How Can You Calculate Your ROI on LMS Investment?

Why should you calculate ROI on LMS investment? Well, “More than two-thirds of companies see the trend of moving to next-generation learning as urgent or important, yet only 6% have mastered the technology and content aspects of learning” — Deloitte.

This points to a heavy gap when it comes to utilizing the full potential of a modern LMS platform for learning corporates. When your training program is outdated, it is highly probable that you are skipping some vital opportunities — in terms of tangible learning outcomes.

A next-generation learning management system completely automates the learning curve. It is coupled with powerful features like reporting tools, customized content, on-the-job training, social interactions, and integration capabilities with 3rd-party software.

When you integrate your LMS with external systems such as performance management, career development, compensation planning, and succession planning, it drastically reduces additional costs involved in deploying IT resources.

Why Should You Calculate LMS ROI?

Despite the above upsides, convincing the top management to approve a new-generation LMS can be a challenge. Here are the main reasons usually cited by corporates — as to why the management is apprehensive about investing in a new LMS.
1. Training is not considered to be at par with business and generally serves as a second fiddle.
2. Training providers are rarely seen as partners.
3. When explaining the upsides of training sessions, we present them as intangible assets.

However, one needs to talk to senior management in the business language of numbers. It is possible to translate the resources going into learning platforms into a quantifiable impact.

To summarize, the leadership usually believes that an LMS is an additional expenditure without any measurable benefits. So, what’s the solution. The answer is to present the LMS as a tool that can result in quantifiable ROI on LMS — in HARD NUMBERS. But how do you do that? Let’s get started.

How Do You Calculate ROI on LMS Investment?

To begin the process of ROI on LMS calculation, we need to segregate the key elements that can serve as cost factors while calculating ROI on LMS. The following are the key drivers of your eLearning development calculator:

1. Hard Savings in Terms of Resources Used: Time

Time is an essential resource. When you deploy an LMS, it values employees’ time by making the learning process efficient, quick, and flexible.

Learners can access online training modules at their own pace and place. By doing away with organizing training days and orientation weeks, you can save valuable hours. An online training program, as compared to in-person sessions, is instant.

Additionally, you ditch the earlier method of spending several days managing training paperwork. With an LMS in place, you can efficiently manage vast amounts of data. You can use this information to assess your employees’ skills.

To quantify how time savings can result in increased ROI on LMS, you can calculate the payroll hours for online training versus traditional sessions. This ROI on LMS quantification will give you an estimate of the amount of money saved after ditching long, unproductive hours in conference halls.

Another way is to compare employee sitting times for e learning corporate training vs. offline learning sessions.

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How to Convert Time to Numerical Cost Savings?

Start off by calculating the annual time investment in classroom training vs. digital LMS.

The time investment factors consist of the following:

• Total training delivery time in classrooms (x) – Total training delivery time in digital sessions (y) = Savings in terms of time spent in training delivery (z)

Note: Do not forget to account for travel time in case your learners need to travel to a common location.

• Trainer time consumption in classrooms (a) – Trainer time consumption in digital sessions (0) = Savings in terms of trainer time spent in learning sessions (a)

Note: The Trainer time consumption may not always be zero (0). If you plan for a blended delivery of training, it will not be zero. However, if the trainer delivers the session online, you may be able to conduct training for a larger group leading to a limited need of the trainer’s time.

• Participant time consumption in classrooms (d) – Participant time consumption in digital sessions (e) = Savings in terms of time used by employees in training sessions (f)

Note: Every time the learner takes the training at their time (travelling back and forth to work, early morning, late evening, work break etc. there is a direct saving of productive hours.

• Management time consumption in classroom training (g) – Management time consumption in digital sessions (h) = Savings in terms of time spent by the management in training (i)

Therefore, your total annual time savings after implementing an online LMS is (z+a+f+i). Convert this number by connecting it to the payroll and you get the difference in expenses incurred — both in terms of Man Days and Cost.

Noteworthy to mention here is the fact that this is just your annual savings. When you calculate it over cumulative years, you will see a drastic increase in your cumulative savings and gradually, LMS ROI.

