In The Value of Growing Your Career: A Real-Life Example I mentioned that getting my MBA was one of the vital moves I made to grow my income.
Separately, I was listening to an Afford Anything podcast about careers and the issue of return rate on various career investments came up. They were talking more about seminars, training, and the like, but the same principle applies to schooling decisions.
So I thought it would be interesting to look at the difference getting my MBA made to my earning capability. I knew it was substantial but didn’t realize how substantial until I ran the numbers, which I did while preparing to write the sequel to How to Go from Zero to Millionaire, Part 1. (BTW, the data revealed that over 28 working years my earnings increased at a compounded annual growth rate of 8.16%.)
But before we get into the numbers, let’s review the strange path I took to getting an MBA.
How I Got an MBA
Here’s the back story on how I got an MBA:
- I had always wanted to have a high-paying job, even as a youngster. Growing up in a lower-middle-class family made me realize I wanted a bit more when I became an adult.
- I settled on getting a law degree because we all know lawyers make a fortune. 😉
- I picked which college to attend based on 1) its history of getting people into law school and 2) Affordability. I paid most of my college costs myself (through scholarships and working) so I needed something affordable.
- As a result, I didn’t really consider the school’s ability to help me find a job on its own merit (which was weak) — because I had no plans to get a job right after undergraduate school.
- Well, as many well-thought-out plans have a tendency to do, mine went awry. I took an internship with a lawyer, hated it, and was now back to ground zero.
- My college boss and mentor suggested I try a marketing class since I was doing marketing for him (I worked in the alumni office).
- I took the class the first semester of my senior year and LOVED it! In the class the professor said, “The best marketing company in the world is company XYZ.” (FYI, XYZ was a Fortune 500, name-brand company.) I decided then and there that I wanted to work at XYZ.
- I sent XYZ a cover letter and resume and, as you might imagine, they sent me back a “sorry we don’t recruit from no-name schools” letter. That’s not exactly what it said, but that’s what they meant.
- So now I had two choices: 1) look for a marketing job somewhere else or 2) figure out a way to get into XYZ.
- I tested the waters of the first option and discovered I couldn’t find a job in marketing. My school had zero companies recruiting for marketing (and only a couple recruiting for any sort of business). I could however work for the state’s department of game and fisheries for $18k a year. Ugh.
- At this point I somehow found out about MBA programs (they were off my radar for some reason, probably because I had been so focused on being a lawyer. Also because I didn’t know any MBAs (or even executives) but I did know lawyers.)
- I found out that XYZ recruited heavily at MBA schools, so I took the GMAT, scored well, and started applying to grad schools.
- I applied to two sets of MBA programs (after I had done my research): 1) the more elite schools like Michigan, Stanford, and Northwestern and 2) schools I felt like I could get into like Iowa and Indiana (I’m from the Midwest).
- The elite schools laughed about as loudly at me as XYZ had. I got “no thanks” letters from them.
- I got accepted into two or three schools, all of them from the mid-tier of the Big Ten. All of them had XYZ listed as recruiting and hiring from the school.
- They were all relatively affordable, but one had an assistantship up for grabs. I applied for it, went to an on-campus interview, and they hired me.
- I decided to attend that school and worked every weekend night for two years running the campus movie theater. In exchange they waved all my tuition and my room costs (I believe) plus paid me $300 a month. I was rich!!!!
- I went to school there for two years, did well academically, and held a nice internship between the two years. When recruiting time came around, I interviewed with a couple companies just to get practice, but my focus was on XYZ. (In hindsight, I do NOT recommend a focus-on-one-company interviewing strategy.)
- After several rounds of interviews, XYZ hired me and I was off to making six figures in a few years.
Crazy story, huh?
Now let’s consider how my lifetime earnings would have fared if I hadn’t gotten and MBA (and thus hadn’t gotten into XYZ).
It’s a bit tough to nail down because there are so many unknowns, but let’s start with some reasonable assumptions:
- I would have likely earned somewhere around the $18k mark to start.
