How to Measure ROI of a Business Coach or Consultant

How to measure ROI of a business coach or consultant

As a small business owner, you need to know the value of your return on investment (ROI) when it comes to investing in people, such as business coaches.

Setting your business goals with a coach can be tangible (e.g. increase sales or leads, train staff, etc.) or intangible (e.g. achieve success, have good work-life balance, etc.), which makes it more difficult to measure your ROI.

It’s important to note that investing in people is very different from investing in equipment or tools, so you can’t use the same formula for calculating your ROI. And while there has been evidence proving the success of different coaches, most of them are anecdotal and informal, making them harder to gauge.

But it’s possible to get an accurate calculation on your ROI if you have the right tools. Using a business diagnostic tool to measure the value and success of your business coach will give you a clearer picture of how their coaching has positively impacted your small business.

Why a small business owner must measure the ROI in business coaching

In a report by Corporate Research Forum, they addressed the most common criticisms about business coaching as just a “fad” or a “fashion,” including:

  • That it’s simply a substitute for good management
  • That having a coach has just become a “badge of honour”
  • That there’s inadequate assessment of how coaching contributes to the overall business

While these are valid concerns, the report also mentions the undeniable positive impact that coaching has for top executives (and their respective businesses):

  • Giving them a safe space to think, brainstorm, and consider issues with their coach
  • A great commitment to help and develop ideas that a business owner has come up with themselves

Other statistics prove that measuring the ROI for business coaching is doable and beneficial; 86% of organisations saw an ROI on their coaching engagements and 96% of those who had a business coach said they would repeat the process again.

Some ways you can avoid getting immeasurable results with business coaching are:

  • Creating metrics to measure with your business coach – Make sure that both of you are on the same page regarding what you want to achieve. Outline the number of hours (or days, weeks, months, etc.) each action step requires. This signifies the level of commitment you and your coach will be able to dedicate.
  • Don’t just rely on numbers as means to measure progress (not success) – Understanding your needs and thought processes as a client is crucial in gauging overall satisfaction. A business coach can do this by providing a questionnaire at the onset of the project and giving it again three months later. It should cover the entire business ecosystem (similar to what a business diagnostic tool does). Then you can compare the changes between the start of the project and the results three months later.
  • Focus on profit – Every step should increase business revenue. While coaching often influences other factors (e.g. behaviour, attitude, etc.), this won’t matter unless it contributes to moving your business forward.

Following a clear formula (rather than just luck) brings you greater success as you calculate your ROI in business coaching. This ensures that you see the measurable benefits and improvements it brings to your business.

9 Steps to Measure ROI in Business Coaching for Small Business Owners

Based on the well-known ROI methodology, our guide makes it more quantifiable and accurate to measure your ROI in business coaching.

1. Develop coaching objectives

Coaching objectives are developed based on your needs, so knowing your vision is crucial in developing measurable goals with your business coach.

Goal-setting starts with the “needs assessment” which is based on a review of opportunities you can seize if the proposed coaching is implemented. Then you take a look at different categories of your needs:

  • Business needs – Entails changing your individual performance. What business measures will be influenced with coaching? What should you do or stop doing to change the business measure?
  • Performance needs – Focuses on implementing new knowledge or skills. What specific knowledge or skills should you apply to resolve your performance needs?
  • Preference needs – Looks at how the stakeholders, including your coach, should perceive the implemented coaching in terms of value and need.

It becomes more efficient to evaluate the success of business coaching once you develop your objectives based on the “needs” assessment that you and your coach have discussed.

2. Plan the coaching evaluation

Planning for coaching evaluation begins as soon as you and your key stakeholders decide to conduct an ROI study. Even at this early stage, a lot of important decisions for the study are made.

It involves:

  • A data collection plan – Identifying the types and sources of data you need to collect, depending on your objectives
  • A data analysis plan – Isolating business measures and issues and identifying the impact of coaching on them

It’s important to establish these plans with your key stakeholders and your coach, so you have a consensus on how to measure and assess the data in evaluating the ROI of business coaching.

3. Collect data during and after coaching implementation

Collecting and analysing data will help you and your coach identify the high-performing areas of the program you’ve both implemented and whether there is room for improvement.

You can collect data during a coaching program’s implementation using end-of-course questionnaires, completion of exercises, and demonstrations. This helps track the progress of the coaching program while it’s ongoing.

After the implementation, when you’ve applied newly acquired knowledge, skills, and attitudes within your business, you and your coach can collect data (through questionnaires or interviews) to observe its impact on your target objectives.

4. Isolate coaching effects

Isolating the effects of a coaching program on business impact data is one of the most challenging yet important steps in this process. To isolate the effects, you need to remove other factors outside the program that can influence results (e.g. sales, marketing, etc.).

Without isolating the coaching effects, you can’t establish a direct link between business results and the program you’ve used. This step ensures that you have concrete evidence of the linkage between business results and the coaching you’ve applied.

5. Convert data to monetary value

Once you’ve linked specific business results to coaching, you can then convert its monetary value.

Some of the most common approaches to converting results (or impact measures) into monetary value are:

  • Finding a standard value – Majority of organisations have a standard value to measure turnover, productivity, and quality. Standard values are usually grouped into three: Output to contribution, cost of quality, employee’s time..
  • Using expert input – A business coach can ask an expert (who works with a specific impact measure) on an estimated value based on their knowledge.
  • Using participant estimates – A coach can also ask you to estimate the value of the business results (e.g. 0% = no confidence and 100% = complete confidence).

6. Identify intangible benefits

Business coaching also results in intangible benefits, which usually cannot be converted into monetary value. But these are just as important as the actual ROI calculation.

This type of benefit can include:

  • Strong implementation of business values
  • Organisational commitment
  • Job satisfaction
  • Improved employee morale
  • Increased customer satisfaction
  • Better work-life balance

7. Calculate the coaching costs

To get an accurate ROI calculation, you and your business coach need to include the total costs of the coaching program. It should include both direct and indirect costs such as time, travel, or transportation. This makes your final ROI calculation more credible.

Also consider that different coaches will offer different prices or packages (e.g. weekly or monthly plans, membership fees, value-based pricing, etc.).

8. Calculate the ROI

Calculating the ROI is a financial metric and this represents the ultimate measure of coaching success.

First, get your net benefits by subtracting the coaching benefits (which you’ve converted into a monetary value in step 5) from the total coaching costs.

Then divide the net benefits by total coaching costs. Multiply the total by 100 to get the ROI as a percentage.

The formula will look like this:

ROI (%) = [(Benefits achieved – Total coaching costs) / (Total coaching costs)] X 100

Source – Screenshot from ROI Institute as of 10 June 2021

9. Report findings to key stakeholders

After finalising your ROI study and calculations, a business coach needs to identify the audience they’re reporting to with their findings. It’s also essential to provide all the necessary information in their report.

The four key audiences will include:

  • The participants (i.e. coachees) directly involved
  • The immediate managers of the coachees who need evidence of the coaching success (if applicable)
  • The sponsors of the coaching program
  • The team members who need to understand how the study was developed

While it’s challenging to calculate the ROI in business coaching, it’s important to assign monetary values to your business results so you can measure your investment in people, even your business coach.

Book a call if you have more questions about measuring your ROI in business coaching.