How Do You Work Out the ROI of an MBA?

When calculating ROI, the things we chose to look at are:

• Salary uplift (%)
• How long it takes to pay back the cost of an MBA
• How much you will make in 10 and 20 years

In order to calculate these, we looked at tuition costs, average pre and post-MBA salary levels, program length, the proportion of graduates starting their own businesses and how many graduates were employed within three months of graduation. We also (using GMAC data) drew a comparison with what you could earn with a specialized master’s.

Investment was calculated by adding together the average forgone salary at a school and the total cost of the program. Living costs were excluded and we assumed that full fees were being paid.

Salary uplift is easy enough to work out – a simple comparison of before and after, with post-MBA salary figures showing an increase of over 120% compared to pre-MBA salaries eliminated as outliers. Average bonus levels (annual, not signing), using QS employer data were added.

We have estimated that post-MBA salaries would increase at 5% a year, compared to 3% for non-MBA salaries (again, based on QS employer research). Bonuses were awarded to schools that fare well in our rankings exercises, of up to 3% a year for top-ranking schools, declining incrementally as we go down the ranking. Bonuses were added for schools with high proportions of entrepreneurs, who tend to have a lower post-MBA salary in early years before going to earn more over their lifetime. The highest scoring schools in this regards (15-21% entrepreneurs) were awarded a 3% bonus a year, again incrementally declining until reaching schools at which entrepreneurs account for 3% or fewer of the graduating class.

Industry-specific MBA salary figures and geographical variances have been excluded for the purposes of simplicity, though watch this space, you never know what we’ll try in the future.

Finally, those all-important big numbers: 10 year and 20 year ‘net present value’. We put together all the aforementioned figures to estimate what your income stream would look like if you did an MBA, compared it to what it would look like if you didn’t. The final numbers here are simply how much more (and, yes, it’s a lot more) you’d stand to earn a decade and two decades down the line.

If this sounds at all confusing…well, just go look at the report. We’ve done the work, so you don’t have to. That’s what we’re here for after all…