2. Previous Expenses in Older Traditional L&D Methods

Reduced Expenses = Increased Bottom Line. An LMS drastically reduces your existing face-to-face training expenses. Certain factors that result in expenditures include printed training materials, venue rentals, trainer salaries, and participant salaries. Yes, you do pay your employees.

But with an LMS in place, the training hours spent inside a classroom can be reduced leading to a direct cost saving.

Online training programs use only a computer or a mobile device. Trainers can deliver live sessions at their convenience. Even employees can be more efficient by accessing learning courses in their spare time.

When you calculate ROI on LMS, it is always better to first review your previous L&D expense sheets to estimate the costs of your traditional training program. Subtract these extra costs and this is your savings in quantifiable numbers.

How to Calculate the Current Expenses in Offline Training?

You can begin by drawing an estimate of the following cost factors:

Trainer Costs

The average monthly salary of your trainer = a. The cost of hiring a trainer per day is = a/30 (b)

Now, if your frequency of training per year is ‘c’ and each session lasts for ‘d’ days, your total annual cost in hiring a trainer is (b x c x d) = e. Add this to the expenses incurred in preparing for the training sessions and your cost increases further.

Participant Costs

The monthly salary of the participant = k

Cost of your participant per day = k/30 (l)

Now, if your frequency of training per year is ‘c’ and each session has a batch size of ‘m’ employees, your total annual participant cost is (l x m x c) = n.

In the absence of classroom sessions, you save costs — both in terms of employee participation and hiring a trainer, which amounts to S = (n + e)

3. Employee Retention Rates

When you give your employees an option to enhance their professional learning curve, they will be more willing to stay in your company. Employees leaving at an increased pace translates to increased costs in new recruits’ orientation and training.

Additionally, when you employ a fresh staff member, you will need to invest time in familiarizing him/her with the inner procedures of the company. And as we have already made it clear – time is money!

Now, with an LMS in place, you can retain your existing workforce and continue to groom them in new skills. If you stress high performance, the top players will contribute to an efficient and productive working environment. An LMS can be equipped to offer in-house certifications when employees achieve certain milestones.

All you need to do is, showcase how your workforce’s retention rates have increased after incorporating LMS. Your management will instantly recognize the value of ROI on LMS as they convert increased employee loyalty to company profitability.

4. The Right LMS

The market for the best LMS software is packed with products with varying configurations and features. You need to choose a platform that best meets your needs. Most importantly, it should have the ability to integrate with your current format. If you need additional tools, you will incur extra expenses. Of course, you MUST consider the time spent migrating your current data and resources into the new LMS.

Can your existing L&D team do the job or do you need to recruit additional pros? Therefore, you need to choose wisely so that you can present the ideal numbers for your management. Your ROI on LMS calculation should also include the expenses incurred in terms of resources used to incorporate the new open source learning management system — training sessions on the features, online training tutorials, one-on-one learning classes, etc.

5. Costs Incurred in Deploying an LMS

We have already pointed out that classroom training is more expensive than an online LMS. But it would not be fair to say that an LMS investment has no costs at all! Once you integrate a Learning Management Solution into your system, you will incur expenditures in running it. The best option is a cloud-based platform, which does away with costs related to in-house data storage systems and technical infrastructure.

There are no installation and maintenance costs as well. Since its operation is simple, you will not need additional training. The initial up-front cost may be a bit high, but in the long run, they are cost-effective. Whatever the case, when calculating ROI on LMS, you need to include the money spent on maintenance, online training, content development, and upkeep of your LMS.

Final Word

When you calculate the ROI on LMS, it will vary, depending on several factors. But it is a no-brainer that you gain a higher return on investments after you abandon the traditional practices of expensive training-related off-premise trips. You additionally save on time, employee retention, and infrastructure. And we have already explained how you can present these savings in tangible numbers. With the right know-how, you can use several metrics to calculate an accurate LMS ROI and convince your management to approve your chosen platform.

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