Coaching return on investment: how to compute the ROI of executive coaching programs
By Julian Lewis • November 3, 2022
When it comes to investing in an executive coaching program, the biggest question on most people's minds is whether or not the program will be worth the cost. After all, no one wants to spend their hard-earned cash on something that won't give them a good return.
Fortunately, there are ways to calculate the financial return and effectiveness of implementing a business coaching program. One of the main ones is ROI.
ROI and other cash flow measures such as internal rate of return (IRR) and net present value (NPV), are key metrics that business analysts use to evaluate different investment alternatives. These measures help us determine which option is the best in terms of profitability and risk.
By quantifying the costs and benefits of a particular investment, you can determine whether or not that investment is worth it.
What is a return on investment (ROI) and how do you calculate it?
ROI is a measure of the profitability of an investment. It is calculated by taking the benefits of the investment and subtracting the costs of the investment. Then divide the resulting number by the costs of the investment. The higher ROI, the more profitable the investment.
There are several methods that can be used to calculate ROI. The two most common methods are the following:
- ROI = Net Return on Investment / Cost of Investment *100%
- ROI = (Final Value of Investment - Initial value of investment) / Cost of Investment * 100%
The above formulas can be used to calculate the average ROI of any investment, including executive coaching programs. The most important thing is to make sure that you are considering all of the relevant factors.
Some things to consider when interpreting ROI calculations include:
- The time frame over which the benefits were generated
- The type of benefits that were generated
- The costs of the coaching program
By considering all of these factors, you can get a clear picture of the ROI of the coaching program. For any other questions about the topic, check out our Life and career coaching: FAQs.
The Challenge With Measuring Coaching ROI
The challenge in measuring coaching ROI is that it can be difficult to quantify some of the benefits. For example, it can be hard to measure the impact of coaching on someone's overall job performance.
Additionally, some benefits may not be realized until long after the program has been completed. For example, if a business executive coaching program helps someone to develop better time management skills or expand their leadership capacity, the benefits of that coaching may not be realized until months or years later.
Despite these challenges, it is still possible to calculate a coaching investment's ROI. You just need to narrow down the main benefits you wish to accomplish and run a few scenarios on those. By using one of the above formulas and including both quantifiable and non-quantifiable benefits, you can get a good idea of whether or not the program is worth the investment.
Quantifying the impact of executive coaching engagements
When it comes to measuring the ROI of engagements, start with the easy part: calculate the initial cost of the program.
This includes both monetary costs and opportunity costs. Monetary costs are simply the amount of money that the company spends on the program. Opportunity costs are the monetary value of the time that the teams and executives spend on training.
Next, comes the harder part: you need to calculate the benefits of the program. This can be done by looking at the results you hope to achieve after completing the program and trying to quantify them. For example, if your organization increases employee retention by 10% in the six months after completing the program, then that would be a benefit.
When it comes to calculating the benefits of the program, it is important to focus on both the tactical changes (e.g. the increased sense of belonging or engagement of a leader) and the changes that occur as a result of those changes (e.g. increased retention of key employees). By doing so, you can get a clear picture of the ROI of the coaching program or course.
Also, given the nature of the investment, always remember to consider both the quantifiable and non-quantifiable benefits. Doing so can give you a clearer picture of the costs and the business results.
5 measurable goals for executive coaching
The purpose of hiring an executive coach is to get a return on that investment. In order to make sure you are getting the most out of your coach - and your money - it is important to be clear about what success looks like to you. This means setting measurable goals for the coaching relationship before it even begins.
Goal #1: Increase employee retention
When it comes to measuring employee retention, there are a few key data points you may want to track:
- Time to fill: The number of days it takes to fill an open position
- Turnover rate: The percentage of employees who leave within a certain time period
- Voluntary turnover rate: The percentage of employees who leave voluntarily (as opposed to being fired)
If you see an increase in any of these metrics, it is a good sign that your coaching program is having a positive impact.
Goal #2: Improve employee satisfaction
Employee satisfaction can be measured in a number of ways, but some key indicators to track are:
- Engagement scores from surveys (such as the Gallup Q12)
- Exit interviews
- Number of complaints or grievances filed
If you see a decrease in satisfaction, it could be an indication that your coaching program is not having the desired effect.
Goal #3: Boost productivity
There are a few different ways to calculate productivity, but a few examples of key indicators to track are:
- Units produced per hour
- Number of sales made per week
- Number of calls made per day
- Increase in revenue
If you see an increase in productivity, it is a good sign that your coaching program is having a positive impact on the development of team members.
Goal #4: Reduce costs
Reducing costs can be tricky to measure, but some key ROI indicators to track are:
- Number of sick days taken
- Number of accidents or injuries
- Turnover rate
If you see a decrease in any of these metrics, it is a good sign that your coaching program is having a positive impact.
