Calculating the ROI of Your LMS: The Ultimate Guide | World Manager

Calculating the ROI of Your LMS: The Ultimate Guide

“Show me the money!”

If you’re in the market for a learning management system or want to upgrade to a new LMS, it’s one of the first things you’re going to hear from your executive committee.

Will it pay for itself – and if so, how long will it take before we reach a break-even point?

If you’re championing an LMS at your company, your effectiveness will depend in part on your ability to speak the language of business. “Return on investment,” or ROI, is Exhibit #1. In this LMS ROI guide, we’ll introduce you to the concept, discuss its significance in L&D, and show you a simple, 3-step approach for calculating ROI on your LMS.

First, so we’re all on the same page, what is a learning management system? an LMS is a powerful software platform that can simplify and supercharge an organization’s training and communication functions. Companies can conveniently create, administer, track, report, and evaluate their training programs using one simple, web-based interface.

The mobile-first LMS, which is gaining widespread adoption in corporate America, could one day make the traditional classroom environment obsolete. The learning management system market is expected to grow at a compound annual growth rate (CAGR) of 20.5 percent over the next few years, ballooning to $28.1 billion by 2025.

The market’s rapid and durable growth is attributed to the widespread adoption of LMS by growing numbers of companies, organizations, and educational institutions. The appeal is clear: an LMS provides a more immersive and engaging experience for learners while making companies more lean, efficient, and profitable. On a global scale, companies can now provide online training courses to their staff, regardless of where they are physically located, which is a huge plus in the wake of the pandemic.

That being said, investing in an LMS is not an insignificant expenditure. This leads us back to “show me the money” and “what’s your return on investment?” ROI is a business analysis tool that allows companies to compare the amount they invested in a given product with the amount of revenue it generated. When the profits from an investment or purchase exceed the original amount invested, the result is a positive return on your investment.

Why Calculate LMS ROI?

These days it’s all about the data. Without the ability to track key data points and metrics and show how your department’s activities and budget enhance your organization’s bottom line, you’re at a serious disadvantage.

Demonstrating that your L&D program is popular or useful to your employees is not enough – you need to show how it directly contributes to the attainment of your company’s business objectives. Learning management system ROI is used to demonstrate the value of an LMS in a way that is measurable, quantifiable, and easily understood by your company’s financial stakeholders.

Below, we’ve put together a simple, 3-phase process for calculating LMS ROI:

  • Phase 1: Identify Costs and Expenses
  • Phase 2: Determine Revenues and Benefits
  • Phase 3: Calculate and Evaluate Your LMS ROI

Phase 1: Identify Costs and Expenses

Begin by identifying all costs and expenses directly related to LMS ownership, implementation, and maintenance. The costs of implementing and operating an LMS can be allocated to the following four categories:

  • Implementation
  • Ongoing Monthly Maintenance
  • Content Curation
  • Integrations

Implementation Costs

Once you’ve chosen the right LMS for your organization, you will begin the process of implementation. This too has costs attached to it – for example, rolling out the platform to staff and providing training. The good news is that equipped with a cloud-based LMS, your staff will find the system so intuitive and simple that your training expense should be minimal.

A cloud-based LMS also means you don’t need to hire additional consultants to support the project; it also requires less IT department time and resources.

Other implementation costs include customizing the branding, registering users, and setting up user groups. Companies usually find that their implementation costs go down in year two and thereafter, as they will only need to pay their monthly LMS fee and perhaps purchase some content.

Ongoing Monthly Maintenance

Your LMS provider typically charges a one-time setup fee and a monthly or annual maintenance fee that includes support, hosting, and licensing.

An on-premises LMS will require ongoing monthly maintenance and support by your L&D team. These costs will depend on how much time staff time is spent managing users and uploading courses. A cloud-based LMS, on the other hand, helps keep your costs down because it has zero installation or maintenance costs.

Content Creation

Content costs can fluctuate greatly depending on a company’s training needs and the content that it already possesses.

If you already have courses that can be uploaded into your LMS, your content costs should be pretty minimal. However, the reality is that most businesses do not have content for their new LMS. They must create or acquire it.

There are three main ways to curate online content for your LMS.

  • For general content needs, you can license off-the-shelf courses. This is typically less expensive, depending on the amount you are licensing. If you want to get out of the gate fast, it’s a good way to get started.
  • Outsourcing custom content. This will require more time and money, but the content will be specific to your company.
  • Create your own content. This can be anything from blogs and infographics to recording webinars, videotaping classroom training, and narrating slideshows. When calculating your LMS costs, don’t forget to factor in these costs as well as the time invested by stakeholders and subject-matter experts.

