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The ROI of Coaching

JAN 23, 2018 POSTED BY: MIKE GOODBOE BUSINESS COACHING,  ENERGY LEADERSHIP COACHING,  EXECUTIVE COACHING,  LEADERSHIP COACHING

I find it curious that as an executive coach I am seldom asked about coaching’s return on investment (ROI), even though in my view it is always an appropriate question. It would appear that many companies and individuals assume that improvements in leadership and interpersonal relationships following coaching is about the only measurement that’s needed. That, however, is the most basic of all ROIs, and is always subject to moods, the latest interactions between the observer and the coached individual, and other subjective inputs.

Although it never approaches anything akin to scientific or quantified measurement, for some, it’s enough. After all, most business people know that measuring return-on-investment is challenging in any context and that it is an inexact science at best. They’re right about both points, but there are ways to arrive at additional, more sophisticated and more meaningful measurements. Such measurements bring objectivity to the table, thus enhancing the evaluation.

An objective ROI process, or an ROI process that includes both subjective and objective components, are certain enhancements to the process. To me as coach, a good ROI study helps me with my own motivation and identification of areas where I could put more emphasis, etc. That’s why I do advanced ROI research even though my clients may not ask for it.

The techniques for measuring coaching ROI vary considerably, but whatever the chosen method, it is important that both the company and the coach agree up front as to the method. No method is perfect, though some methods are better than others. Consider the following examples.

  • The most common ROI measurement is, well, anecdotal. If the coaching is remedial or intended to tweak some aspects of the person’s leadership, the person’s boss, peers or direct reports become the evaluators. Typically, outcome expectations are agreed up front and the ROI becomes the extent to which the desired improvements are evident.

    This is the most basic of ROI measurements, though not necessarily a bad one. When I am asked to take on a coaching client I am careful to seek agreement on desired outcomes. This is routine and most coaches do it. And it does produce an acceptable ROI because at the end of the day it is the client who has the final word on the desired ROI measurement.
  • Assessments are often used in coaching. Some of them are snapshots that lend themselves to before and after measurements. One that I use, for example, measures changes in leadership-related traits on 14 inter-related items including productivity, interpersonal communication, quality of relationships, time management, etc.

    The individual takes the assessment before coaching and again at the end of the coaching engagement, measuring his or her extent of self-satisfaction with each item measured. Simple math produces percentage improvements (or not) for each item, and provides an interesting ROI. In the below example, blue denotes Before and red indicates After.

    chart: roi on assessments
    Care must be taken in interpreting this or any comparison. For example, if a goal was to enhance a person’s work/life balance, and the person had been spending excessive hours at the office, an increase in the work/life indicator might yield a decrease in the productivity measurement. This would be expected. And this would not be a bad thing, as less productivity could imply less hours in the office but a higher quality of work being done.
  • Manchester Consulting did a nascent study of the total value of coaching in 2001. One hundred leaders who went through a coaching program between 1996 and 2000 were used in the study.

    In 2000, they and some key stakeholders were asked to evaluate their coaching experience on a scale of -5 to +5, with respect to its success as compared to the cost of the coaching. Forty-three of the assessors were able to quantify all aspects of the coaching and rated the coaching results as 5.7 times greater than the amount of the investment. Seventy-seven percent of the participants rated the coaching as +3 or higher.

    Other companies have done similar studies, showing ROIs of up to 689%. This is to say that companies themselves can develop their own ROI methods.
  • The job the individual performs can itself provide an excellent ROI measurement and it can show how the coaching brings value to the business. For example, when I coach sales executives I look for an increase in sales following the coaching. If the executive has direct reports and the coaching was for improvement in leadership, I would expect to see an increase in group sales.
  • In my book, Reducing turnover in the Services Sector—Lesson From the Security Industry, I explain how in the general leadership improvement context I use percentage drops in turnover as an ROI of coaching. The assumption is that the first-line supervisor is the company to his or her direct reports and the quality of that key relationship highly influences a direct report’s desire to remain with the company or not.

    In this way quality leadership coaching paves the way to higher retention that, in turn, results in increased revenues. The dollar impact of this entire process can be measured.
  • Another way to quantify the dollar savings flowing from coaching, though primarily subjective, is to measure the cost of coaching against the salary of the executive being coached, often expressed percentage improvements that are later converted to dollars. “I’ve seen a 25% overall improvement in Joe,” is converted to 25% of Joe’s salary compared to the cost of coaching. With multiple inputs the percentage is averaged.

    The ROI in the case of an executive coached for remedial reasons who was given coaching in an effort to produce a turn-around is easy when the turn-around happens. The actual and hidden costs of hiring and training a replacement compared to the cost for coaching yields the ROI. An ROI could even be generated if the individual is let go, though it would be more challenging. The company would have to estimate the monetary losses by keeping the underperforming person and go from there.

You have probably reached the conclusion by now that I am a firm believer in ROI measurements for coaching—and you are correct. On the other hand, I do urge caution. Choose an ROI method that is realistic, fair, and useful to the business. And keep it simple and relevant.

An excessively detailed ROI requirement can, well, make you crazy. The method you choose has to make sense to you and the company. But do realize that there is immense value to the company and the coach of a good measurement of the impact of coaching. If an anecdotal approach works for you, fine; if it doesn’t, take a deeper dive. It’s worth the time, money and effort!

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