What is the ROI of business coaching?
There is too much confusion regarding return on investment (ROI) for your investment in business coaching.
Let me clear the confusion by describing two sides of the ROI coin, and share an example of a coaching client who demonstrated a 300 % ROI from his investment.
One side of the ROI coin states “If you cannot demonstrate ROI from any initiative, then it will not be funded.” That makes business sense, and has defined most decision-making models. Examples abound from Peter Drucker’s famous maxim “If you cannot measure it then it does not exist” to Alan Weiss’ maxim “The only measure that matters is improved results of the client’s condition.” My corollary is, “Behavorial outcomes or performance outcomes can always be measured quantitatively (with numbers) or qualitatively (with descriptions).”
The other side of the ROI coin states that human behavior is inherently complex and unpredictable, therefore measuring that complexity is impossible. The notion of accurately measuring the impact of that change is impossible (even with artificial intelligence gathered from big data sets.) My corollary is, “The pace of change is slower today than it will ever be in the future, so respond to the challenges today.” What are you waiting to measure? Organizational psychologists distinguish between True Measures (T, an absolute from Aristotle), actual measure (t) and degree of error (%e). One formula to measure that complexity is T = t(%e). The main point is that complexity can be measured within ranges of acceptable error.
My experience is that ROI can be measured and must be measured. Here is the formula that I use, adapted from my good friend John Mattox’s (2016) book, Learning Analytics; Measurement innovations to support employee development. (Yes, my testimonial is on the back cover. I strongly encourage anyone interested in ROI to purchase and study this book.) Another great resource is the ROI Institute, founded by Jack and Patti Phillips.
Here is version 1 of the formula I use: ROI = (benefits-cost)/ cost. For instance, if the benefits of coaching investment for 12 months are $20,000 in new revenue, and the cost of coaching was $10,000, then the ROI of that investment was ($30,000-$10,000) or $20,000/ $10,000 or 200%. Pretty impressive ROI, right? But coaching was not the only reason for that new revenue of $30,000, therefore that 200% ROI number is not valid.
Version 2 of the formula I use is ROI = (benefits x % attributed to outcomes)/ cost. For instance, if the benefits of coaching investment for 12 months are $30,000 in new revenue, and the percent attributed to coaching was 40%, and the cost of coaching was $10,000, then the ROI of that investment was ($30,000 x .40 = $12,000-$10,000) or $2,000/ $10,000 or 20%. A more accurate assessment, perhaps, but 20% ROI is not as impressive. Version 2 is also called adjusted ROI.
Here is a real example from one of my clients that illustrates how to assess the ROI of business coaching:
|$220,000||$245,000 (+10%)||$320,000 (+23%)|
|% attributed to coaching||20% ($44,000)||20% ($49,000)||20% ($64,000)|
|– Cost of coaching||$12,000||$12,000||$12,000|
|ROI of coaching||367 %||408 %||533 %|
The bottom line?
- The ROI of your business coaching investment can be measured based on behavioral outcomes and performance outcomes.
2. The ROI of your business coaching investment with Action Learning Associates is guaranteed to be positive. Since 1997, we have provided that guarantee, and it has been true 100% of the time.
What are you waiting for?
Call Doug Gray, PCC, today at 615.905.1892 or contact us here.
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