This site talks about investing, investing in various traditional & alternative asset types and businesses. However, one of the most important investments we make in our lives is in our education. I don’t mean just traditional college education, but courses we take throughout, books we read, sites we follow, YouTube videos we watch, and so on. Learning options expanded over the last ten years with the introduction of free courses from sites like Coursera and many others. What does that do to traditional post-secondary education like an MBA degree? Is MBA worth it given all the other options?
Short answer: Yes, MBA is definitely worth still worth it, but only if you don’t think you can get to your desired career without it.
I have an MBA from Schulich School of Business, so this analysis will apply more for Canadian MBAs, but the principles are transferable to any other country and MBA program.
MBA Earning Potential
I view education as an investment. The return on that investment is typically in the form of your increased salary. However, it is crucial to look at a salary not as absolute but as the difference between MBA and non-MBA salaries.
Annual salary post MBA – My current annual salary = Annual Return
Note that this view is a little shortsighted as it doesn’t consider the long-term impact on your career, but it is a good starting point.
Also, the reason we talk about salaries only and not other income is because if you want to start a business, you shouldn’t do an MBA in my opinion. Start your business instead, don’t waste time and money.
How much do MBAs make?
Here is what you can expect to earn on average from some of the most popular Canadian MBAs. If the school you are planning to attend is not on the list, just search “School Name MBA Earnings Report”.
|School Name||% Employed post graduation (3mo)||Average Salary 2020|
|Schulich School of Business||88%||$94,200|
|Rotman School of Management||89%||$112,897|
|Ivey Business School||90%||$117,997|
|Smith School of Business||85%||$92,084|
The average across all schools is roughly $99,000. For example, if you are making $60,000 right now, potentially getting an MBA will give you a $39,000 pre-tax return per year.
Overall, not bad and is significantly higher than the the median income in Canada.
Median annual income in Canada (in CAD)
That is only one part of the equation; however, the second part is the cost of the program.
How much does the MBA cost?
MBA is not a cheap degree, that is for sure, but we have to remember that it is an advanced degree and pretty much the highest level of education for general business professionals. I am not taking into account PhDs because that is more relevant for an academic career path, although many PhDs leave academia these days to pursue careers in business.
Here is the latest tuition data from MBA schools mentioned above.
|School Name||Estimated Total Tuition Domestic||Estimated Total Tuition International|
|Schulich School of Business||$71,900||$106,900|
|Rotman School of Management||$94,854||$131,120|
|Ivey Business School||$83,250||$120,500|
|Smith School of Business||$83,100||$102,100|
The average across these schools for domestic students comes out to around $83,000.
That is the only tuition; however, we must add missed earnings to the figure if you study full-time for two full years.
Assume you make $60,000/year today. If you were to go and do your MBA full-time over two years, you would miss out on $120,000 in income.
This brings the total cost of the MBA to $200,000. If you make more than that today, the cost is even higher.
Note: I do not include additional costs like living expenses etc., because I assume you have those expenses regardless of whether you do an MBA or work. If your situation is different and you have to move out to pursue an MBA, for example, then these costs also need to be added on top.
What is the MBA ROI?
Now that we know potential earnings and costs, we can estimate the return on investment.
Assuming you earn $60,000/year right now. The cost of tuition with missed earnings is $200,000. Post-graduation, you secure a job paying $100,000.
ROI = $40,000 / $200,000 = 20% in year one.
If you secure a job paying $75,000. ROI = 7.5% in year one.
The return will be slightly less if you include post-tax earnings, but you will also receive some tax benefits after graduation.
Shortsightedness of this calculation
20% ROI is good from any investment. Many of the lazy portfolios we discuss on the site don’t produce these returns. 10% and below; however, you can argue that there are better investments out there. For example, if you purchase a rental Property or invest in your business.
Obviously, just looking at a one-year percentage return is incredibly shortsighted. The calculation is meant to visualize the financial side of the equation, but there is a more important side to this. Your career trajectory.
Does MBA help your career?
Costs, benefits, and ROI aside. How will MBA help your career, long-term?
That is the question you should be asking.
