by Melanie Espeland, Executive Coach of Espeland Enterprises
This article was originally published in Forbes and written by Melanie Espeland
The ROI Of Executive Coaching: A Comprehensive Guide
The numbers don’t lie: The International Coaching Federation (ICF), in partnership with PwC, estimated global coaching revenue in 2019 to be $2.849 billion—a 21% increase from 2015—and a practitioner growth of 33% from 2015.
What’s more, a report from management consulting and investment banking firm FMI found that 87% of survey respondents agreed that executive coaching has a high return on investment (ROI). With coaching growing at double-digit speed, today’s leaders must understand how to measure its return on investment.
Calculating The ROI Of Executive Coaching
The methodology used herein is for executive coaching, or coaching clients in professional industries. Executive coaching can include sales coaching, business coaching, leadership coaching, self-awareness coaching and more. However, the same philosophy could be used to measure the average ROI of coaching more generally, such as for life coaching.
You can calculate the specific ROI for your project using three pillars:
1. Quantitative Value
A. Pick a lever.
One coaching engagement may have quantitative results across multiple levers. You can quantify the value of coaching across various levers, such as increased revenue, increased productivity, higher customer satisfaction, increased retention, etc.
B. Estimate initial impact via internal data and past outcomes.
For example, let’s say your organization is going to invest in coaching for specific skills leading to tangible results for 1,000 employees. Your executive coach has seen an average 10% reduction in turnover for three years as a result of this coaching. If the average recruitment, interviewing and onboarding cost is $10,000 per job opening, then you will save as follows:
100 retained employees * $10,000 saved onboarding cost = $1,000,000 saved annually
$1,000,000 annually * 3 years = $3,000,000 saved via reduced turnover
C. Adjust the impact.
You can estimate a value for the percent share of the coaching’s contribution toward the quantitative outcome (i.e., savings from reducing turnover). This contribution may be shared with various relevant factors, such as the coach’s experience and track record, the anticipated level of effort given by employees and the difficulty of the actual training. Additional adjustments or confidence intervals can be added as needed.
$3,000,000 saved over 3 years * 50% for the coaching engagement’s contribution to the results = $1,500,000 adjusted value
D. Calculate the ROI.
Take the adjusted value and subtract the total cost of the coaching to get your final ROI.
$1,500,000 adjusted value – $250,000 coaching engagement investment = $1,250,000 ROI of executive coaching realized
2. Qualitative Value
Thinking beyond the quantitative to intangible benefits is a key factor in calculating coaching ROI. In fact, it can often be the cause of financial performance improvement. For example, coaching engagements can have the following qualitative impact:
• Improved relationships with direct reports, peers and other key stakeholders
• Increased commitment to the organization
• Increased job satisfaction
This leads to:
• Increased revenue
• Increased productivity
• Higher customer satisfaction
• Reduced turnover
It may be helpful to start with the estimated qualitative value in order to estimate the quantitative business results. For example, your coach may note that they see an average 40% improvement in executive presence in their clients. If employees have a newfound leadership capacity and better communication, it logically follows that this increased self-esteem would lead to better work performance and overall productivity. Perhaps a 40% improvement in executive presence translates to a 2% improved performance. Multiply 2% by your annual revenue to have a directionally accurate impact (i.e., step 1B).
Lastly, consider proactively measuring your quantitative ROI through self-assessment. Effective leaders understand the importance of feedback and active listening. Have surveys and open forums for employees to articulate and rate their coaching experience. Take the average of the cumulative scores and comments in order to understand the value of your coaching program in real time.
3. Consequences (If Not Pursued)
Wins or gains are certainly motivating, but even more important to leaders, organizations and shareholders is avoiding loss. Thus, it is significant to consider the consequences of not pursuing coaching. For example:
• Less relevant skill sets in the employee population
• Decreased productivity due to a lack of development opportunities
• Decreased employee satisfaction
• Lower customer satisfaction
• Increased turnover, leading to additional costs and loss of productivity
• Lower revenue
In the illustrative example used earlier, the benefit explored of executive coaching was reduced turnover through employee engagement. In this case, a potential consequence of forgoing the initial investment of coaching could be increased turnover through a lack of emotional intelligence in the organization, or a brain drain of leadership competencies. If a lack of professional development opportunities led to just a 1% decrease in employee satisfaction, then this consequence could be quantified via each team’s contribution to the P&L.
The Bottom Line
Overall, the benefits and ROI of executive coaching have been proven through various research studies, including Harvard Business Review‘s findings on financial performance in the stock market. While the need for calculating tangible ROI is obvious, it is clear that ROI extending to qualitative and emotional attributes (such as a nuanced leadership style) is not to be taken lightly. These qualitative levers connect to the return on investment seen in the bottom line.
It is important to note that not all coaching engagements have the same outcome, and results may vary depending on factors such as the coach’s qualifications and experience, the individual’s willingness to change and the specific goals of the coaching. Therefore, when considering investing in coaching, it is important to do thorough research and choose a coach who is well-suited to the specific needs of the individual or organization.