To get a full accounting of your costs, you should track the amount of time spent by L&D to repurpose older training programs and develop new ones.

Tip: The sooner you can get content into your LMS, the sooner you can start seeing a return on your investment.

Data Integration and Infrastructure Costs

If your new LMS isn’t compatible with your current third-party tools, you will have to purchase replacement software. And while some integrations with well-known platforms might come standard with an LMS, others may require API customization. If you need an integration that is less common or that doesn’t currently integrate with your LMS, it could get more expensive.

Other costs include the amount of time it takes your L&D team to migrate your existing resources and data to your LMS and the number of resources and employee hours that are expended in the process.

Tip: Make a list of the integrations you want your LMS to have, and be sure to ask the LMS provider if those integrations are compatible with their platform.

Remember, a cloud-based LMS is faster and easier to deploy, requires minimal IT infrastructure, and is usually less expensive than an on-premises LMS. As a result, you’ll likely reach your break-even point and be able to demonstrate ROI much faster. In general, the cloud-based, Software as a Service (SaaS) model is the easiest and most cost-efficient way to invest in an LMS.

Phase 2: Determine Revenues and Benefits

Now that you’ve identified the costs and expenses tied to an LMS, it’s time to measure its value, especially as it relates to revenue generation and cost-cutting. Let’s start by walking through the revenues and benefits of an LMS, which can be considered in the following categories:

  • Saving Time
  • Reducing Costs
  • Boosting Revenue Generation

Saving Time

Time is a valuable commodity. The time saved via an LMS is a function of three things:

  • Automation: By helping to automate key processes and introduce new efficiencies, an LMS impacts your company’s bottom line. Automating training and program administration activities like record-keeping and manual tasks, which are big time-sucks, leads to bigger profit margins.As employees leverage the LMS, take ownership of their own training, and become self-directed learners, management is freed up to focus on more strategic activities.
  • Anytime, Anywhere, Any Device: Corporate learning has never been this efficient. With mobile, on-the-go access to the company’s LMS training portal, employees can access training modules at their convenience. This is a win-win. Employees become more engaged and productive in their jobs, while the company saves time and money by eliminating or scaling back costly in-person training. In addition, through the mobile LMS, training completion rates are accelerated and employees become productive sooner. This saves time and drives revenue.
  • Less Reliance on Instructor-Led Training: Significant time is saved by reducing both the number of instructor hours and the amount of time spent on coordinating the logistics of in-person training.

Reducing Costs

Some companies have been moving gradually toward a paperless HR department, while others are just getting their feet wet. Transitioning to a mobile, paperless delivery system for training creates new efficiencies and reduces costs.

An LMS reduces significant training expenses – printed training materials, coordination time, site-rental fees, travel, transportation, and accommodation – that eat into a company’s budget. Here are a few examples of how the LMS is reducing training costs:

  • Onboarding: With short attention spans and a “now” mindset, new hires expect a well-organized onboarding process that can be easily accessed, regardless of their location. From the company’s point of view, onboarding via LMS means it can reduce costs associated with in-person training while accelerating the onboarding timeline.
  • Compliance: Better compliance rates represent a tremendous cost-saving benefit. Given all the rules and regulations that corporations must meet, compliance training that can be monitored and tracked helps companies avoid costly mistakes and non-compliance fines. In addition, an LMS can accelerate and shorten the compliance training cycle.
  • Employee Retention Rates/Reduced Turnover: Employee turnover can be quite costly and yet many organizations do not give enough attention to retaining their employees. According to the Society for Human Resources Management (SHRM), direct replacement costs can reach up to 60% of an employee’s annual salary. American Home Shield estimated the direct financial costs associated with losing employees and hiring and training replacements to be over $250,000 annually. According to the Bureau of Labor Statistics, you see the greatest levels of turnover in industries such as health services, hospitality, and leisure.

Remember, your people are the foundation of your company or organization. When you invest in them, they become invested in you. Employees with access to quality training are more likely to stick around, which is a good thing. After all, high employee turnover means companies must spend more on orientation and training, which eats away at their profit margin. When companies make developing new skills and competencies easy, entertaining, and engaging for their employees, retention can increase significantly.

This is especially true for the millennials and members of Generation Z. A low-tech, inefficient approach to training can turn them off, affecting your ability to attract and retain talent; investment in technology, like an LMS, can win them over and reduce your rate of turnover. This is a huge financial benefit for the company and must be factored into your ROI of an LMS.

Boosting Revenue Generation

When high-quality training is optimized, made foundational, and is seamlessly integrated at every level of your company, it enables your company to fire on all cylinders. The result is increased momentum, morale, and productivity.