Here is how I answered that question personally. In my particular role, many top leaders in the organization I was in had an MBA and viewed it favourably. Many of my peers in my career were pursuing an MBA after 3-4 years of work experience. In addition, I came into the program with a non-business degree. Given my situation, MBA made total sense.
Can you get to where you want to go without it?
This question was easy to answer for me but is a lot more difficult for other career paths. For example, some industries don’t value MBA as much as others. In technology, for example, startup experience, product management experience might be more valuable than an MBA. Meaning that even if you do and go get a degree, you will compete with people with startup experience or PM experience, and they will get the job. In some niche finance jobs, like investment management, CFA might carry more weight than an MBA and so on. You have to analyze your industry first.
I am stuck in my career and can’t seem to move up.
If you feel this way, MBA could actually help. Even if your industry doesn’t necessarily require advanced degrees. You have to do some internal analysis and figure out what skills you are missing and if an MBA degree can fill the gap?
This is highly applicable to technical jobs like engineering. Many engineers trying to move into management seem to lack that “business” aspect, and an MBA can provide that. That is why over 30% of students in my class were engineers.
I am already in the leadership position
If you are already on the career trajectory where you can see yourself growing then leaving for one or two years to get a degree might be wasteful. In fact, in the two years, you can do more beneficial things to your career than get a degree.
Focusing on earnings and career potential, we tend to overall look at the basic skills that the degree teaches us.
Skills you learn from an MBA
You can take many different classes during your MBA, but generally, the degree teaches you only two things:
1) How to solve a business problem given all the tools you’ve got (marketing, accounting, finance, economics).
2) How to present your ideas.
If you are already good at those things and maybe you already have a bachelor’s in business, MBA will likely be incredibly underwhelming from the knowledge perspective.
Regardless of your technical knowledge, you will definitely present a lot. Every single class I took had at least a few large presentations, even classes like accounting or finance. This part of the program was crucial for me. I thought I was pretty good at presentations, but after watching a few of my peers present and just constantly presenting almost every week, you realize how much room for growth there is.
Has an MBA become more important to business success?
Here is an interesting fact:
MBAs are far more common now than in 1970. Today the percentage of CEOs who have them exceeds 30%, whereas in the ’70s it was about 12%, and in the ’80s and ’90s about 20%.
30% of CEOs have an MBA, which means 70% do not. The reason that number might be higher than the 70s is that more people have MBAs now, and just statistically, more CEOs will also have them. But because way more people have the degree, you have to look at the competition.
The unfortunate effect of too much competition.
I call it the unfortunate effect of competition that has eroded the value of graduate degrees. With everybody looking for ways to up their game, many are searching for diplomas, certifications, boot camps, badges to magically give them what they are looking for, career advancement. This has pushed schools to create a degree after degree that, in the end, become more and more meaningless.
MBA used to be rare; now, it feels like every applicant has that box checked off. So you have to think, if you don’t have that box checked, how do you stand out, and is it enough?
It saddens me that the environment forces people to get these degrees just because others have them, but that is the reality.
Perceived hate of MBAs
Elon Musk and other prominent business figures have been talking about how much they despise MBAs. That is funny to read at times, considering that in many of its jobs postings, Tesla is specifically asking for advanced business degrees like MBA.
The whole notion is overblown. I disagree that solving business problems, even if they are made up in the form of a case study, will all of a sudden make you think a certain way. MBA will give you a set of tools; how you use them will completely depend on you. MBA will not turn you into a corporate robot, Gordon Gecko-type, greed-obsessed, profit-seeking, soulless monster. You will learn some accounting and some marketing and other basics to be better prepared to solve some business problems.
You make the MBA experience
To conclude, you have to do internal analysis and industry research to understand if the MBA will get you where you need to go. If you decide that it is something that you need, then don’t worry about MBA being worth it. It will be. The interaction with your classmates, presentations, and business problems will be a great deal of fun. Financially speaking, you will likely get a boost in earnings. If the ROI comes out to be 10% and not 20%, you will likely not look at it that way. You will have two years of great experience to look back on, incredible presentation abilities, and those three letters to help you one day move into the C-level job or succeed in your own way.
Pro tip: Once you graduate, do not put “MBA” after your name. 😉
Salary Reports for each school mentioned: