As a coach and speaker that delivers coaching services and workshops to companies, I’ve been looking for an answer to three questions that have plagued me since the start of my career…
1) How can we measure the impact of coaching and training workshops in a corporate environment in a quantifiable and objective way?
2) The benefits of coaching will be realised over a long-term period, but how can we gauge if there are any short-term benefits – and can these be quantified?
3) How can we communicate a tangible, financial value for the coaching services to managers and executives based on the return-on-investment (ROI) for the company?
The more I’ve worked with corporate firms, the more I’ve recognised how helpful it would be to communicate a financial, tangible value to attach to my coaching services.
After all, just like a project manager clarifying the deliverables of any project with the project customer, it’s vital for any coach to sit down with the client at the beginning of a coaching relationship and define what exactly the client wants to achieve.
But just as the project manager needs to clarify the budget and ROI with the project sponsor, it’s crucial that the coach and client ascertain a way for the client to measure the impact that coaching has had, such that the ROI of coaching becomes evident.
Of course, coaching is less of a short-term project and more of a long-term programme with various deliverables that are realised at different times.
Ultimately, this means that it’s crucial for the coach and the client to devise the measurement method for coaching between themselves. No two cases will be identical, and all coaching or training workshops need to be tailored to the client’s requests to ensure maximum impact.
But this is often easier said than done, especially when multiple stakeholders need to be satisfied.
After all, while a manager might be happy with measuring fewer employee or customer complaints, executives may be more inclined to attach a tangible value to coaching services to ensure that there’s a net positive impact on the bottom line. And yes, a company may have a corporate responsibility to uphold the well-being of its employees – but that doesn’t necessarily satisfy the shareholders.
As a Cambridge Engineer and ex-management consultant, I’m a data and numbers guy. And it irked me that, if a CFO asked me what the ROI of coaching was, I had no consistent means of giving them a tangible, financial value.
Sure, we can look at the bottom line after a period of months and hope to see an improvement – but which portion of that can we actually attribute to coaching?
Sadly, whether in the form of 1-on-1 employee coaching sessions or company-wide workshops on stress management, resilience, emotional intelligence (and so on), there is no one way to measure the impact of coaching, nor to exactly identify the financial value added.
So, I put my management consultant’s hat on and came up with a quick back-of-the-envelope model to attach a very simple, but tangible value for the ROI of coaching.
For those who don’t know, back-of-the-envelope calculations are very rough models involving many assumptions. I would love to hear your views on how I can improve this – but, for now, here’s my perspective.
WARNING: THERE IS ALGEBRA IN THIS POST. YES, ALGEBRA IS ACTUALLY USEFUL FOR SOMETHING. MIND. BLOWN.
My Back-Of-The-Envelope Coaching Short-Term Value Model
What we need values or estimates for:
1) Average cost of employee per hour (i.e. their hourly wage).
2) Average value added by a productive employee per hour (should be greater than their hourly wage, otherwise not much value in employing them…).
3) Average value added by an unproductive employee per hour (approximately half of their productive rate; could therefore be more or less than their hourly wage).
4) Average % split of productive vs unproductive hours worked. (estimated value)
5) Number of hours worked by employee per week. (varies by company)
6) Number of sick days or absences taken per year. (varies by company; 2018 figures show that there was a mean of 6.1 sick days taken per employee).
7) Minimum desired ROI of for the company (10% is a pretty decent ROI in most real cases!)
This calculation doesn’t consider long-term benefits from coaching services, for example: increased retention rate, increased customer satisfaction, improved company reputation, corporate responsibility to employees and other forms of indirect value added.
It’s also purely a client-side example; we’re not considering the rate that the coach desires to charge based on the demand they’re experiencing.
Instead, we’re going to calculate the rate they can charge such that the corporate client gets a 10% ROI within one year.
Example: Short-Term Net Gain/Cost for Coaching or Training Services
Here’s an example case with numbers plucked out of the sky (somewhat). Let’s consider a few assumptions:
1) Employee gets paid, on average, £20/hour. (Corresponds to a £37,600 salary for an employee working 8 hours a day, 5 days a week for 47 weeks a year).
2) Employee adds value at an average rate of £30/hour when working productively. (assuming that each employee adds 50% more value to the company than what they take from it).
3) Employee adds value at an average rate of £15/hour when working unproductively, (assuming that an unproductive employee is working at 50% of their productive rate).
4) Employee works productively 85% of the time, unproductively 15% of the time. (this is likely to be too optimistic!)
5) Employee gets paid to work 8 hours a day (of which approximately 7 hours is productive, based on percentage assumption above).
6) Employee takes 6 paid sick days per year.
7) Client requests 10% ROI minimum.
From this, we can see that the business makes £10/hour when the employee is productive and loses £5/hour when the employee is unproductive. Therefore, transforming 1 unproductive hour into 1 productive hour = £15 gain.
The cost of one sick day (fully paid) would be equal to the value lost because of employee absence added to the wages paid to the employee = (30*7 productive hours) + (15*1 unproductive hour) + (20*8 hours) = £385 cost.
