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What is ROI in MBA and How Do You Calculate It?

Last updated:
17th Mar, 2020
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What is ROI in MBA and How Do You Calculate It?

A Masters of Business Administration (MBA) may be the most fail-safe educational path, but financing it is no cakewalk. We all know how much of an impact education loan debts can have on a young professional’s life, so it is essential to get a good perspective before you sign up for an MBA.

It does involve quite a bit of money, yes. The average tuition at an acclaimed American business school can go up to $135,000. Naturally, most students are anxious about the Return on Investment (ROI) on an MBA degree, which essentially measures the degree’s profitability and can equip you with better knowledge about your post-graduation financial situation.

An ROI helps you figure out how soon you can earn back the money you spent on an MBA or how soon you can be debt-free. Let’s get some basics right before we can calculate the ROI of an MBA degree.

What is ROI

When it comes to heavy watt degrees like MBAs, aspirants should always have a clear view about how fast or how smoothly they can recover their tuition, especially when there’s a hefty debt involved.

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An easy way to do it is to estimate the starting salary and annual hike in salary, which is usually determined by your work experience, post-MBA experience, professional responsibilities. Divide the total tuition of your MBA by your salary hike, and figure out the time you need to clear your debts. Once you’ve paid your loans, your ROI starts kicking in. Learn more about the MBA salary in India.

Also take into account any EMIs, or outstanding debts or recurring medical charges which make a dent in your monthly paycheck; a clear picture of your checks and balances will help you figure out the timeline for your ROI.

It’s not just about money

Interestingly, the idea of return is perceived differently by different applicants. A lot of go-getting aspirants lean towards establishing a great professional and academic network, which is something that can help you throughout your career options after an MBA and is also kind of an investment.

It simply makes navigating the work pool a little easier and is thus a potent factor when it comes to the ROI. The quality of your network matters significantly as it manoeuvres you towards a trajectory or the kind of B-school you apply to, the kind of campus placements you zero in on, or even on the job description which fits you.

Your network of friends, professional acquaintances, batchmates, alumni peers, career counsellors, business gurus or any other kind of associations directly have a toll on the opportunities you end up getting and they strengthen your profile as well as future credibility. 

How can you calculate the ROI?

There are several easy ways to help you figure out the returns on your investment when it comes to your business degree

1. Assess your existing debts

For most people, their undergraduate debts are a significant factor in pursuing an expensive business degree. Taking on another major debt for your MBA without clearing your earlier ones is obviously a risk, especially as it will take you another couple of years to actually start earning.

But every aspirant’s trajectory takes flight differently; you may be able to withstand some minor financial setbacks in your personal life till you finish your degree and get a job. You may find time for a part-time job that pays your immediate bills as you finish your business degree. Nevertheless, you should keep the numbers ready to help you assess your situation better, in a more tangible way.

Your credit score is crucial when it comes to figuring out your interest rates on your loans. But luckily once you complete your degree and land a job, you can repay your loans at speedy intervals, at lower interest rates. 

2. Have a strong, data-driven back-up plan

Analyze your financial situation intently and build a data-based model, if possible; this will not only help you choose a program but also help you zero in on a school, get a perception about your future financial goals and the returns.

Factor in campus placements, the calibre of a course, scholarships, the demand of the said course in the job market, the relevance of your previous work experience, your grades, net tuition costs, living costs, amenities, and everything that actually affects your existing and future funds. This may sound like a lot of work, but it will help you stay on top of your financial situation and directly affect your ROI. 

3. Assess the educational, skill-based advancement an MBA brings

In case you’re still mulling over whether you should go for an MBA at all, remember aside from the sound ROI, a business degree also equips you to navigate the high-powered corporate and financial spectrum, which in so many ways, shapes a nation’s economy.

The advanced knowledge makes you a more competent manager, leading to increased productivity of your workforce. But besides that, an MBA also helps you hone your soft skills. A business degree helps you master the concepts of strategic and effective leadership and teamwork and critical thinking.

4. Starting salaries are a crucial factor

Remember an MBA is the most valued degree for a reason; even if it usually comes with a serious student loan, it also fetches you a great starting salary that helps you recuperate your financial setbacks. It’s a lot more than any other entry-level salary, of course.

As a financial manager, human resource manager or as an IT manager, you can make more than 110,000 in a year; this means you can start using a chunk of that money to pay off your loans. Moreover, there’s a hefty signing bonus involved – the bigger your school, the more signing bonus you’ll score. These factors matter a lot when you’re calculating your ROI.

But remember in every batch there are some aspirants who will earn higher than their batchmates, and even if you’re not in that league, a great thing about an MBA is that you can make the most of the skill you already possess. Check out the highest paying MBA jobs in India.

Are you a good speaker? Then you will do great in group discussion sessions and interviews. This can also lead you towards a consulting role that naturally fetches a higher paycheck. Are you a fan of planned group studying? That makes you a team player and you can convert that passion into a management skill.

5. Keep it realistic

For a good ROI, go for a program that gels with your long-term goal and your existing profile; remember that your business degree can earn you new skill sets and give you access to a great network. Though you still have to work just that hard, you will never be in over your head and will be on top of things if you stick close to your area of expertise. 

But be realistic and pragmatic in other ways too, about your commuting routes, about the city you want to study in, the eco-system you want to cultivate which can benefit your academic and later, your professional life.

Your ROI also depends on how fast you can further your career, especially if you chalk in your projected salary into your calculation. So it is very essential to stay rooted in the details and the realities of your scope of earning and also the hindrances and challenges you will face during this time.

Wrapping Up

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Dilip Guru

Blog Author
He is a Growth Hacker, Digital Marketer & Blogger. He loves solving problems of scale and long term digital strategy.

Frequently Asked Questions (FAQs)

1 What is ROI in an MBA?

Return on investment (ROI) is a valuable tool in MBA that helps you in evaluating your investment from a sheer cost versus return standpoint. It is the true value of earning your MBA. You need to figure out how you would calculate MBA return if you want to determine the true value of your MBA. You need to take several factors into account. Thus it can equip you with better knowledge and assessment about your post-graduation financial situation. It helps you in figuring out how quickly you can earn back the money you spent.

2Why is it important for me to calculate the ROI?

A good MBA revitalizes career paths and changes lifestyle. However, it comes at a high financial cost. MBA is a major financial investment and any big investment decision does require proper due diligence. It is important to know the financial risks in-store by calculating the ROI. Especially in an MBA, when dividends are paid in the long run as there is a high raise in salaries after a few years of working. Another big reason to consider is the goldmine of intangible benefits like the value of the network created, personal growth, etc.

3How can I calculate my ROI?

ROI is calculated by adding the current value of MBA investment minus the cost of Investment. This is then divided by the cost of investment. The value of your investment is the tricky part as an MBA opens doors to tangible and intangible, financial and non-financial benefits. Also, salaries can grow significantly over a period of 10 years and hence that has to be factored in. MBA returns have to factor in many things. You need to include salary, salary growth, annual bonus, your existing debts, and MBA cost. You need to assess the soft skills too. You need to include skills like networking, communication power, business developing knowledge, etc.

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