The True ROI of an MBA: Is It the Career Catalyst You Think It is?
Andy Agouridis
Andy Agouridis | 10 Oct 2024
Earning a Master of Business Administration (MBA) degree demands a significant commitment of time, effort, and finances. While an MBA can accelerate your career trajectory, pursuing it is a decision that requires careful consideration. The 10-year ROI of a Stanford MBA is estimated to be 325%, while London Business School's five-year MBA gain is £72,804. The MBA statistics are undeniably attractive. But what do these numbers actually mean?
In this blog, we'll look at both the direct and indirect returns of an MBA, and discuss whether this degree is the right choice for you. Let's get started.
What Do You Learn in an MBA?
An MBA degree provides interdisciplinary education in business and management, covering core areas such as marketing, human resources, finance, and strategy. Business schools also typically offer electives and specialisations, enabling students to gain expertise in specific fields like marketing, finance, entrepreneurship, and many more. Outside the classroom, MBA students also participate in business simulations, case studies, and internships, enabling them to apply their textbook learning in the real world.
Calculating the ROI of an MBA
In this section, we’ll discuss how you can calculate the return on investment of your MBA degree:
For illustration purposes, let’s assume Rachel is currently working as a Data Analyst earning £30,000 p.a. She plans to do a 2-year MBA. Her tuition fee is £70,000 for two years, and accommodation and other living expenses are £50,000 for two years. Post her degree, she hopes to work as a consultant, earning £60,000 p.a. Let’s calculate the ROI of her degree during a 10-year period.
Step 1: Calculate the total cost of investment
The total cost of the MBA for Rachel will include the tuition fee of the program, the accommodation, and other living expenses, and the salary Rachel would have earned if she continued her job.
Total Cost = Tuition Fee + Accommodation and Living Expenses + Forgone Salary
In Rachel’s case, this is:
= £70,000 + £50,000 + £60,000
= £180,000
Step 2: Compute the initial rise in the salary
The salary boost is calculated by taking out the difference between her expected salary post the degree, and her present salary.
Annual Salary Boost = Expected Salary - Current Salary
In Rachel’s case, this is:
= £60,000 - £30,000
= £30,000
Step 3: Total gain on investment
Next, we’ll find out Rachel’s total gain on investment, which is the additional income Rachel will earn post her graduation over the course of 10 years.
Total Gain = (Annual Salary Boost x Number of years) - Total Cost
In Rachel’s case, total gain is:
= (£30,000 x 10) - £180,000
= £120,000
Step 4: Calculate the ROI
The yield from the investment in the degree will be calculated using this formula:
ROI = (Total Gain/Total Cost of Investment) x 100
In Rachel’s example, this is:
= (£120,000/£180,000) x 100
= 66.67%
So, Rachel’s ROI of her MBA degree over 10 years would approximately be 66.7%, which is considered a good ROI.
However, this calculation only accounts for the salary and does not account for inflation or the interest cost of a student loan. Additionally, the true value of an MBA extends beyond the financial gains, it also includes the broader career impact and the personal growth it provides.
The True ROI of MBA
Calculating the actual ROI would require us to include various benefits of an MBA that could shape the individual and make them a better professional. Let's look at the advantages of getting an MBA:
- Holistic business education: One of the key benefits of going through a gruelling and expensive MBA is the holistic view of 'business' that the student receives. Learning fundamentals across different managerial functions - from Accounting to Marketing, Human Resources to Economics, and Finance to Operations, ensures that students think through the second-order impact of their decisions as managers.
- Leadership development: Top business schools stand out for their unique case-based method of instruction. These simulations serve as an accelerated senior-level work experience without the risk of making costly real-world mistakes. This practical approach puts students in the shoes of business leaders, improving their ability to make tough decisions.
- Career flexibility: Business school is an excellent place for career exploration. Students can leverage the extensive learning opportunities to experience different business roles. This not only widens a professional's perspective but also facilitates career change. It's common to see an accountant or an engineer taking up a managerial role after their MBA degree.
- Networking opportunities: Attending a prestigious business school gives students entry into an elite club. Networking is a crucial benefit of an MBA; knowing the right people can help at every stage of one’s career. Acquaintances can connect over shared collegiate experiences and open doors for collaboration. Seniors and alumni forums can help you find job opportunities. In one's later career, your network can give you opportunities to be a leader, advisor, investor, or mentor – each of which can be rewarding in its own way.
Considerations for Your MBA Decision
Besides evaluating the returns of an MBA degree, it is also important to take into account whether the MBA degree is actually suitable for you. While taking the big decision, consider the following factors:
- Specialised sectors: If you are a professional in a specialised field such as legal, data analytics, or cybersecurity and plan to continue in that sector, then it might not make sense for you to do an MBA. In fact, it may be a distraction. Instead of an MBA, you could consider a specialised master's degree, which is generally less expensive and shorter.
- Practical experience: MBA degrees are expensive. The same amount of money you spend on your degree could also be used to start a business, where you can gain hands-on business experience. The entrepreneurial route may lack the safety net of academic guidance and consistent income in the short run, but it offers direct exposure to the intricacies of running a business.
- Ranking of the school: Take into account the prestige of the school you wish to attend. Top-tier business schools are highly selective about their student intake. A big badge school can provide a great spike in your resume. Companies also have some "target schools", which are their first ports of call when it comes to campus hiring. However, attending a lower-ranked school might have less impact on your profile than continuing in your existing role.
- Work-life balance: It is important to consider that doing an MBA, especially while working, can significantly affect your work-life balance. Besides time and money, an MBA also demands significant effort. If you've got parents to take care of or children to provide for, then it's worth thinking about whether you'll be able to juggle your personal obligations while studying.
Conclusion
Ultimately, the choice to pursue an MBA is a deeply personal one. It comes down to your career goals, target schools, and financial situation. While calculating the ROI of an MBA in the traditional way can provide a good start, it's important to assess the deeper impact an MBA degree will have on you, both professionally and personally. Also, to make an informed decision, reach out to students and alums in your target program to gain practical insights into their experiences.
Remember, pursuing an MBA is more than a financial decision - it's a strategic investment in yourself.
Andy Agouridis
Andy is on a mission to help candidates do what they love. Apart from being a Glassdoor contributor, he is the Director of CareerHigher, a career writer, and a speaker. He has a background in HR with Fortune 100 businesses, holds an MSc in HRM, and is a Chartered member of the CIPD.
