MBA ROI
Many of us have contemplated pursuing an MBA in hopes of a big step up the corporate ladder for a couple of years networking (read: partying it up) with other analytical thinkers. I frequently think through this option but always hit a road-block, return on investment (ROI).
The basic formula for this is to find the total cost of the MBA and the relative increase in salary you will gain after receiving your MBA. From here we can find the number of years it will take to pay back your student loans and actually begin making ‘more’ money.
Fortunately, Business Week has done an outstanding job on analyzing this for us and has created a Ranking ROI ‘s in the world: see here. The number to focus on is in the far-right “Number of years to recoup costs”. Remember to add 2 years to this number to determine the number of years it will take before you actually see an increase in salary (years in school + years to recoup). A large number of these are international – regardless, here are my thoughts after reviewing this list.
1. About half of the schools listed in the top 50 and 7 of the top 10 are 2nd Tier schools.
2. The first top 10 US School in the list is Stanford at #37 with 6-years to recoup your costs. Add the additional 2 years for being in school and you are looking at 8 years before you see an increase in your income.
3. Bottom line for me – It will take somewhere around 6 – 8 years from the time you begin your MBA to see an increase in salary.
Now the questions become:
- In 6-8 years could I have made the same amount by working my way up in that time?
- Am I in a career path where an MBA is necessary (specific to employer)?
- Do I want to switch careers and an MBA will allow me to do this?
- Is my current salary to high to get a good ROI? (BW uses a survey to come up with its numbers, but this should be calculated at an individual level.)
I’m not saying do not get your MBA, but I am saying do the math! This should seem logical for most MBA candidates, but you never know.
I wanted to note that BusinessWeek is an outstanding magazine and a great way to keep up with general business happenings each week. Having a single magazine to consume each week makes this much easier then weeding through the thousands of articles you can find on-line.
i think about this tons (and have had many discussions with you, will!
) but going back to school for me will *not* be for financial reasons. the businessweek article is actually fairly conservative – the pay increases post-MBA aren’t usually that lucrative, especially since the top schools take in people who are top tier (could also be read as those who are already earning a good chunk of change pre-MBA).
going back to school for me would be for the experience. i think there’s a lot you can learn from the people you meet (yup, the networking), and if you’re looking to change your career (because you are unhappy), an MBA can do it for you. although it may take you up to 10-20 years for you to recoup the cost, at least you could be in a job that you enjoy
Good points Serena
I was takinga strict financial view at an MBA and not factoring in important soft-factors like job happiness. But, when you find that job you enjoy more than your current, let me know what it is!