The return on investment of an MBA is a much debated topic among MBA graduates and applicants. People go into an MBA program with such a variety of expectations and experiences, yet most think about ROI in the same way. While a Master of Business Administration (MBA) degree is the safest educational path, financing it is no cakewalk. We all know how much of an impact education loan debt can have on a young professional’s life, so it’s essential to get a good overview before applying for an MBA.
Yes, it comes with a considerable amount of money and most students are naturally interested in the return on investment (ROI) of an MBA, which essentially measures the profitability of your studies and can equip you with a better understanding of your financial situation after graduation. ROI can help you see how soon you will recover the money you spent on your MBA or how soon you will be debt-free. Before we calculate the ROI of an MBA degree, let’s get some basic information straight.
Return on investment can be expressed in two ways. I can choose to calculate how much more money I get back from my investment over a set period of time. Or, as a proxy, I can calculate how quickly my original investment has returned, the payback period.
However, we can’t just focus on money in our calculations. A network of friends, professional acquaintances, classmates, peers, career advisors, business gurus or any other associations has a direct impact on the opportunities you eventually get and strengthens your profile and future credibility. Graduating with an MBA simply makes it easier to navigate the work environment and is thus a strong factor when it comes to return on investment.
So how do you calculate the real return on this investment?
The proper method of calculating the return on investment for an MBA degree is to estimate the annual salary increase and determine how many years it will take to pay back the student loan/investment through a 10-year salary increase. The calculation should include work experience before and after the MBA degree, EMIs, market conditions and other factors.
1. Write down your current salary.
2. Next, you need to know the total cost (fees and expenses) of the MBA program and the duration of the program.
3. Then find out your opportunity cost. This is the salary you give up during the MBA plus the cost of the program. If you anticipate a salary increase or promotion during this period, you can count on a salary increase.
4. Next, you should know your post-MBA income, which you can get from the school’s official website.
Now that you have gathered this information, you can take a few basic steps to calculate your projected return on investment for the MBA program.
RETURN ON YOUR MBA PROGRAM IN TEN YEARS.
Take your post-MBA income and multiply it by ten years. Then subtract the ten years of your salary prior to completing the MBA program. Subtract the cost of the MBA from this total to get the ten-year return on your MBA investment.
However, ROI is not just about money, it is affected by many other factors that can interfere with this calculation and change the outcome significantly. ROI also depends on how quickly you can advance your career, especially if you include your projected salary in the calculation. It is therefore very important that you understand the details and realities of your earnings range, as well as the obstacles and challenges you will face during this time.