- I would have had two extra years of earning (30 versus 28) since I would have skipped grad school.
- I could have earned the same 8.16% annual increases, but I doubt it. Part of what boosted me so much was the level of companies I worked for, especially early in my career, and I wouldn’t have had that without attending grad school.
So with that said, here are some possible non-MBA outcomes:
- If I had started at $18k, worked 30 years, and had 3% average annual increases, my earnings over those 30 years would have been $856k
- If I had started at $18k, worked 30 years, and had 5% average annual increases, my earnings over those 30 years would have been $1.2 million
- If I had started at $18k, worked 30 years, and had 8.16% average annual increases, my earnings over those 30 years would have been $2.1 million
Now for the comparison:
What I actually earned in 28 years of my career was $3.9 million.
So, does the MBA look like it was a good return on the two years invested? Sure looks like it to me.
Not Just the MBA
The MBA paid off not just because I had the degree itself, but because it opened the right doors. Specifically it opened the door to XYZ that then helped me the rest of my career.
Here’s how it worked out:
- The MBA got me into XYZ
- The starting salary at XYZ was over twice what I would have earned from the undergraduate degree
- XYZ trained and invested in me (which made me even more marketable/valuable)
- I learned much more at XYZ than I had in graduate school about how to really get ahead in business
- The name-brand of XYZ helped me get hired at my next several jobs and impacted almost my entire career (imagine having Google or Apple on your resume these days, that’s what XYZ was — and still is)
- Through the jobs I had I also learned the seven steps to growing a career. So I don’t think I would have had anywhere near the annual salary gains I experienced if I had taken the job out of undergraduate school.
Yes, there were many benefits of the MBA. I’m probably even forgetting some.
So, what was the return on my investment?
In some ways, it was an infinite return since I made so much more but didn’t spend anything. I’m so thankful for that assistantship.
You could say my investment was those two earning years I gave up, but the differences were so vast it’s hard to think that’s even reasonable. If we do factor in the two years, my MBA paid out after the second year I had it (I earned more in two years after my MBA than I would have earned working four years with the undergraduate job — even if I had 8.16% increases with the undergrad job.)
Instead of a return rate percentage, let’s look at actual amounts.
The MBA allowed me to earn somewhere between $1.8 million and $3 million more than I would have otherwise.
And as far as quality of life, I KNOW I enjoyed my MBA career much more than I would have the undergrad career. (And I’m guessing I enjoyed my non-work life better too, though that’s hard to estimate.)
It’s quite reasonable to assume I’d still be working with the undergrad career (and would be for quite some time). Ugh.
MBA Return Rates
So what does that mean for someone looking to get an MBA these days? Is getting one still a good return on the investment? I’ll let you review these two posts and decide for yourself: Calculate the Return on Investment for an MBA and MBA Programs with the Highest 10-Year ROI.
As for me, here are some tips I think will maximize any investment in getting an MBA:
- Be sure that any MBA school you consider has the prospects of getting you the job you want at higher pay. If you get paid the same after getting an MBA or stay at the same job, it’s two years and a ton of money down the drain (unless that job opens up a path to more money in the future).
- Try to make costs as low as possible. The lower the cost the better the return.
- I prefer the strategy of getting into the lowest-ranking school (which is usually the lowest cost) that gets you into the job/company you want. IMO these have the best returns. (FYI, I went into XYZ with others who had MBAs from Harvard, Wharton, Stanford, and so on — a who’s who of MBA schools. The difference between us? I had no debt from grad school and they had tens of thousands of dollars — I know because they were my friends and complained about it.)
That would be my criteria if I was to go back again or advise someone considering getting an MBA.
