By Tim Armstrong, Senior Vice President of Sales, Expertus
You’ve done the research. You know the facts. You believe a modern, SaaS-based learning management system is a smart move for your training initiatives and your organization’s bottom line.
But it takes more than conviction and positive word-of-mouth to get buy-in from your stakeholders, business units and senior executives. These decision makers are interested in data that illustrates how a cloud LMS will pay for itself through increased productivity, improved business performance, or reduced costs. In other words, to seal the deal for next-gen learning technology, you need to demonstrate return on investment (ROI).
Easier said than done, right? Actually, it doesn’t need to be overly complicated. The most innovative LMSs include so much advanced functionality — mobile-first learning support, real-time analytics, gamification capabilities, sophisticated e-commerce features, and systems integration through standards-based APIs — it is now much easier to demonstrate significant ROI.
Two Winning LMS ROI Examples
Here are several real-world ROI calculations that convinced business leaders to move forward with a next-gen LMS:
SCENARIO 1: TOTAL ENTERPRISE LMS (EMPLOYEES, CUSTOMERS & PARTNERS)
One of my customers — a global software company — wanted an LMS that could more fully engage employees, customers and business partners in product-related learning. They focused on this basic equation:
INVESTMENT GAINS – HARD COSTS FOR LMS INVESTMENT = LMS ROI
In the chart below, you’ll see “investment gains” itemized in the “Benefit” section, and “hard costs for the learning investment” itemized in the “Cost” section. The estimated cost for LMS purchase, implementation and operations over three years totals $277,500. So we can plug that into the ROI equation:
INVESTMENT GAINS – $277,500 HARD COSTS = LMS ROI
Now, lets look at gains. Most of the benefits come from an expected increase in product sales. That’s because training helps more people become more engaged, knowledgeable and loyal to the brand. Although this is expected to increase sales revenue only by a modest 1%, the overall growth translates into a whopping $5 million a year! They also project a 20% increase in customer training program sales, leading to an additional $1 million a year. In other words, total external benefits should increase by $6 million a year.
For internal benefits, they estimate a 15% improvement in LMS administration productivity. So, with five admins working at an annual rate of $100,000 (fully burdened), the productivity gain translates into $15,000 a year for each admin – or $75,000 a year.
Adding these external and internal benefits together, they predict $6,000,000 in benefits year, for a total of $18,000,000 over a three-year period. When we plug this to the basic formula, the results are compelling:
$18,225,000 INVESTMENT GAINS – $277,500 HARD COSTS = $17,947,500 LMS ROI
As the “Return On Investment” section shows, they expect to earn 65 times the actual cost of their new LMS in the first three years. I realize this may sound too good to be true. But if you choose the right LMS, and apply it the right way, this kind of ROI is certainly achievable.
SCENARIO 2: WORKFORCE LMS (EMPLOYEES ONLY)
Now let’s look at a manufacturing company seeking a modern LMS to improve workforce training and compliance. They also used a 3-year time horizon, but estimated benefits and costs this way:
COSTS: $106,000 average annual LMS costs over the 3-year cycle
BENEFITS: $4,150,000 estimated annual savings from multiple sources:
• Eliminating $200,000 a year in existing non-compliance fees
• Reducing operational cost of compliance by $350,000 a year — from streamlined compliance notifications and admin services.
• Improving workforce performance by 1% — a total of $3,600,000 — from new mobile, social and gamification capabilities that drive learning engagement and focus.
As the chart below illustrates, the estimated ROI is more than 39 times the LMS cost. This multiple was easy for decision makers to approve.
How Does Your Company Demonstrate LMS ROI?
How have you faced LMS purchasing challenges in your past? Have you built a case on either of the methods I outlined? What worked for you — and what didn’t?
In talking with hundreds of customers through the years, I’ve found that each organization’s learning technology issues are unique. I’ve also discovered that many factors can influence estimated LMS benefits and costs. However, there are also proven methodologies that can help you build a compelling business case.
If you rely on numbers to illustrate how new learning technology can resolve a costly business problem, reduce unnecessary labor and/or improve employee performance, you’re speaking the language of decision-makers. And that means you’re much more likely to gain their approval.
For more tips on how to develop a cost benefit analysis for modern learning technology, I invite you to download my white paper, “The Case for the LMS.” And for more free tools and advice about investing in a next-generation LMS, check out the “LMS Buyers Kit.”
Editor’s Note: To find out how a modern cloud LMS can create value for your organization, visit our website. Or if you want assistance in creating your own LMS ROI calculation, contact us to schedule a personalized consultation.
Image Credit: Pixabay