How to measure the return on investment of your MBA?

An MBA from a leading business school requires a significant financial outlay. According to the BusinessBecause Cost of MBA Report 2022, an elite school’s estimated average cost of a full-time MBA program was $189,000. Although this hefty price tag includes tuition, administrative fees, living expenses, healthcare, and study material costs, it does not include the opportunity cost of taking two years off work to study (loss of wages) nor the cost of servicing student debt. 

For international students, the strength of the dollar or euro relative to their national currency can add another element of financial strain. Suppose you add these additional costs to the average expenses quoted above. In that case, the resulting number can raise serious doubts among prospective applicants about whether pursuing such an expensive program is fruitful.

Addressing these concerns, however, requires us not to view the cost of an MBA as something other than a sunk cost but rather as a long-term investment in yourself and your career. The transformative value of an MBA lies in its capacity to provide you with the skills, knowledge, and network required to accelerate your professional development. 

“In a volatile world where uncertainty is rising,” says Scott Beardsley, dean of the University of Virginia’s Darden School of Business, “options have greater value…in effect, business education is an option. You’ve created more possibilities for yourself to be reinserted into the workforce in many different ways in an evolving landscape.” 

The post-MBA possibilities Beardsley is referring to not only widen your professional horizons but also bring a significant increase in earnings; as employment and compensation statistics show, employers are willing to pay top dollar to snag MBA graduates from the best programs. Thus, to calculate an MBA program’s return on investment (ROI), you first need to pit the program’s cost against your future earnings post-MBA.

Calculating ROI: Costs vs. Earnings

Calculating an MBA course’s ROI involves carefully comparing the costs incurred with the potential earnings you stand to gain. The costs associated with pursuing an MBA encompass not only the tuition fees but also the living expenses and the opportunity cost of not being able to work full-time. On the other hand, the potential earnings encompass the promising salary prospects and the abundance of career advancement opportunities that an MBA degree can bring. You can effectively determine the ROI by deducting the total costs from the projected earnings over a specific period. This comprehensive analysis will help you assess the financial viability of investing in an MBA program. It empowers you to make informed decisions regarding your educational and career paths, ensuring a strategic approach toward achieving your professional aspirations.

1) Short-term earnings: 

Comparing the starting salaries of MBA graduates from leading business schools puts the financial burden of a full-time MBA program into perspective. Not only is there an increased chance of having a job at the end of the course (job offer rates for top schools are usually above 90 percent — for example, The Wharton School reported 98.7 percent of graduates from the class of 2022 had received job offers, while the same number for the Booth School of Business was 96.8 percent), but you are also guaranteed a massive paycheck – US News reports that the most recent average annual base salary and signing bonus at top 10 programs was a whopping $193,000. Furthermore, at the top echelons of MBA programs, like the Stanford Graduate School of Business, graduates recruited into private equity firms have been offered annual compensation of more than $400,000 (including bonus). Of course, everyone can’t secure such astronomical compensation. Still, even an average salary from a top 10 or top 20 business school should be enough to recuperate the cost of the MBA in a relatively short period. As Vai Schierholtz, director of marketing for MBA Admissions at Harvard Business School, says, “There’s a cost for you to go to business school, but the return on investment from a purely financial standpoint is compelling.”

2) Long-term earnings: 

According to Bruce DelMonico, assistant dean of admissions at the Yale School of Management, “The short-term return on investment for an MBA remains incredibly strong…but the long-term value is where an MBA really shines”. Thus, when calculating the ROI of an MBA program, it is advisable to look beyond immediate post-MBA earnings and consider your long-term earning potential. According to a recent analysis, the median cash compensation of an MBA graduate from one of the top 50 schools in the US over 35 years is $5.7 million, $2.3 million more than individuals with just an undergraduate degree. Further, the study found that if you graduate from one of the leading five schools, your estimated median earnings over 35 years would exceed $8 million – a remarkable ROI. And even this figure is a conservative estimate as it does not include stock-based compensation, retirement, and healthcare benefits, etc. Darden’s Scott Beardsley is correct in remarking that “on a strictly dollars and cents metric, the salary data shows a clear and compelling return [on investment].” 

3) Cutting down costs: 

Besides earning significantly more post-MBA, cutting down on the cost through scholarships, corporate sponsorships, and government grants can also improve your ROI.

Return on Investment or Return on Career? 

There is, of course, a case to be made that an ROI based on financial considerations does not do justice to the actual value of an MBA education. As the Wharton website states, “It is nearly impossible to calculate the total return on investment of an MBA degree. In addition to increased earning potential and career opportunities, there are countless, less quantifiable benefits”. Thus, besides ROI, Jordi Utgés, Executive Director of National Executive Programs at IESE Business School, recommends that MBA applicants evaluate the Return on Career (ROC) by focusing on the numerous intangible benefits of a business school education.

1) Training in soft skills: 

In addition to learning technical aspects of business management, an MBA will equip you with the soft skills necessary for leading teams, making long-term strategic decisions, and generating real-world impact.

2) Networking: 

When you join a top business school, you gain lifetime access to its alumni and faculty. Leveraging this network will open new career and learning opportunities that are impossible to quantify financially.

3) Entrepreneurship: 

An MBA will prepare you for your entrepreneurial journey by preparing you to set up and lead your own business. It is undoubtedly tricky to financially define the satisfaction of indulging your creativity and passion and the sense of independence you can get from running your own business.

4) Self-development: 

Finally, the most invaluable aspect of an MBA is its capacity to broaden your worldview, help you adapt to a constantly changing world, and help you grow as an individual and a leader.
These intangible gains can contribute significantly to your professional and personal development. It is, therefore, crucial to supplement the purely financial interpretation of ROI with these gains. As Marjorie DeGraca, executive director of Admissions at UC Berkeley’s Haas School of Business, writes, “The overall return on investment for an MBA can be difficult to quantify to the cent. What makes more sense is looking at the bigger picture and visualizing the way your career will level up with the help of this investment in a degree and, more importantly, in yourself.” To find out which MBA program offers the best returns on investment, please get in touch. Meanwhile, read our blog on Unraveling the Enigma: What Makes M7 Business Schools So Prestigious? and How to Shortlist the Best Business Schools for Your MBA.