I know there are many savvy business people who read this blog. What do you think about the value of an MBA? And what are your guidelines for picking a school?
photo credit: Pleuntje 12th century chess via photopin (license)
[email protected] says
I have an MBA, and it’s definitely made a huge difference in my life and career so far. For me, the MBA was a key part of my going from making $22k per year working full time right out of high school (to fund my undergrad at community college/poorly ranked state school) to now approaching $200k. I’ve increased my salary nearly ten times, and I now make more in a yearly bonus than I used to make for an entire year of work. When I was looking for the MBA I scored pretty highly on the GMAT (although I should have actually studied for the math part), but I knew I’d be going to my state flagship university. Why? Well I had two kids at the time and I couldn’t leave full time work, so I needed to do the part-time program and get employer reimbursements. Going for the MBA got me the job I have now, and without it I would be making tens of thousands less a year. Even if I had to pay for the entire thing out of pocket I’d still be financially ahead now, four years after graduation. Loved this post
I have an MBA as well. It opened the door to my current employer but not much else to date. I expect similar things if when I next change companies. Essentially my entry job to this company required an MBA. It was only a bump up initially of maybe ten percent but it oppened up dramatic additional opportunities. As for the cost, I went for free to a mid range school paid for my then employer. I didn’t even have to pay tax on it as it was less then ten thousand a year. So with a cost of 0 the ROI is time based. I hear MBAs are less useful these days because everyone has them. They aren’t the ticket to an easy ride, but they do open the door to additional opportunities. What you do with that door is up to you.
Despite what a lot of articles would have you think, things like this are always very personally specific. It’s great you shared your story and it illustrates how you wanted XYZ and an MBA would get you in that direction, so you went to check that box (so to speak) so you could get into XYZ.
I got an MBA (paid for by my employer, so the meager ROI was infinite) because it gave me 5 more years of experience when it came to fulfilling government RFPs (I forget how many actual years but it was around that, it’s been 10 years!). I would eventually leave the government contracting world but the MBA would enable me to jump ahead by 5 years in work, even though in reality I learned very little.
If you go into it blindly like an MBA will open up this world of hope and financial success, you’ll be disappointed. If you see a door that’s locked and you need an MBA to unlock it, then it makes perfect sense. All these articles that analyze MBAs in a vacuum (or in generalities), are missing the point.
ESI Money says
“If you go into it blindly like an MBA will open up this world of hope and financial success, you’ll be disappointed.”
I’ve known many people who thought an MBA was a ticket to wealth — ANY MBA. So they got one from a no-name school that did nothing to help grow their career.
You need a plan in advance and need to weigh the costs vs. benefits of an MBA like you would with any other investment.
I agree that the value of an MBA is highly personal. I’m sure it can give you a leg-up against non-MBA candidates in a job interview situation. I also think the networking you get from an MBA is probably very helpful, as well as the general knowledge it provides, but I do think the decision to pursue an MBA has to depend on a lot of personal factors (and whether or not it’s paid for should be a consideration in my book!). I’m currently pursuing a Masters in Education, since that is my field. At first I was hesitant about completing it since I don’t really need it, but I do think, even if I switch careers, having the degree will benefit me, and half of it was paid for. I think your point that working for a big-name company early in your career helps you a lot rings very true to me. My husband got a job working at one of the top universities in the world early in his career, and having that name on his resume subsequently helped him secure jobs at two Fortune 50 companies when we moved to the US.
Mike H says
I think the MBA helped you adapt quicker to jobs, even up to your last job as the president of a company. You’ve pulled in some impressive career earnings, $4M is nothing to sneeze at!
The path I was on pre-MBA would have probably had a much better return than my MBA (I was at a Big 4 firm, and was told I was on a partner track if I wanted it). Only problem is I hated that path, so my MBA opened other, much more exciting doors. Pay was nice, additional options were nicer, and a permanent credential that still pays dividends and gives flexibility to this day is great. Best part of my MBA, though, was serendipitous – I met my wife there!
Dan P says
I am on track to finish my MBA next week!!