Goal #5: Improve performance review scores:
Organizations that give performance reviews can use those scores to evaluate the success of your coaching program. Look for an increase in the scores from pre-coaching to post-coaching.
These are just a few examples of measurable goals you can set for your coaching program. By being clear about what success looks like, you will be able to more accurately measure the ROI of your investment.
It's also important to consider the time frame over which the benefits were generated (the most commonly being: three, six, or twelve months).
The executive coach should also be clear about what they can and cannot do. They should be able to share with you their methods for measuring success and help you set realistic goals for each person participating in the program. Hear them out, but be clear about your expectations from the beginning, you can ensure that you are getting the most out of your investment.
Measuring tactics vs. changes
When companies think about measuring the success of an executive coaching program, they focus on tactics - the things that the coach helped the employee to do differently. While this is important, it is not the only thing that should be considered.
Tactical changes are easy to measure. For example, if the coach helped a leader create a better time management system, you can easily measure the impact of their overall productivity.
However, it is also important for businesses to look at the certain number of changes that occurred as a result of the coaching. These changes are often more difficult to quantify, but they can be just as important as net profits - if not more so.
For example, if the coaching conversations helped leaders and managers develop a better understanding of their team's dynamics, this could lead to improved communication and more effective decision-making thus creating a better leader. These changes might have increased productivity and morale within the company, but are more difficult to track, yet impact net profits significantly.
Credentials and specialties of the executive coach
An important factor to consider when choosing an executive coach is their credentials and specialties. While there are many different types of coaches out there, not all of them will have the skills and experience necessary to help you achieve your goals and could yield lower ROIs.
When looking at credentials, it is important to consider both formal education and real-world experience. For example, many coaches who have a degree in psychology will likely have a deeper understanding of human behavior than one who does not. However, a coach with years of experience working with executives will likely be better equipped to help you achieve your goals in the future.
Business coaching rates and fees
The cost of executive coaching can vary depending on the coach's experience, credentials, and the scope of the engagement. In general, you can pay more money for a coach who has more experience and credentials; for instance, one that is accredited by the International Coaching Federation or one that specifically focuses on C-suite leadership.
When considering the cost of coaching, it is important to research what's important to you or your business and remember that the goal is to generate a return on investment (ROI). In other words, the coaching should pay for itself through the benefits that it generates.
Making An Impact
When choosing an executive coach, it is important to find one who can help you make an impact that lasts. The best coaching experience is finding one who is centered on helping clients make lasting changes in their lives and careers.
A team effort
Executive coaching is not a one-time event. It is a continuous process that should be incorporated into your daily routine. The best way to do this is to work with a team of coaches who can keep you in the right direction as they support you throughout your journey. The same may be true in business. Companies may need a team of coaches to support the leadership development of multiple managers simultaneously in the organization.
Limitations of ROI in measuring what executive coaching realized
While ROI is a helpful metric, it does have some limitations. One of the biggest limitations is that it can be difficult to quantify the benefits of coaching. This is because many of them are intangible, such as increased self-awareness and improved relationships.
Another limitation is that ROI calculations can vary depending on how they are done. This means that it is important to make sure that you are comparing apples to apples when looking at different ROI calculations.
Finally, it is important to remember that ROI is just one metric among many factors. While it can be helpful in assessing the value of executive coaching, it should not be the only metric used to evaluate the net present value of coaching services.
Executive business coaching can be a valuable tool for enhancing skills and improving the performance of leaders. By working with a team of experienced coaches, you can maximize your investments in coaching and achieve short-term goals while establishing a road map for future goals.
While ROI is a helpful metric, it does have some limitations. One of the biggest limitations is that it can be difficult to quantify the benefits of coaching. This is because many of the advantages are intangible, such as increased self-awareness or improved relationships.
Another limitation is that ROI calculations can vary depending on how they are done. This means that it is important to make sure that you are comparing apples to apples when looking at different factors in ROI calculations.
Finally, it is important to remember that ROI is just one metric in your coaching investments. While it can be helpful in assessing the value of executive coaches, it should not be the only metric used, especially for businesses.
Read more about: Executive Coaching
About Julian Lewis
Julian Lewis is a driven and accomplished professional with a passion for driving positive change in the business world. As the co-founder and COO at Zella Life, a coaching on-demand platform, he is working to bridge the diversity gap between diverse talent and internal team leaders. His own experience as a professional of color in a Fortune 500 company led him to discover the limitations for advancement that many professionals like himself face. Determined to reach his full potential, Julian became an established business coach and entrepreneur, committed to supporting others who have been culturally conditioned to remain silent in their pursuit of personal and professional growth.
Today, Julian is a recognized corporate trainer, coach, and leader, known for his ability to leverage real-life experiences and evidence-based methodologies to affect positive change within individuals and organizations. As the leader of Zella Life's coaching division, he is dedicated to empowering individuals and businesses to achieve their full potential. Julian's unique perspective and passion for coaching make him a valuable asset to any organization.