An MBA degree is a substantial investment, both in terms of tuition fees but also the lost earnings from not working for up to two years on a top US course. So before forking out on a business school education, it’s important to gauge your return on investment, or ROI.
Financial considerations are important, but today’s thinking has it that there’s far more nuanced and intangible returns that you get from an MBA, beyond a big salary boost. Today, students are measuring the value of the degree in terms of the connections they make, career transitions they pull off and the social or environmental impact they are able to have, in addition to the money that they are able to make.
“Given the substantial cost of an MBA degree, most prospective students expect to recoup this investment within a few years and to supercharge their earning power throughout their career,” says Alex Min, CEO of The MBA Exchange, an admissions consultancy.
Most business schools publish detailed statistics on the average compensation their graduates earn. “So it’s easy for astute candidates to use these published stats to calculate when they should expect to break even on their investment and how much financial upside awaits them down the road,” says Min.
Among the business schools ranked by US News, the average starting salary among 2018 graduates from full-time MBA programs was about $87,700, which is 167 per cent higher than the average debt burden for those schools — around $51,700.
Many students use a combination of sources to pay for their MBA, and this can include loans, savings, scholarships and other financial aid provided by business schools.
The salary increases vary widely. The highest-ranked schools tend to have graduates with the biggest wage packets, but the tuition fees at these schools are among the highest, and students also tend to forgo high earnings to enroll on the courses.
According to the Financial Times, students at Stanford Graduate School of Business, a prestigious school in California, gave up salaries of more than $100,000 on average to take the MBA. Three years from graduation they earn close to $200,000.
In comparison, graduates from China’s Fudan University School of Management now earn about $110,000 three years on, which was the entry point for Stanford’s MBAs. However, Fudan alumni achieved a salary increase of 195 per cent on their pre-MBA salaries. With an all-inclusive fee of about $34,000 which includes tuition, textbooks and events, it could be said that Fudan’s course offers an attractive ROI.
There are longer-term financial benefits to an MBA. A 2018 report by education marketing company Quacquarelli Symonds found that within 10 years of earning the credential, the average alumnus globally had a decade-long ROI of $390,751, even after deducting the tuition fees and opportunity cost.
The average payback period was 51 months, though in Europe this is a much faster 39 months because courses tend to be half the length of those in the US.
Alternative measures of post-MBA ROI
Will Dawes, research and insight manager at the Association of MBAs (AMBA) and the Business Graduates Association, points out that there is no completely concrete way of measuring the financial benefits of an MBA. He says that “there is often an excessive focus on salary” and that you have to account for economic factors such as industry growth, inflation and currency conversions.
As an alternative, he says that graduate experience surveys are a useful way of obtaining some measurable feedback of the benefits of an MBA. AMBA’s 2018 Careers Survey, for example, found that seven in 10 recent MBA graduates say they are more confident about themselves. Two thirds are more prepared to work in a highly-competitive environment, and are better at finding new solutions to problems.
“Completing an MBA often brings a strengthened mindset, and this is something that is often overlooked,” Dawes says.
For Cosima Suter, an IMD MBA candidate, financial benefits have never been at the core of her ROI. She joined the Swiss business school after a decade-long career as a medical doctor. Suter wanted to understand how she can “contribute to society’s wellbeing on a larger scale without being involved in direct patient care”.
She says: “The MBA is about personal growth, adding value to society and building a strong network. The best measurement so far has been the feedback from my classmates and coaches — often touching, sometimes painful, but always an opportunity to develop myself.”
Most business school networks are famed for being helpful. “Building friendships with high-potential classmates, being mentored by renowned faculty, and joining a world-wide network of accomplished alumni are assets that pay dividends to MBA students for a lifetime,” says Min at The MBA Exchange.
The higher ranked and more prestigious the business school is, the more substantial and appealing the non-financial benefits become, Min adds. As an example, he cites knowledge acquired through the syllabus and extracurricular activities such as student clubs and treks around the world.
“MBA students get intensive exposure to diverse companies, markets, practices, and cultures that span dozens of industries that cannot be duplicated outside a business school,” Min says. “Since most class profiles are significantly international, the chance to learn from classmates representing vastly different cultures instills a truly global viewpoint.”
Steve Rakas, executive director of the Masters Career Center at the Tepper School of Business, points out that the MBA can open doors to entirely new industries, functions and geographies.
To this end, Kelly R Wilson, Tepper’s executive director of admissions, notes that the school provides resources such as “one-on-one career counseling, mock interviews, workshops, online resources, self-assessments and on-campus recruiting [events]”.
Setting realistic MBA ROI goals
Sean Meehan, dean of IMD’s MBA, says you need to choose a program that fits your career goals and profile. “What is it you want to achieve, and is that goal realistic?” he says. “An MBA can teach you new skill sets, give you access to new networks, but it’s not a magic wand. At the end of the day, you still have to do the work to open the doors that lead to the opportunities you’re looking for.”
He also urges prospective students to consider the lifestyle that each school offers, saying: “What kind of location makes sense? Do you want the anonymity of a large cohort, or the personal attention that can be offered in a more exclusive group?
“The IMD campus is located in Lausanne, Switzerland, a relatively small, safe but international city, surrounded by inspiring lakes and mountains, and in the heart of an eco-system recognized for innovation, fintech and home to many multinational headquarters.”
In that sense, MBA candidates should not see their program as merely a means to an end, but should view the study process as a fulfilling endeavor in itself, says AMBA’s Dawes.
“An MBA is a truly immersive human experience,” he says, adding that AMBA’s data shows high alumni satisfaction.
In fact, according to AMBA, fewer than one in 10 recent graduates estimate that the financial impact of an MBA will not cover its cost. Of this group, just 12 percent disagree that other benefits associated with their MBA will make up for this financial gap.
This represents about one percent of all MBA graduates, according to Dawes, suggesting that almost every graduate — at least of AMBA-accredited programs — sees the investment case for completing their MBA. That is quite a ringing endorsement.