I work for an “XYZ” company, one of the largest companies on the DAX (German exchange). I am not sure that i need it to be successful but i think that it will become more common in the future. Many of the positions that i would like one day do not require an MBA but list “MBA preferred”. Currently many people without MBAs are in leadership positions but that seems to be changing as the my generation continues to move up. The school i am getting it from would be considered a tier 2 business school but a tier 1 agriculture school.
I decided to go for the MBA because:
1. My company payed for the whole thing. (pretty sure a free MBA is a good investment).
2. I worked full time while getting it. (no lost income, just lost sleep)
3. It should help my career down the line.
4. I like learning for the sake of learning.
What do you guys think about certifications? What about PMP? Nowadays many are getting that…
I would treat them like any other degree and weigh costs (money and time) versus benefits (increased pay, promotions, etc.)
Wall Street Physician says
I took the GMAT right after college and probably would have went to business school if I didn’t decide to switch gears and become a doctor. Many of the co-workers had MBAs and got onto Wall Street by virtue of their MBA. An MBA from a top-tier school will open a lot of doors.
I had a similar experience than you, including initially pursuing a political science degree thinking that I’d pursue law, then switching to business after I worked at a law firm.
I failed to secure a spot when I first applied to some of the top B schools. So during the second year, I got some additional experience, which helped me better position myself, and I only got accepted to one of three that I applied.
During my MBA, I didn’t do well getting a good internship, and during my second year, I only got one offer which happened to be one of the MBB strategy consulting firms.
I believe that the consulting firm experience has helped me more than the MBA, as it has helped me think about how to solve business issues. Overall I’m glad that I’ve chosen this path, but given the many failures, it certainly wasn’t easy.
Eric Shun says
Good post. After graduating w/ a Computer Science B.S. in 1985, I worked for two large tech companies until I got laid of in 1997 from my $70K per year job with a nice severance package. At that time, at age 33, I decided to get my MBA at a reputable full-time 2-year program. I was hoping the MBA would help me transition out of the programming grind and into management, and eventually the executive level. Despite scoring 710 on the GMAT, I didn’t get into my top choice Stanford, but did get a 50% academic scholarship at my home state University of Florida and a couple other well-ranked state programs in the southeast. My total tuition at UF for two years was $5000.
I completed the MBA in ’00 and interviewed at a few top companies including Microsoft, Exxon, and IBM. I accepted an excellent position out-of-state with a large insurance company at $80K.
Subsequent layoffs & blown opportunities, the “Great Recession,” crushing competition, and my own risk aversion, has hammered my salary. Today, I’m earning exactly what I earned in 1997 before starting the MBA program, with excellent benefits, low stress, and easy hours, in the geographic location I wish to reside at for the rest of my life.
While the UF MBA didn’t pay off financially for me, it got me out of programming, opened up many career tracks across all industries, and got me a level of respect among my coworkers.
Nonetheless, due to a couple of serendipitous real estate purchases, low cost of living, and decent saving and investing, I became a millionaire before 50 and will retire anytime between Friday and five years from Friday!
Sounds like a good candidate for an upcoming millionaire story?!
Eric Shun says
Yes, I’ve offered.
I think ESI has done an excellent job evaluating the benefits of having this extra credential and experience as you build the foundation / early years of your career. Many have rightly said that how you progress and what you achieve are still outcomes based on personal choices and decisions. All true. The common thread (at least among the comments here) is that just about everyone acquired their MBA in a very cost effective manner. My first employer paid for mine and as a result it did make a huge difference in the first 7 years of my career when I was able to make big leaps internally in comp and responsibility. It helped to have a mentor (another investment everyone should make) and to take on challenging assignments.
I would say that my MBA which propelled me from a starting salary of 23,500 in 1989 to 175,000 by 2000 allowed me to earn much more when I left that firm (it too was an xyz type company). I now work for a Dow 30 company and make 7 figures in good years. Like ESI I would say that my MBA (all night classes while I worked) was a difference maker but it all starts with having plan and executing it. I think that is the best lesson of this post.
