ROI of an MBA
The MBA degree will provide you with deep business knowledge, expand your ability to think critically about strategic issues facing large, mid-sized and smaller corporations, and, perhaps most valuable of all, will provide you with a lifelong network of professional resources. Of course, those benefits come with a cost—tuition, room and board, books, and more.
How should you think about your MBA ROI? Everyone has different needs and different financial resources. Your learning needs will be different, your compensation needs will be different, and how long you can wait for your “return” on your MBA investment will likely vary as well. The key is to think of your MBA as a long-term investment in your future.
As a future finance professional, one way to evaluate and think about the ROI of an MBA is to consider your future compensation (post-MBA) as a 3-way pie chart, including:
a) base salary
b) short-term incentive compensation (your bonus at the end of the year for a job well done), and
c) long-term incentive compensation (shares, options and other long-term ways a company tries to incent you to continue to perform over time).
These factors will vary depending on what area of finance you are working in (private equity will pay differently than corporate finance, and public finance will certainly be different than “investment banking” at a major firm, for instance) and will also vary depending on which area of the country you will be located in (New York, LA, Chicago will likely be higher paying base salaries than smaller, more rural areas, for instance). These numbers will change based on competition, the economy and a number of other factors. Most of these numbers can be found from annual figures that are public information published on various business school websites.
When you are considering whether the MBA is worth it, you also must think about what you are making now (if you are working) vs. what you could be making post-MBA. This is the “compensation differential” and, over time, will prove to be significant.
As you begin to think seriously whether your investment will be worth it, take into account the following:
• Full up-front investment (the cost of your MBA, including not only tuition, room & board, but also books, travel costs for study, etc.)
• Number of years you will commit to a “cash outflow” before you can start earning money to repay the investment. Most business schools offer a traditional two-year program; some offer an accelerated 18 month program, and some a one year intensive course of study.
• If you plan on tapping into financial aid (either through debt or scholarships), this can help you achieve your ROI sooner.