If you work in employee learning and development, you already know how valuable a learning management system (LMS) is. But demonstrating this value to your company and key stakeholders can be difficult.
Let’s say you started using a state-of-the-art learning management system a year ago. You use it in your onboarding process for new employees, and for employee development and upskilling. Now it’s time to measure the impact on your business and prove the return on investment (ROI).
What is LMS ROI?
Understanding LMS ROI is crucial because it allows you to justify the investment in training programs, make informed decisions about future investments, and demonstrate the tangible benefits of employee development initiatives.
In the context of a learning management system, the ROI measures how much value it generates for the company. That includes how much money it’s making, how much money it’s saving, and how it’s improving the performance of your employees and overall company.
Calculating LMS ROI
To accurately measure the ROI of an LMS, you’ll want to consider the following aspects:
- Revenue generation: How much additional revenue has been generated due to improved employee skills and performance?
- Cost savings: How much money has been saved by using the LMS for training instead of traditional methods?
- Performance improvement: How has employee productivity and efficiency improved?
When you first started using your LMS, you should have outlined the goals and KPIs that you were hoping to achieve over the first 12 months. This would have included objectives like reducing training costs, increasing productivity, or increasing employee retention. Make sure that you refer back to these to demonstrate your progress.
How to show ROI on your LMS
There’s a simple formula that you can use to calculate the ROI on your LMS:
LMS ROI = (Net Benefit/Cost of Investment) x 100
Now you’ll just need to work out those net benefits and the cost of investment. Don’t worry, we’ll help you to get those numbers below.
Step 1: Calculate the investment required
Add up the total costs associated with the LMS. This may include:
- Development costs: Such as software purchases, hardware investments, and human resources required to manage, run, and develop the LMS.
- Implementation costs: Including initial set-up costs, the cost of integrating the LMS with existing systems, and any data migration costs.
- Maintenance costs: Any costs associated with ongoing technical support, software updates, and system upgrades.
- Customization expenses: Any additional plugins or custom development needed to tailor the LMS to your specific needs.
- Administration costs: Hours required for liaison with LMS vendors, developers, and quality checks.
- New content development expenses: Costs for creating new training materials, if applicable.
- Time employee spent training: The opportunity cost of employees spending time on training rather than their regular duties.
Step 2: Measure tangible benefits
Now it’s time to consider the benefits of the LMS. Here are some examples:
- Time savings: Reduced time spent on traditional training methods, or time saved on work processes from new skills gained.
- Increased revenue: Additional income generated due to improved employee skills.
- Increased productivity: Enhanced performance and efficiency of employees.
- Decreased time to productivity: Time gained in a new employee’s full role through faster onboarding and training processes.
- Decreased dependency on third parties: More skilled employees reducing the need for external consultants.
- Reduced training costs: Lower expenses on external training and travel.
Step 3: Interpret and present results
Once you’ve gathered the data, it’s time to interpret and present your findings. The best way to illustrate quantifiable benefits is through visual assets, such as charts, graphs, and tables. This can help stakeholders clearly see and understand the benefits, without spending too much time on the numbers themselves.
Make sure that you highlight the key metrics that are the most impactful to your company, such as cost savings, revenue increases, and productivity gains.
Outside of the tangible benefits, there are also the intangible benefits. This can include increased employee satisfaction and engagement — both of which are critical to company culture. These can be evaluated through surveys and feedback forms, adding depth to your LMS ROI analysis.
While it’s slightly more difficult to attribute these benefits directly to revenue or savings, many studies show that satisfied employees are more likely to be retained by a company and that engaged employees are more productive, so it’s important that you communicate these too.
All of this data might not mean much to stakeholders if they don’t have anything to compare it to, so be sure to provide context to the numbers. You can compare your growth to your metrics from 12 months prior, compare the data against your initial goals, or even against industry benchmarks.
An example of measuring LMS ROI
To help make this process clearer, here’s an illustrated example.
Company A implemented an LMS to streamline onboarding and provide continuous training for their employees. Their initial investment included software licensing, customization, content creation, and training time.
Costs:
- Development: $50,000
- Implementation: $20,000
- Maintenance: $10,000 annually
- Customization: $5,000
- Administration: $15,000
- Content development: $10,000
- Training time: $20,000
Total costs for year 1: $130,000
Benefits:
- Time savings: $30,000 (reduced training time and faster onboarding)
- Increased revenue: $50,000 (improved sales performance)
- Increased productivity: $40,000 (more efficient processes)
- Decreased time to productivity: $10,000 (new employees faster to begin roles)
- Reduced external training costs: $20,000
Total benefits for year 1: $150,000
ROI Calculation
Here’s a reminder of the formula:
LMS ROI = (Net Benefit/Cost of Investment) x 100
LMS ROI = ($20,000/$130,000) x 100 = 15.38%
So Company A saw an LMS ROI of 15.38%!
While you may understand the value of a great LMS, it’s vital that you communicate this clearly and effectively to all stakeholders. Measuring the ROI of your LMS is essential in validating your investment and guiding future training initiatives.
