Calculate the Return on Investment of Your MBA Degree
With the high cost of admission to a top-tier business school, prospective students should determine whether pursuing the MBA degree makes financial sense as a long-term investment. We advise applicants to ask themselves three questions: Will the degree help me switch careers? Can I expect a significant salary increase? Will an MBA help me reach a leadership position sooner?
Paying hundreds of thousands of dollars to earn an MBA sounds painful, but most business school graduates experience a substantial salary increase. The degree also acts as a powerful differentiator in a crowded marketplace. The vast majority of graduates report having greater job satisfaction and the ability to advance quickly and, therefore, earn more in shorter time.
In fact, the Graduate Management Admission Council’s 2016 Alumni Perspectives survey revealed that b-school grads earn a median of US$2.5 million in cumulative base salary over 20 years following graduation. Alumni — on average — recoup their b-school investment within four years after graduation, depending on the type of program attended.
Last fall, when Forbes released its 2017 ranking of the best b-schools based on the ROI of the MBA Class of 2012, University of Pennsylvania’s Wharton School took the top spot for the first time in this ranking’s history with a 5-year MBA gain of $97,100. The concentration of graduates moving into the finance and consulting sectors “pushed Wharton’s current total compensation for the class of 2012 to the highest of any school in the world at $225,000.”
Calculating the return on investment requires a simple formula. It’s the return acquired from an investment minus the cost of the investment, divided by the cost of the investment. Students of two-year MBA programs typically have the largest investment expense because they miss two years of employment. They need to recoup the cost of the MBA degree plus the opportunity cost in order to get a positive return on their investment.
Prospective students should consider payback time with projected cumulative growth, and average growth rate, when looking at return on investment as a motivating factor for pursuing an MBA. But keep in mind, the value of the MBA degree varies depending on your post-graduation plans, as well as the brand of the business school where you earn the degree.
Remember, every choice that you make when deciding whether an MBA makes sense for you– ranging from the cost of the city you decide to live in, the field you move into, to the school you choose – will impact your financial return on investment. Nevertheless, we believe that no other degree can open doors as the MBA does.