3 Methods for Calculating Your LMS ROI

Learning how to prove that your learning management system is a valuable investment for your organization is essential. Doing so not only ensures that you’ll be able to secure funds for learning and development (L&D) initiatives in the future, but also that you can confidently say that you’re maximizing the potential of your current system.

If you’re an HR leader or L&D director whose organization recently invested in an LMS, you need a strategy for measuring the return on investment (ROI) of your new system. But between the pitfalls of vanity metrics and loosely defined organizational goals, there are a lot of red herrings to avoid when it comes to determining whether your LMS is worth its cost.

We’re here to help. We consulted research from Gartner [1] and spoke to Matty Hogarth, the learning and development manager at Indeed Flex [2], in order to come up with three concrete strategies you can use to calculate and communicate the ROI of your LMS platform.

1. Calculate the time savings your LMS has afforded your business

A common misconception about the value of software in general is that it needs to be making your business money. In reality, these tools often benefit your business through improving productivity (and in turn, saving precious time and money).

Matty Hogarth, the learning and development manager at Indeed Flex [2], gave us an example of how he quantified the time savings his LMS helped his business achieve. In 2020 (when many of us were pivoting to remote work due to the pandemic), Hogarth’s organization had a very specific problem:

Hogarth and the rest of the learning team at his organization did some research into how much this issue was costing the business per day. Shockingly, it was hundreds of thousands of dollars in lost revenue:

As the saying goes, time is money. So Hogarth’s team used their LMS to create a mandatory three-minute module that walked employees through how to screenshare correctly. And it worked; Hogarth says, “All of a sudden, people weren’t losing those 10 minutes.”

How to quantify the time savings your LMS has afforded:

While there isn’t a formula that every business can use to determine the monetary value of the time their LMS has recouped, here are a few tips for applying this approach at your organization:

• Identify drivers of lost productivity and time within your organization: In Hogarth’s example, this was the lack of know-how surrounding their collaboration software. At other businesses, it could be anything from the decentralized storage of employee resources to unclear role expectations.

• Develop learning content that alleviates those drivers: Hogarth’s solution was the three-minute module on presenting with Microsoft Teams. Continuing with the examples from above, other solutions might be to migrate all employee training resources to your LMS’ content library or create onboarding paths that do an in-depth explanation of a role’s responsibilities.

• Quantify the time your training session/solution has recouped: Now, for the tricky part. In Hogarth’s example, his team took the time that was formerly wasted in meetings and assigned it a monetary value by multiplying it by the employee-in-question’s hourly wages:

This formula is a great starting point, but you’ll need to adjust it depending on the specifics of your situation. For example, if you opted to record a training session and upload it to your LMS’ library (instead of calling on the instructor to host it live every time), you could adapt the formula like so:

2. Compare employee satisfaction and retention rates to pre-LMS investment levels

It shouldn’t be a surprise to HR and L&D professionals that development opportunities are a key component of a positive employee experience. It’s certainly something that Hogarth is aware of:

And he’s right—according to Gartner, the majority of employees want opportunities to develop their skills [1].

If you’re effectively using your LMS to bolster your learning and development offerings, there should be an improvement in your organization’s employee engagement and satisfaction levels. Of course, knowing that and proving it are two different things, which is why we’ve put together some concrete tips for demonstrating the impact your LMS has had on the employee experience at your organization below.

How to demonstrate the impact of your LMS on the employee experience

The three tips below will help you measure the impact your LMS has had on the employee experience.

• Use survey data: If you regularly conduct employee satisfaction surveys, you can compare recent results to responses from before you rolled out your new LMS to determine if there’s been any improvement. If you don’t already do this, we suggest investing in an employee pulse survey tool, because being able to directly ask members of your workforce about different aspects of the employee experience (such as your LMS) is invaluable.

• Look at employee retention rates over time: Another option is to look at the voluntary turnover rate at your organization over time (specifically before and after LMS implementation). Many HR analytics platforms will capture this data for you, and they may also denote specific reasons employees cited for leaving the organization—which, as you can imagine, can be very helpful for determining why employees choose to leave now and in the past.

• Ask your employees: If you don’t have access to the data referenced in the points above, there’s one more approach you can try: Ask employees how they feel about the new learning platform. To do this, encourage team managers to bring up the topic in one-on-ones, then pass along any feedback their reports have to your team. At the very least, this strategy will allow you to feature quotes from employees who have responded positively to the LMS in your documentation on its ROI.

3. Prove that your LMS has helped your organization upskill successfully

In mid-2022, Gartner reported that 87% of organizations are experiencing a skills gap. [4] In part, this is because roles and responsibilities are always evolving. For instance, over 30% of the skills in the average finance, IT, and sales job posting from 2017 are no longer needed today.

If your business’s LMS investment was motivated by the need to upskill, it’s imperative to determine if it’s actually helping those efforts. The good news is that an LMS can support corporate training initiatives when it’s used strategically.

Getting strategic about upskilling requires conducting a skills gap analysis. Once you do that, proving that your LMS is helping your workforce gain the competencies it needs for the future will be a much more simple task.

How to determine whether your LMS has helped your organization upskill

This method for measuring your LMS’ ROI relies on two things: 1) A skills gap analysis and 2) LMS training paths that help your employees gain in-demand skills.

For the latter, we recommend consulting our content How To Create E-Learning Modules That Boost Training Retention, and if you haven’t conducted a skills gap analysis, we’ve put together a couple of resources that will help you get started below.

• Conduct a skills gap analysis: Some HR software tools are built to track your workforce’s current and future skill needs. But if you don’t have a tool with this sort of functionality, we suggest following the five-step process outlined in the graphic below. To help you, we’ve also created a free, downloadable Excel template that you can use to navigate this process.

• Track skills progression post-LMS implementation: Analyze the skills your workforce has gained since they began training with your LMS. Ideally, you’ll have a skills gap analysis or a skills map from before you adopted an LMS to use as a basis for comparison. We recommend creating a new skills map (or matrix) six months post-LMS training program kickoff. Then, present your new skills map alongside an older map or analysis to highlight how the tool has helped prepare your workforce for the future. [5]

If you’re maximizing the potential of your LMS, a positive ROI is guaranteed

In a Software Advice Survey [*], nearly half (48%) of the HR leaders we polled said that their L&D budget had increased from 2021 to 2022—and 86% of that group expected to spend more on learning and training technology throughout 2022.

Our point? Adopting an LMS is becoming an increasingly common practice for organizations of all sizes and types. And considering the benefits these systems bring to your business, it’s no wonder why. In fact, a positive ROI is almost guaranteed if you have a strategy in place to maximize the potential of all that your LMS solution has to offer.

So, to recap, the three methods we covered for demonstrating the ROI of your LMS are as follows:

1. Calculate the time savings your LMS has afforded your business.

2. Compare employee satisfaction and retention rates to pre-LMS investment levels.

3. Prove that your LMS has helped your organization upskill successfully.

Use the tips we provided in each section to put these strategies in action. And don’t miss these related resources:

• Making an LMS Business Case? Know These 5 Answers First

• An Experienced People Director Shares 3 Ways to Use Your LMS

• Perfect Your LMS Strategy: 3 HR Pros Show You How