What is the ROI (Return on Investment) for Executive Coaching?
Just as Executive Coaching is undertaken for a variety of purposes, its effectiveness can be measured in any number of ways.
As with many components of Human Resource programs, the less tangible impacts of Executive Coaching may be its most powerful: employee productivity and engagement, improved relationships and communication, increased levels of teamwork and creativity, improved attitude and culture.
When we look at more tangible numbers, we find that many studies have shown a return on investment (ROI) that is highly favorable, in addition to the benefits above:
- “Almost one fifth of respondents (19%) indicated an ROI of at least 50 (5000%) times
the initial investment while a further 28% saw an ROI of 10 to 49 times the investment. Companies that use or have used professional coaching for business reasons have seen a median return on investment of seven times their initial investment.” (According to a study conducted by PricewaterhouseCoopers and Association Resource Centre Inc., 2009)
- “A 529% return on investment was produced by the leadership coaching process (excluding the benefits from employee retention).” (Case Study on the Return on Investment of Executive Coaching, Merrill C. Anderson, PhD, 2001)
- “When calculated conservatively, ROI (for the 43 participants who estimated it) averaged nearly $100,000 or 5.7 times the initial investment in coaching. We feel confident that this level of value has been achieved and may, in fact, be understated.” (The Manchester Review, Volume 6, Number 1, Joy McGovern, et.al., 2001)
- “The respondents indicated that four of these intangibles were improved by over 8%: increased bench strength (8.5%), improved team work (8.4%), increased collaboration (8.5%) and increased employee engagement (8.1%). Retention was increased by 7.5%, according to the respondents. Figure 7 presents the average estimated percent improvement that coaching produced for four tangible benefit areas. Two of these areas were greater than a 7% improvement: quality of work products or services improved by 7.5% and productivity increased by 7.3%. Net revenue was estimated to have increased by 6.5% and the cost of operations was estimated to have been reduced by 6.3%.” (The Business Impact of Leadership Coaching at a Professional Services Firm, Merrill C. Anderson, PhD, 2006)
- Three stock portfolios comprised only of companies that spend aggressively on employee development each outperformed the S&P 500 by 17-35% during 2003. (How’s Your Return on People? Harvard Business Review, Laurie Bassi and Daniel McMurrer, 2004)
In our own experience at Arden Coaching, this type of ROI is seen in projects such as these, accomplished during our Executive Coaching engagements:
- Program developed to create in-house knowledge network, saving company millions of dollars in repetitive research/estimating (program development still in process and first year return as yet unavailable)
- Retention of C-level employee saving tens of thousands in replacement costs
- Quality Assurance program created to save corporation millions in advertising purchases
How will Executive Coaching impact your company?
An accepted formula for calculating the ROI is this:
%ROI = [(benefits achieved – cost of coaching) / cost of coaching] x100
In other words, if you achieve $200,000 impact on a $25,000 coaching engagement:
Your % ROI = [(200,000 – 25,000) / 25,000] x100 = 700%
The impact of coaching beyond the more easily accessible numbers
Tangible programs are not the only way to measure the impact of coaching. We need to also look at the “payoffs” that may not make their financial impact immediately apparent.
Let’s use an example with relatively low numbers:
We are coaching a Vice President responsible for $10 Million of the company’s business. She has three direct reports and one hundred employees in her department overall.
If coaching were to conservatively increase her productivity by only 5%, that’s $500,000 in increased business, or a 1900% return on a coaching engagement costing $25,000.
That of course, does not account for longer-term impact such as:
- An improved relationship with her direct reports, resulting on one of them being retained vs. leaving and saving replacement costs
- Better communication with her Executive Vice President, resulting in more open conversations that the following year result in the two of them developing a successful new product
- Improved culture and environment in her department resulting in increased engagement of the hundred employees and therefore more productivity from the whole team, resulting in an increase in the bottom line throughout the department
- Et al.….. The examples are numerous.
The most critical piece in determining what your company will gain from Executive Coaching is determining what you want to achieve with the engagement.
Only you know the numbers for your business. You must determine if the impact you seek from coaching will be sufficient to warrant engaging a coach. Much like a Personal Trainer, the Coach is there to assist the client, but the work is only as effective as the effort demonstrated by the Client themselves.
If we can be of assistance in guiding you in the conversation about what you wish to gain from Executive Coaching, please contact us.