Measure your MBA ROI

"An investment in knowledge always pays the best interest." 

Benjamin Franklin’s words have been overused to the point of cliché. In the case of the MBA, however, we can see evidence of this in the most literal possible sense. 

The MBA is an advanced, vocational degree – and does not come cheap either. Therefore, getting a return on investment is certainly something most, if not every MBA applicant will carefully mull over.

In 2015 QS published the findings of two separate MBA return on investment (ROI) surveys, one which was sent to 46 top business schools offering full-time MBA programs in Europe and the other to 85 leading institutions offering the same format of MBA in the US. The results were rather persuasive. 

The average increase in salary post-MBA in Europe was 85%, which in money terms equaled US$45,500 (taking average salary levels to US$91,586). In the US, MBA graduates received a 75% salary uplift on average, or US$38,694 (up to US$91,417). The average time it took to pay back the cost of the MBA was 44 months in the US and 30 months in Europe. Bearing in mind that MBA programs in Europe tend to be one year in duration versus two years in the US.

As a general rule, the highest MBA salaries are usually offered to graduates from more-prestigious business schools – those featuring in the ‘global elite’ quadrant of the QS Global 250 MBA rankings. The opinions of employers form the backbone of these rankings, and clearly, they are willing to pay a premium to MBAs taught by the best schools.

Want to work out the ROI you can get from attending business school, specific to your target industry and location, the school you attend and your current salary? Here’s how…

Calculate and compare your MBA ROI:

1. First, you’ll need your current salary.
2. Then you need the full cost (fees and expenses) of the MBA program, and also how long it runs for.
3. Then calculate your opportunity cost. This is the salary you forgo while you are doing your MBA + the cost of the program. You can factor in some salary uplift if you would expect a pay rise or promotion in this time.  
4. Finally, you need your expected post-MBA salary. Business school websites should display average post MBA salaries, often broken down by industry sectors and geographies. Or you can use one of the many web salary resources available to look up what you can expect to be earning a little further down the line.

Now you have this information, you can start calculating:

Below is an example of a very basic MBA ROI calculation – just to help you start thinking. You can replace the numbers with your own.

•  Current earnings (pre-MBA salary): US$50,000
• Two-year full-time MBA is advertised at US$45,000 per year
• Add salary + fees: US$100,000 of earnings forgone over two years + US$90,000 of tuition = US$190,000.

Next, you will need to take your predicted post-MBA salary to work out how long it will take to pay back the US$190,000.

Let's say that your post-MBA salary is US$95,000, an increase of US$45,000.

Divide the total cost of your MBA (US$190,000) by your salary uplift (US$45,000) and then you can see that your MBA will be paid back in just over four years. After these four years, you’re in the black, and this is where your MBA ROI kicks in.

Determining a 10-year MBA ROI:

Take your post-MBA salary (US$95,000) and multiply it by 10 years, which equals US$950,000. 

Then you need to subtract 10 years of your pre-MBA salary. In this case, it would be US$950,000 - US$500,000, which equals US$400,000.

Now take away the cost of the MBA from this last total, so US$400,000 – US$190,000 to get your 10-year MBA ROI of US$210,000.

This is the most basic calculation, not factoring in any salary rises. To get a better idea you can start with a post-MBA salary as reported by a school and then factor in percentage increases each year as we do in our ROI reports. You can do the same thing with your pre-MBA salary too, though with a higher rate of increase for your post-MBA salary. There is no need to include living costs as these are costs which would be incurred whether or not you enroll in an MBA. You can alter the calculation to any length of time you please, of course!

Made your calculation? Doesn’t look too shabby, we’re guessing! Well, don’t let us stop you – time to start making those applications.