aLearning Blog

Online Learning for Trade Associations

ROI? ROE? EVA?

Posted by Ellen on February 1, 2010

In the eLearning Guild’s 2009 white paper, “Building the Business Case for e-Learning” Temple Smolen writes, “In an April 2009 survey of eLearning Guild members, 48% reported a positive return on investment (ROI) from e-Learning, while only 5% reported no return or a negative ROI. In fact, not only do most members generate a positive return, but 50% report a ROI greater than 15%.”

For advocates of alearning, this is a great sliver of data.

But is ROI always the best thing to be measuring? How about measuring how successfully we delivered what our members expected? Or how about determining if the investment we’ve made in elearning really paid off more than offering the same content in a face-to-face format?

As with all things, you need to know what your original success criteria were before you determine if you met them. (Sounds obvious, but come on, haven’t we all measured success without a baseline one time or another?!?)

If you want to demonstrate to your board of directors that the investment you made in alearning will break even or generate revenue, then an ROI is a great measure. The formula for ROI is Net Benefit/Cost. The Net Benefit could be cost savings or revenues. You also want to consider whether your costs should be recovered within the year or over a longer period (for example, the cost of hiring a Webinar production company should be recoverable within the year whereas an LMS investment should be calculated over several years).

Measuring expectations is a little different and unless there’s a formula for ROE (return on expecations) I don’t know about, you’ll need to be more creative. Let’s say you introduced elearning and expected it would engage otherwise non-active members. Start with the number of members who did not participate in an online offering and, over time, measure the change. Let’s say 40% of your 2000 members (800) were non-participants in learning offerings prior to online learning. After the first measurement period (A month? Six? Twelve? It’s really up to you), 40 of those members took an online course (5%). You could say that you’ve experienced a 5% return on your expectation.

According to Smolen (who cites Wikipedia), “For people in finance, EVA (Economic Value Added) is considered a more accurate measure of profitability” because it “is a measure which assumes there is an opportunity cost to the money you are investing, and it might yield better returns elsewhere. The calculation allows for an adjustment to compare one project to a hypothetical alternative investment.”

In other words, if you want to, you could use EVA to calculate the variance between what your elearning investment has delivered versus a face-to-face (FTF) version of the same course. You need another piece of the financial picture for this formula than you do for calculating ROI:
(Net Benefit – Cost of Capital) / Cost Investment = EVA

Her white paper provides all the details for making this calculation (or see Wikipedia for an explanation there).

Here’s an alternative: Let’s say a FTF program is suitable to adaption online. In the FTF format, because of overhead, the program costs $30,000, reaches 30 learners, and generates $2000/year in revenue. It costs $1000/attendee (in association costs; costs to attendees for travel, lodging, etc. are separate and not included because of the wide variance in calculating them). Your waiting list for the program is long, with many people dropping because the program is only held once each year.

After calculating the cost of development, you determine that an alearning version of the program would cost $60,000 but because it’s online, you can allow any number of members to access it at any time. You decide that your members would be willing to pay $200 for a year’s access. If you have 150 people register over two years, you’ll earn back your investment.

If your alearning offering will still be viable after three years, and/or if you know at least 75 people per year will register the third year (assuming 50% attrition because the offering doesn’t have the shine of a new penny anymore), you stand to gain $15,000 in revenue. Okay, subtract some ongoing costs for your LMS, marketing, and other stuff, and your revenue shrinks, but it will still generate more than the $6000 over three years that the FTF session delivers.

Finally, over three years, your cost per learner is just $160, rather than $1000.

In the long term, your alearning offering will reach more people and do so at a much lower per-member cost, even though your up-front investment will be twice as high.

ROI isn’t the only financial measure that you should calculate and consider — EVA might be more appropriate. And when it comes to our members — ROE should always be considered!

One Response to “ROI? ROE? EVA?”

  1. Kapil said

    difference between Return on Investment and Economic value added

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