How to measure ROI of your dream MBA program?
An MBA degree may be the most secure educational path, but funding it is no easy task. We are all aware of the significant impact that student loan debt may have on the life of a young professional.; therefore, it is critical to gain a solid perspective before enrolling in an MBA program.
We all know what an investment is, it may be of money, time, or work, and in the case of pursuing an MBA, all three aspects play an essential part since an MBA degree requires money, time, and your hard work, which brings up the question, should you spend all three in pursuing an MBA? It is undeniable that an MBA is a significant investment.
This post will discuss all three aspects, such as whether you should invest, what you should invest in, and how to compute the ROI of an MBA school.
Here is the Snapshot of the article:
WHAT IS THE RETURN ON INVESTMENT OF A DEGREE?
When it comes to degrees such as MBAs, there is a cost involved, and when there is a cost involved, a candidate should always have a clear notion of how soon or effortlessly they may repay that cost, especially when a substantial debt is involved.
Return on investment (ROI) is a performance metric used to assess the efficiency or profitability of an investment or compare the efficiency of many projects. ROI attempts to directly determine the amount of return on a particular investment, MBA program in this case.
It is simple to predict your initial salary and yearly income raises, generally influenced by your relevant work experience, post-MBA knowledge, and job competence. Divide the entire tuition for your MBA by your wage increase to calculate the time it will take to pay off your loans. After you’ve paid off your loans, your ROI begins to kick in.
It seems a little frantic, doesn’t it? That’s why we broke it down into a simple method for calculating your ROI, but first, you need to understand the primary components of an MBA’s ROI, and then you can set your math in doing the ROI.
HOW TO CALCULATE ROI BY YOURSELF?
The correct method for calculating the return on investment (ROI) of an MBA degree is to estimate the yearly rise in pay and determine how many years it will take to recoup the student loan/investment through salary increases over ten years. Pre-MBA and post-MBA employment experience, EMIs, market circumstances, and other factors should all be included in the computation.
1. Make a note of the present salary.
2. Then, you’ll need to know the entire cost (fees and costs) of the MBA program and how long it lasts.
3. Then figure out your opportunity cost. This is the salary you will forego while doing your MBA, plus the program’s expense. If you foresee a pay raise or promotion during this period, you might figure in a salary increase.
4. Next, you should know your post-MBA income, which you may get on the school’s official website.
Now that you’ve gathered this information, there are a few basic steps you may take to compute an anticipated ROI for your MBA program.
Current Salary (Pre-MBA) – $60,000.
A two-year full-time MBA program costs $50,000 each year.
SALARY + FEE ( for two years full-time MBA )
$60,000*2 = $120,000
$50,000*2 = $100,000
Add both = $120,000+$100,000 = $220,000
Next comes your projected post-MBA salary; calculate it by the length of time it will take to repay the US$220,000. ( We include the pre-MBA income since you will not earn anything while studying and will lose the $60,000 you were making before the MBA).
Assume your post-MBA salary is $100,000, an increase of $40,000.
Divide the entire cost of your MBA (US$220,000) by the income increase (US$40,000), and you’ll discover that your MBA will pay for itself in just over five years. After five years, your debt will be square, and here is when your MBA ROI comes into play.
When we think about ROI, we consider a ten-year ROI; therefore, what would the ROI be in ten years based on the example?
YOUR MBA PROGRAM’S ROI IN TEN YEARS.
Take your post-MBA income (US$100,000) and multiply it by ten years to get US$1,000,000.
Then deduct ten years of your pre-MBA pay. In this scenario, it would be US$1,000,000 minus US$600,000, for a total of US$400,000.
Take the MBA cost out of this total, thus US$400,000 – US$220,000 to get your 10-year MBA ROI of US$180,000.
Let us tell you something about the most basic technique of calculating ROI. Begin with a school-reported post-MBA income and then add percentage increases each year to have a better idea.
WHICH MBA PROGRAMS PROVIDE THE MOST RETURN ON INVESTMENT?
1) Stanford Graduate School of Business offered MBA graduates an average starting salary of $125,000 and a tuition fee of $119,000. The return on investment over ten years is expected to be 325 percent.
2) Harvard business school – With an average starting salary of $125,000, a total program cost of $122,000, and a 10-year ROI of 320 percent, Harvard Business School came in second.
3) Imperial College Business School – The 10-year ROI is US$870,200, over 14 times greater than the average domestic tuition rate.
4) Ross schools of business – The institution’s 20-month course has a 10-year ROI of around US$826,300, and students were able to recoup their initial investment in 40 months following graduation.
|10 Year ROI
|Tepper Business School
** not including other expenses.
To calculate the ROI of a program not listed here, fill out your information on GMAC’s official website and get your ROI computed: MBA ROI Calculator
Obtaining an MBA may benefit your career in various ways, including developing in-demand skills, expanding your network, and opening doors to new employment prospects. But in the end, you want to be certain that your time and tuition investment will pay off financially.
This is why calculating and understanding the information about the ROI of any program can help you get a great grasp of the option that you want to make; applicants frequently choose schools that don’t provide the appropriate ROI and end up with debt on their heads, this is why knowing facts right is crucial, This is where our MBA and beyond help candidates from the ground up, so help us help you by scheduling a free profile evaluation now.
Frequently Asked Questions
What is the ROI for an MBA?
Return on investment (ROI) is a performance statistic used to evaluate the efficiency or profitability of an investment or compare the efficiency of many projects. ROI seeks to directly quantify the amount of return on a certain investment, in this example, an MBA degree, concerning the cost of the investment.
Why is ROI important?
Understanding the financial risks and rewards is essential to avoid unpleasant shocks after decision-making. An MBA degree often necessitates a substantial financial investment; although banks and financial entities offer school loans, one must consider this degree’s ROI.
How do you calculate ROI for MBA?
The ideal approach for estimating the return on investment (ROI) of an MBA degree is to evaluate the annual pay increase and calculate how many years it will take to repay the student loan/investment through salary increases. Pre- and post-MBA work experience, EMIs, market conditions, and other considerations should all be considered.
How much does an MBA increase your salary?
It all depends on the school you attend; some b-schools provide a 10-20% boost in your current and post-MBA pay, while others offer a 20-50% rise.
You can refer to the article for average salary pay for top B-school: Tier 1 vs. Tier 2 Business schools