Measure your MBA ROI

"An investment in knowledge always pays the best interest."  

Benjamin Franklin’s words have been overused to the point of cliché. In the case of the MBA, however, we can see evidence of this in the most literal possible sense.  

The MBA is an advanced, vocational degree – and does not come cheap either. Therefore, getting a return on investment is certainly something every MBA applicant will carefully mull over. 

What is the ROI of an MBA programme?

In today's fast-moving world, it's nearly impossible to generalise the type of ROI (Return on Investment) students might be able expect from investing in an MBA degree, as the outcome depends on various factors unique to each individual, such as industry, location, and personal career goals.  

However, one can generally anticipate increased earning potential and more career opportunities post-MBA. On average, the time it takes to pay back the cost of an MBA in the US will be around three-five years, while in Europe, the average payback period is around two-four years.  

Generally, the highest MBA salaries are usually offered to graduates from more prestigious business schools offering top MBA programmes– those featuring in the ‘global elite’ quadrant of the QS Global MBA rankings.  

The opinions of employers form the backbone of these rankings, and clearly, they are willing to pay a premium to MBAs taught by the best schools. 

Why calculate ROI on your MBA?

Calculating the ROI on your MBA is crucial because it helps you assess the true value of your investment in terms of career growth, enhanced MBA career prospects and financial returns. An MBA often involves significant costs, including tuition, living expenses, and lost income during study.  

By calculating ROI, you can determine how long it will take to recoup these expenses through increased salary and expanded MBA career prospects. This analysis ensures that the decision to pursue an MBA aligns with your long-term financial goals and career aspirations, allowing you to make an informed choice about your education. 

How to calculate ROI of an MBA programme?  

Calculating the ROI of an MBA tailored to your specific industry, location, and personal circumstances can help you determine whether the investment is worth it. Here’s a simple MBA ROI calculator: 

1. Start with your current salary: This will serve as the baseline for calculating the financial impact of your MBA. 

2. Determine the full cost of the MBA: Include MBA tuition fees, living expenses, and any other associated costs, along with the programme's duration. 

3. Calculate your opportunity cost: This includes the salary you’ll forgo while studying, plus the total programme costs. If you expect any pay raises or promotions during this time, factor those in as well. 

4. Estimate your post-MBA salary: Research average post-MBA salary after graduation in your target industry and location. Business school websites often provide these figures, broken down by sector and region.  

Alternatively, use online salary resources to get an accurate estimate. 

5. Perform the ROI calculation: 

• Example: If your current salary is $70,000 and your two-year MBA tuition fee is $60,000 per year, your total cost would be $260,000 (including lost earnings).  

• If your expected post-MBA salary is $120,000, the increase is $50,000. 

• Divide the total cost ($260,000) by the salary increase ($50,000) to determine the payback period—approximately 5.2 years in this case. 

Once you’ve recouped your investment, any additional earnings represent your ROI, demonstrating the long-term financial benefits of your MBA. 

Determining a 10-year MBA ROI 

1. Take your post-MBA salary (US$120,000) and multiply it by 10 years, which equals US$1,200,000.  

2. Then you need to subtract 10 years of your pre-MBA salary. In this case, it would be US$1,200,000 - US$700,000, which equals US$500,000. 

3. Now take away the cost of the MBA from this last total, so US$500,000 – US$260,000 to get your 10-year MBA ROI of US$240,000. 

This is the most basic calculation, not factoring in any salary rises. To get a better idea you can start with a post-MBA salary as reported by a school and then factor in percentage increases each year as we do in our ROI reports.  

You can do the same thing with your pre-MBA salary too, though with a higher rate of increase for your post-MBA salary. There is no need to include living costs as these are costs which would be incurred whether or not you enrol in an MBA. You can alter the calculation to any length of time you please, of course! 

FAQs 

1.  What are some common MBA funding options available? 

MBA funding options typically include personal savings, loans, employer sponsorship, and various MBA scholarships. It's essential to explore these to minimise financial burden. 

2. How do MBA scholarships help in reducing the cost of an MBA programme? 

MBA scholarships can significantly lower your education costs, making top MBA programmes more accessible. They are often awarded based on merit, need, or specific criteria set by the business school. 

3. How does the MBA job market look for graduates? 

The MBA job market is generally strong, especially for graduates from top MBA programmes. These programmes often lead to increased career opportunities and higher salary potential. 

4. What does an MBA salary comparison show across different industries? 

MBA salary comparisons show that graduates often earn more in consulting, finance, and technology sectors in general. However, it’s also impacted by several other contributing factors like location, years of experience, and the specifics of your job role. 

5. How should one compare the cost of different MBA programmes? 

For an effective MBA cost comparison, consider tuition fees, living expenses, and the length of the programme. It's also important to weigh these against potential post-MBA salary increases and the programme's overall ROI.