Similarly, the cost of one unpaid sick day would be equal to the value lost because of employee absence, then subtracting what the employee would have been paid = (£30 * 7 productive hours) + (£15* 1 unproductive hour) – (20 x 8) = £75 cost. As most companies are contractually obliged to pay for short-term sick leave, we’ll not consider this case.
With this information, let’s consider two cases; one for 3 x 1-1 fortnightly coaching sessions with a single employee, and another for a 2-hour workshop delivered to 10 employees.
Case 1: 3 x 1-hour, fortnightly coaching session for a single employee
What the business gains:
1) Increase in productivity of the employee. On average, let’s say a 2-hour increase per week (a 24-minute increase per day), or a 4-hour increase per fortnight until the effect of a single coaching session ‘wears off’ and another fortnightly session is required – hence 6-weeks of more productive work in total. (This is a pessimistic estimate – the positive impact of coaching will ideally last for far longer). This corresponds to £15*2-hours*6-weeks = £180.
2) Fewer paid sick days being taken as a result of stress, anxiety or fatigue (estimated 1 day less per year per 3-coaching sessions, which we calculated to be £385 for these example numbers). This is in line with statistics showing that stress, anxiety and depression accounted for 15.4 million lost working days in 2017/18, which composes a staggering 57% of the total number of lost working days. This assumes that coaching is targeting an issue which directly or indirectly addresses stress or anxiety.
Therefore, the total benefit to the business is (£15*2-hours*6 weeks) + 385 = £565 gained per employee
So, lets consider the cost to the business:
1) Lost employee hours while undertaking coaching session/workshop (assuming session is held during the business day). For 3 x 1-hour coaching sessions with 1 employee, the cost is 3 productive hours of the employee not working = 3 x £30 value lost = £90.
2) Coaching fee, x (including travel, etc.) for 3-sessions.
The total cost is therefore = 90 + x
So, let’s figure out the appropriate coaching fee given a 10% required ROI.
Using the ROI equation: ROI/100 = (net profit to business from coaching services) / (cost of coaching services)
10/100 = (£565 - £90 - x) / (£90 + x)
0.1 = (£475 - x) / (£90 + x)
x = £423.63
For this (slightly pessimistic) case, a 10% ROI could be attained from a coach working at £423.63 for 3 x 1-hour sessions (£141.21/hourly session) for this particular employee.
This is not even considering other mid/long-term benefits from coaching services, for example: increased retention rate, increased customer satisfaction, improved company reputation, corporate responsibility to employees and other forms of indirect value added.
Case: 2-hour Stress Management workshop for 10 employees
Let’s look at a 2-hour workshop being held for 10 employees, assuming the same benefits per employee from a single session.
1) Value gained: Half of the employees attending take one less sick day per year, and all gain on average 1-hour of productive work per week for the next 4-weeks (12-minutes per day). Using the same figures as before (5 employees *£345) + (10 employees * £15 * 1-hour * 4 weeks) = £2325
2) Cost of productive employee hours lost = 2-hour workshop x 10 employees x £30 value not being added = £600 in addition to cost of coach, speaker or facilitator, x.
Plugging the numbers in:
Using the ROI equation: ROI/100 = (net profit to business from coaching services) / (cost of coaching services)
10/100 = (£2325 - £600 - x) / (£600 + x)
0.1 = (£1725 - x) / (£600 + x)
x = £1513.64
Therefore, the coach could charge up to £1513.64 for a 2-hour workshop with a 10% ROI.
Again, we’re not even considering the benefits of retention rate, employee wellbeing, improved company reputation, social responsibility to employees and indirect value added. We’re also not considering the coach’s rates based on demand for their services.
The Take-Away
Many coaches charge more than the values stated here. As well as the intangible benefits provided to the client, these examples also don’t consider the laws of supply and demand as applied to the coach, as well as intangible values attached to their brand and credibility.
These back-of-the-envelope calculations simply serve to convey the tangible, financial metrics that could be used to determine the ROI of coaching – and to show that, with quite basic and pessimistic assumptions, coaching & workshops can have a positive ROI for businesses.
In reality, there are also many subjective measurables that add to the value of coaching; for example, improved feedback from managers and co-workers, increased rate of skill acquisition, increased employee satisfaction.
Ultimately, moving away from the transactional, asset-focused view of employees to a more relationship, human-focused view isn’t an easy task. However, it’s my hope that these simple short-hand calculations can convey to executives and managers that it is possible to improving employee wellbeing and performance while keeping shareholders and investors satisfied.
As mentioned at the start, it’s vital that the coach and business liaison communicate effectively to determine the deliverables that coaching should provide and which methods will be used to measure it.
Furthermore, as coaches, we must endeavour to carry ourselves with honesty and integrity. Yes, we know the value of good coaching. At the same time, we must be able to communicate which expectations and results we can influence through coaching, and which we may not be able to control.
Doing this will allow both coach and client to manage expectations effectively and ensure that both leave the coaching relationship feeling fully satisfied.
A net positive ROI for all.
With gratitude,
Kam