Phillips ROI Model
Phillips Return on Investment Model
What is the Phillips ROI Model?
- Adds a fifth ROI level to Kirkpatrick
- Measuring the financial value of training
- Cost versus impact, in numbers
Adopting the Phillips ROI model changes what happens before training starts, not after it ends. To reach Level 5, you must pin down at the planning stage 'which number has to move, and by how much, for this to count as a success,' and agree in advance with the departments that will supply those numbers (sales management, quality, HR) on how the data will be delivered. So organizations using this model set the KPI baseline before they draft survey questions. What actually changes is that the training manager’s job shifts from 'collecting satisfaction scores' to 'tracking performance data'.
The formula is ROI (%) = (net benefits ÷ total costs) × 100, where net benefits are monetized benefits minus total costs. It is often confused with the benefit-cost ratio (BCR), which simply divides benefits by costs; a BCR of 3:1 equals an ROI of 200%. As a rule, costs include not only instructor fees and materials but also participants’ salary costs and travel time, plus the salary costs of the planning staff. To isolate the effects of training, a control group comparison is the most powerful method. When that isn’t feasible, use trend-line analysis, or take estimates from participants, managers, or experts and multiply them by a confidence level (%) to discount them conservatively. Benefits that are hard to convert to money, such as morale, intent to leave, and team collaboration, are best reported separately as intangible benefits rather than forced into a dollar figure.
The most common misconception in practice is trying to attach ROI to every course. Phillips himself recommends taking only some programs to Level 5. Once the staff and time needed for evaluation exceed the training cost, the evaluation itself is a loss. The second is ROI that skips isolating the effect. If you credit all the revenue growth after training to the training and walk in with 'ROI 1,200%,' the finance executive's first question is 'Then where did the new product launch effect go?', and that one question brings down the whole report. Even if you cut the attribution to 50%, the person who can show their basis is far better placed to defend the budget.
Anna ChoExpert in organizational culture, coaching, emotion management, and CS consulting
John KimInstructor John Kim, CEO of Nanum Consulting and author of B2B Marketing DesignJack J. Phillips extended the Kirkpatrick model with a fifth level (ROI) and, in his books in the 1980s, established it as a methodology for measuring the return on training investment.
Consider a hypothetical case. Company A makes industrial components (about 900 employees, KRW 240 billion (≈ US$179,560,100) in annual revenue) and was told to make a 40% cut to its training budget because of cost pressure. The HR development team decided to measure the ROI of a six-month negotiation training program, targeting a chronic problem among its 60 sales reps: cutting prices up front for fear of losing deals, with an average discount of 12.4% per contract.
- The HRD manager told the finance executive, “This year I’ll bring numbers, not satisfaction scores,” and split the 60 employees into two groups of 30, one for the first half and one for the second, effectively designing the second-half group as a control group.
- They measured reactions and learning right after training, then tracked discount rates for six months using monthly contract data from the sales management team. The trained group fell from 12.4% to 9.1%, while the untrained group stayed at 12.1%.
- We converted the figures into money together with an assistant manager from the finance team. Applying the 3.3 percentage-point drop in discount rate to the training team’s six-month order intake of KRW 21 billion (≈ US$15,711,500) gave a benefit of KRW 690 million (≈ US$516,200).
- The head of sales said, “A third of the improvement comes from passing raw material price increases through to our prices,” so, combining the control group difference with that estimate, they set training’s contribution at 70% and reduced the benefit to KRW 480 million (≈ US$359,100).
- Costs came to KRW 84 million (≈ US$62,800) in total: KRW 39 million (≈ US$29,200) for instructor fees and materials, plus KRW 45 million (≈ US$33,700) for participants’ two days of labor cost and planning labor cost. ROI came out at 471%.
- After the report, the finance executive said, "Now this adds up," and withdrew the cut proposal. The training budget was held at last year’s level, and the negotiation program expanded to 120 people in purchasing and technical sales.