The cost of an MBA, or the fees business schools charge for their MBA programs can vary considerably.
MBA applicants need to understand that, although they are all given the same three letter acronym, no two MBA degrees are the same. As a result, the price that business schools place on their MBA programs can alter depending on a wealth of factors.
Business schools do not operate like supermarkets.
A supermarket’s business model is simple: to provide, essentially, the same kind of goods as their competitors but at the lowest cost possible; to encourage the customer to spend the highest percentage of their budget in their store and not with their competitors; and to drive down the cost of buying their goods to sell at, usually, the highest profit.
Conversely, MBA degrees operate on a quite different model. In fact it is the aim of business schools not to even think of their service as a ‘cost’ to their customer (the MBA student) but as an ‘investment’ in the MBA student's future career.
Essentially the value of a business school comes when an MBA leaves the program and rejoins the workplace, finding employers that are willing to match their improved salary expectations and to provide a working environment that the MBA finds conducive to a happy working life.
This is why it’s essential that candidates realize that MBA degrees are not all the same; and nor is the cost of the varying MBA degrees on offer.
MBA cost versus return
You don’t graduate with an MBA degree, per se. You graduate with ‘an MBA degree from Harvard’ or ‘an MBA degree from London Business School’ and, as such, the choice of business school is perhaps the most important career decision that a candidate can make.
It’s true that the investment on an MBA degree from the best business schools can seem like a huge financial outlay.
London Business School’s 18-month MBA program costs almost GBP£50,000 (around USD$80,000) in course fees alone, though the school claims an average salary of almost three times that after graduation, while Wharton’s 21-month MBA program has fees around the USD$85,000 mark with expected average salaries of about USD$120,000. In both cases the return on investment (ROI) of the MBA degree is high.
So what is it that makes candidates commit to such seemingly extravagant course fees for the best business schools when there are far more moderately priced MBAs available in virtually every country in the world?
IE Business School's International MBA program fees for their November 2012 and April 2013 intake are scheduled to be EUR€59,200 (a little under USD$78,000), though IE topped the BusinessWeek ranking for Return on Investment (ROI) in 2008.
Lisa Bevill, IE’s director of admissions, notes the advantages of studying at a top-ranked business school: “The first is high-caliber classmates [and] a key part of your learning will come from your classmates, so it’s important who is in the classroom with you. They turn into a high quality alumni network, which has a huge impact on future job opportunities and business partnerships.
“Top ranked schools will also be audited by rankings and are more likely to be recognized by world leading accreditation bodies – meaning that the MBA programs at these schools guarantee a certain level of academic standard.”
- View TopMBA.com's MBA rating compiled entirely on international MBA employer and recruiter opinion >
The real cost of an MBA
Nick Barniville, MBA director at the European School of Management and Technology (ESMT) in Berlin, says: “It’s very naïve to choose an MBA on the basis of price. We teach MBA students to take a more rational approach. A ‘cheap’ MBA can be a much worse investment decision than an ‘expensive’ MBA.”
For Barniville, looking at business schools and applying the kind of financial models that MBA programs encourage is an advantageous way of working out whether an MBA degree at a certain business school makes a reasonable investment.
“Potential MBA students make their decision based on their calculation of the net present value (NPV) of the investment. They take the opportunity cost of foregoing their current salary for either one or two years, add this to the price of tuition, less any financial aid available, and living expenses in their target cities, and compare this to the expected increase in income that they are likely to earn over their career post-MBA. All else being equal, the school which has the highest NPV will be chosen.”
However dozens of decisions go into deciding the right business school for you other than just cost or return on investment of an MBA.
Is the school the right ‘fit’? In other words, does the culture of the business school seem to suit you?
Are the academics interested and experienced in what you want? Is the school in the right country or strong at the areas of business that you’re interested in? Will you get the career you’re after at that school?
Liz Wagoner, assistant director of admissions at Boston University's School of Management, says: “Students should look at their career goals and which program is the best to help them achieve those goals. We encourage candidates to consider the resources and the network that they’ll have access to.
“Boston University is the fourth largest private research institution in the US, and this allows our students some incredible opportunities as far as both resources and networking. At the end of the day, though finances and rankings should be part of the conversation, ultimately it should be about fit and finding the best program for the candidate.”
- Research the average MBA salaries for business school graduates with TopMBA.com's business school profiles >
MBA salary expectations
Much is made of a candidate’s expected salary increase within two years of completing their MBA degree.
However it is important to remember that most MBAs expect to work for several years, even decades, after their course finishes and that their projection over the length of their careers is important. Of course it is impossible to predict this accurately, but it does not take an overt risk to predict that an MBA will catapult most graduates into a higher revenue stream.
The BusinessWeek ranking of business schools according to return on investment is therefore a useful indicator. However the fact that it only bases ROI on how long it will take the average student to repay the course fees makes it slightly limited.
Extended over the decades of an MBA alumni's working life it can be expected that graduates from the top business schools will find that they repay their decision to do an MBA many times over.
- Read how to calculate the return on investment of your future MBA program >
- View TopMBA.com's MBA rating compiled entirely on international MBA employer and recruiter opinion >
- Research the average MBA salaries for business school graduates with TopMBA.com's business school profiles >
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