Matthew Reeves is the CEO of Together, a mentorship platform that empowers organizations to pair every employee with a relevant mentor.
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Few people would debate the value of mentoring. Most mentees report positive benefits, and a Wall Street Journal article outlined that 70% of Fortune 500 companies have formal mentorship programs in place. Having a culture of mentorship is one of the best ways to ensure that knowledge is shared and employees are empowered.
If you are trying to sell mentorship as a strategy to your higher-ups, however, anecdotes and statistics aren't going to cut it. This is where knowing the ROI of your specific mentoring program is essential; it provides you with the proof you need to show the practical value of mentorship.
Together, let's walk through the process of calculating the return on investment of your mentoring program. It's a simpler process than you might think.
Where Is The ROI Of Mentorship Found?
You can attempt to estimate the ROI of your mentoring program based on comparable case studies—but in reality, the only true indication comes from the measurable progress your employees make.
Progress and performance can be measured through:
• Salary changes (raises, promotions)
• Productivity increases (in dollar value)
• Hitting company KPIs
• Retention rates (i.e., employees staying with the company longer)
Your ROI is calculated by taking into account both the cost of your mentoring program and the measurable productivity change of participants.
Calculating How Mentorship Improves Employee Performance
According to research by McKinsey, the vast majority of companies that proactively improve the competency of their employees report measurable changes in employee performance.
There's a simple calculation you can use to see whether your mentoring initiative is delivering these kinds of results.
1. Find The 'Dollar Productivity' Of Participating Employees
Your first step to finding a concrete ROI is to measure the dollar productivity of your employees. This can be done by calculating the total monetary value they contribute to the company (in terms of sales, work output, etc.) and dividing it by their salary.
En masse, here's an example of what that might look like:
• Total annual company revenue: $25 billion
• Total annual salary expenditure across 48,000 employees: $4.8 billion
• Therefore, dollar productivity is $25 billion / $4.8 billion = $5.20 revenue per dollar of salary.
2. Find Your Baseline Salaries
Before measuring changes in salary, you need to make note of the participants' initial salaries. Still waiting on approval to run your mentorship program in full? No worries—run an A/B test with a pilot mentorship program to start. List the baseline salaries of those in the program as well as non-participants.
3. Measure Any Salary Changes During The Program
When the trial period is over, record any changes in salary and convert the change into a percentage. For instance, if an employee achieves a promotion from $80,000 to $90,000, that's a 12.5% increase in salary.
4. Note The Incremental Change Between The Control And Trial Groups
Say your non-participants increase their baseline by 9.5%, and your participants increase their baseline by 12.5%. That's a 3% incremental change, which you can then use in the final ROI equation.
5. Find The ROI Value
You'll now use all of your figures to find the ROI.
• Multiply the number of employees in your mentorship program by the initial average salary, then multiply that by the incremental change (in this case, 48,000 x $80,000 x 3% = $115.2 million)
• Multiply the new projected salary by the dollar productivity (in this case, $5.20 x $115.2 million = $599.04 million)
The total expected change in revenue is, therefore, $599 million, and that's a compelling ROI figure you can present to upper management.
Calculating How Mentorship Improves Retention
Another way to calculate ROI is cost savings. Higher-ups know that employee turnover is costly, so they're more likely to support mentoring programs that have tangible evidence of boosting retention.
The simplest way to demonstrate retention improvement in your business case is by calculating the cost of turnover before and after implementing a mentorship program (or trialing one). Here's how:
1. Estimate turnover cost per employee. This can be as much as 50% of an employee's salary; however, you can look back through the past year and calculate an average of what you've spent on recruitment, training and other costs associated with employee replacement.
2. Calculate annual turnover. Simply find the number of people who resigned or were terminated in the last year, then divide that number by your average total employees.
3. Multiply the cost of turnover by your average salary. For example, if the cost is 50% and the average salary is $80,000, the cost of losing an employee is $40,000.
4. Multiply expected turnover by the number of expected employees for the current year. If the turnover is 20% and the expected workforce is 200, 40 employees are expected to leave.
5. Find the total cost. If 40 employees are leaving and they cost $40,000 each, that's a turnover cost of $1.6 million.
If you were to use an A/B comparison to find an ROI, you'd record the turnover figures before and after implementing your mentorship program. The difference is then multiplied by the turnover cost per employee to calculate the total ROI.
I recommend using these figures in conjunction with a turnover cost calculator. There are multiple available with a quick Google search.
The ROI Of Mentorship Is Compelling
Presenting your management with anecdotes, case studies and benefits helps, but an ROI figure is one of the most compelling ways to convince leaders to support a mentorship program proposal.
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