How Do You Work Out the ROI of an MBA?

Perhaps it’s prudent here to start with a confession. Calculating return on investment – or ROI – is at best an imprecise science. There are so many variables at play – would you have got a pay rise had you stayed in your job? What about if a profound change occurred in your industry and put you out of job? Will you get an idea for a paradigm-shifting enterprise at business school, or be pipped to the post because you chose to study rather than go ahead with it? Who are you going to meet? Are you going to be a success in your post MBA career? What if it’s not even money that drives you?

However, with this taken as granted, given the wealth of data amassed by QS, and the huge importance of ROI, we thought it would be a useful exercise to put the finest minds in the QS Intelligence Unit to work on this question. In order to make the comparisons meaningful, we chose to focus on ROIs for a single region, Europe in this case, and only on full-time programs which require forgoing one’s salary. 

And rather than producing a ranking, which would increase the levels of subjectivity, we chose to present the individual indicators and calculations in isolation, allowing you to make your own comparisons based on what you consider to be the most important factors. Are you most interested in what you will be making in 20 years, or how quickly you can pay back your tuition, for instance? The results became the QS Return on Investment Report European Full-Time MBA.

Calculating ROI: The mathematical part…

When calculating ROI, the things we chose to look at are:

• Salary uplift (%)
• How long it takes to pay back the cost of an MBA
• How much you will make in 10 and 20 years

In order to calculate these, we looked at tuition costs, average pre and post-MBA salary levels, program length, the proportion of graduates starting their own businesses and how many graduates were employed within three months of graduation. We also (using GMAC data) drew a comparison with what you could earn with a specialized master’s.

Investment was calculated by adding together the average forgone salary at a school and the total cost of the program. Living costs were excluded and we assumed that full fees were being paid.

Salary uplift is easy enough to work out – a simple comparison of before and after, with post-MBA salary figures showing an increase of over 120% compared to pre-MBA salaries eliminated as outliers. Average bonus levels (annual, not signing), using QS employer data were added.

We have estimated that post-MBA salaries would increase at 5% a year, compared to 3% for non-MBA salaries (again, based on QS employer research). Bonuses were awarded to schools that fare well in our rankings exercises, of up to 3% a year for top-ranking schools, declining incrementally as we go down the ranking. Bonuses were added for schools with high proportions of entrepreneurs, who tend to have a lower post-MBA salary in early years before going to earn more over their lifetime. The highest scoring schools in this regards (15-21% entrepreneurs) were awarded a 3% bonus a year, again incrementally declining until reaching schools at which entrepreneurs account for 3% or fewer of the graduating class.

Industry-specific MBA salary figures and geographical variances have been excluded for the purposes of simplicity, though watch this space, you never know what we’ll try in the future.

Finally, those all-important big numbers: 10 year and 20 year ‘net present value’. We put together all the aforementioned figures to estimate what your income stream would look like if you did an MBA, compared it to what it would look like if you didn’t. The final numbers here are simply how much more (and, yes, it’s a lot more) you’d stand to earn a decade and two decades down the line.

If this sounds at all confusing…well, just go look at the report. We’ve done the work, so you don’t have to. That’s what we’re here for after all…