While I don’t know what would have happened if I never went back to school with respect to my career and lifetime earnings I could safely say the difference is probably equal to or a bit further north than ESI’s. I will figure it out in case ESI chooses to do a millionaire profile on me
Enjoy his points of view, they are solid
I concur, 🙂
After 10 years of corporate life in the hi-tech world, I got bored and decided to get an MBA, which actually was one of my dreams since college time.
Was lucky enough to get into one of the top schools ESI mentioned, and was even luckier to get full tuition waived. So I was crazy taking classes left and right (ended up with the most credit hours earned in my school history), participating case competitions here and there.
It was a great investment time wise, life wise – met my wife during one of the many business case competitions, she was representing another school. It also opened many doors – yes I was also interviewing left and right, from Bain to Goldman Sachs to Microsoft to even Union Pacific – I was genuinely curious about how such companies survive in today’s economy.
The MBA experience definitely opened my eyes, broadened horizon for me, and not to say the many friends.
However MBA is not a life savior. Life is more about how you will take it and lead the course, it is about how strong and determined you are. MBA can just augment it. For example, right now I am in my mid life crisis, wondering and pondering what should be my next steps.
It was surprising to me that even though you’re from Midwest, your list of elite schools only had Michigan, Stanford and northwestern as examples, and no mention of Chicago Booth, which has been ranked better than all three you listed! Any specific reason behind this?
First of all, remember the rankings I was using were from almost 30 years ago.
Second, it just wasn’t on my radar. It could have been their specialties at the time, cost, or any one of a gazillion other options people consider when they pick a school.
Excellent article ESI! I have an MBA (from a state university in the midwest).
What I wanted to share from my experience:
1. Have a job for 2 to x years before pursuing an MBA, unless you have a specific vision why. The reason is that until the person encounters “real world” problems, the MBA education will be more academic .
2. Aim to work for a company that has path to paid MBA education, since it is not cheap and the scholarships and financial assistance opportunities are not that many as compared to those at science/engineering graduate schools.
3. Last, but most important, look to get to your next job utilizing your MBA within 1-2 year after you got your MBA. This is the opportunity that one should not miss, to get a jump, not only in experience, but also career and salary.
To conclude, I believe the MBA education is valuable, but can be enhanced further. Thank you!
“I could however work for the state’s department of game and fisheries for $18k a year. Ugh.”
I was half-way through my BS Computer Science in the mid-80s at a very reputable Boston-area college when, as a backup plan, I took the firefighter civil service exam for my suburban Boston hometown. I scored very well and was offered the $8/hr job, which I turned down and went on to complete my degree.* While finishing my degree I was recruited and hired into a software development jog at $30K (1986) with a large government defense contractor.
A couple of years later, while still working for the defense contractor, I started law school in the evening program in a lower-tier Boston law school. After one year, I realized that was not for me and dropped out.
Ten years later, I took the MBA, scored very well and, though I was not accepted at my first choice – Stanford – I was offered full or nearly full scholarships to several other top-ranked MBA programs. I ended up accepting the offer from a large southern top-25 university, and while on paid sabbatical from my job, I completed the traditional program in two years. My university had extensive and excellent on-campus MBA recruiting, twice per year, with many, many Fortune 500 companies. My MBA cost me $5000 in tuition.
Though the MBA opened up many opportunities across industries and let me get out of the software lab, the MBA did not pay off financially for me. Due to a couple of layoffs, career missteps, blown opportunities, crushing competition, and the “Great Recession,” my salary today is only 25% higher than when I started the MBA twenty-three years ago. Nonetheless, through ESI, and a couple of serendipitous real estate purchases, I hit $1MM net worth at age 50, and plan to retire at age 60 at $2MM net worth.
*The acquaintances that also took the firefighter test and accepted the job were quickly earning over $50K+ per year in early 90s, and all retired by their late 40’s with $50K pensions and lifetime health insurance.