate the estimated costs of your e-learning project
- Assess the estimated gains of your e-learning project
ROI formula
With ROI, we focus on the net benefits of the training - the benefits minus the costs. The formula for ROI looks like this:
But calculating ROI isn’t as simple as just knowing a formula. What comes next are the necessary steps you’ll need to undertake in order to measure the ROI of your new LMS training initiative.
To find out more about these key steps to calculating your ROI, download our free eBook now.
Find out how to maximise your investment
If you've enjoyed reading through the above outline of some of the key aspects discussed within our ROI focussed eBook, be sure to download the full guide for a further, in-depth expansion of these essential points. And, don't miss out on the all-important chapter; Maximising Your Investment. In this section of the eBook, we share our industry insights and expert knowledge to help you optimise your LMS features to enhance your investment and ensure that you are getting true value for money.