New revenue generation can be directly tied to your LMS. Enhanced customer service training increases revenues and reduces customer churn. LMS training for customers and partners accelerates product adoption while decreasing support costs.

The ability to scale your LMS for future growth means you can accommodate more users and generate more revenues.

As we turn to calculate your ROI of LMS, let’s remember, it’s not all about revenue – equally important is cost-cutting, because reducing costs increases your profit margin. Revenue and profit are not the same; profit is what remains after all costs and expenses have been subtracted from your total revenue. A formidable cost-cutter, an LMS drives profit not just for L&D and HR but for the entire organization. So, you want to make sure that is factored into your ROI analysis.

Phase 3: Calculate and Evaluate Your LMS ROI

Once you’ve collected and analyzed your LMS-related costs and expenses (Phase 1), on the one hand, and your benefits and revenue on the other (Phase 2), it’s time to calculate your ROI on your LMS.

There are various ROI formulas, depending on your needs. Now it’s time to take out your LMS ROI calculator – or better yet, here’s an easy formula you can use. Just plug in your numbers, as best as you can, even if they’re estimates.

Costs Incurred + Revenue benefits/Cost of LMS = Return on Investment

Here, revenue benefits are your actual revenue generated + value of cost savings.

The calculation gives you a ratio; a high ROI means the investment’s gains and benefits compare favorably to its cost.

Companies that count on their LMS to make order out of chaos will tell you that the benefits of this robust training platform are worth the investment; the benefits clearly outweigh the costs. But while this may be true, these are only words. Now, with this 3-phase ROI process, you can prove it.

In addition to the ROI calculation, you can demonstrate return on investment by making comparisons between data sets. You’ll need some benchmark data to get started. Review past L&D expense reports and determine what a traditional compliance training program costs, pre-LMS; then, subtract all the expenses – printing costs, transportation, rental site, logistical support, etc. – that the LMS has eliminated.

Another comparison that speaks to LMS ROI is assessing the number of payroll hours for LMS onboarding versus payroll hours for traditional, in-person onboarding. The savings will become obvious fast.

An LMS is many things to many people. To L&D specialists and instructional designers, it’s a way to easily create and deliver immersive, engaging training modules. For employees, an LMS is a convenient and empowering way to learn new knowledge and gain skills. For your company’s VP of finance, an L&D should be regarded as a significant time-saver and cost-cutter as well as a revenue and profit driver.

When you evaluate its price and operational costs in three to five years’ time, chances are pretty good that your LMS will have generated more income than its price tag. Said another way: You’ll be in a position to show them the money!

To improve LMS ROI, consider how the platform could be used to cut costs via digitization and automation of your legacy training programs. Bring your L&D team together to review what programs would be suitable for online learning.

Moving Forward

Let’s suppose you’ve determined that an LMS is not only a good investment in your people but also a sound financial investment. Now you need to decide if you’re going to hire a team to build it yourself on-premises, which could be a time-intensive and costly undertaking, or use the more convenient and less expensive cloud-based model. Both options have their respective advantages and disadvantages, as well as different price points.

LMS solutions that are cloud-based have a reputation for being cost-effective and user-friendly. There are no installation or maintenance expenses, just a monthly subscription. A cloud-based solution also saves you the additional cost of managing a data storage system and IT infrastructure.

If you go the cloud-based, SaaS route, LMS vendor World Manager is ready to collaborate. Our solution means you don’t have to install software or back up data, making World Manager’s online training platform fast and easy to deploy. It features a simple, streamlined, and intuitive interface that is a pleasure to use.

While paper-based training systems are time-intensive and require manual updating, our online training platform automates time-intensive tasks, freeing up managers to focus on strategic priorities.

Why World Manager?

Companies and organizations of all sizes use World Manager’s LMS because it streamlines, simplifies, and supercharges their training delivery capabilities. With fantastic features and head-turning benefits, including a mobile-first interface and rigorous reporting and analytics, it’s no surprise that World Manager’s LMS is trusted by some of the most respected companies and organizations in the world. Our clients recognize that investing in an LMS leads over time to more engaged, empowered, and productive employees – and that’s reflected in their company’s bottom line.

Before the pandemic, companies who were experiencing rapid growth, and whose employees were often geographically dispersed, regarded World Manager’s LMS online employees as a highly valuable tool; now they consider it indispensable.

Book a demo to learn how World Manager LMS can mobilize and monetize your company’s employee training program. Contact Us today!

Disclaimer: This information is meant to provide general guidelines and should be used as a reference. It may not take into account all relevant local, state or federal laws and is not a legal document. Neither the author nor World Manager will assume any legal liability that may arise from the use of this information.

The best companies use World Manager to train staff, maintain standards, and set the company up on the road to success.