Should I take the GMAT? A Cost-Benefit Analysis

If you’re thinking about going to business school, you have multiple options in terms of which entrance exam to take, but nowadays, you may also have the option not to take any exam at all. That might seem like a no-brainer decision—after all, who wants* to take a standardized test? But it turns out that there are still good reasons for some people to choose to take the GMAT, even when their target schools don’t require them to do so. The question is just whether any of those reasons apply to you.

(*Cough. Besides me and my colleagues…)

First, do all of your target schools have either test waivers available or test-optional policies in place? If some of your schools do require an exam, and you don’t want to take those schools off of your list, then sharpen your pencil and get ready to study.

If, though, all of your desired schools really do allow you to make this choice, now we’ve got some analysis to do.

How to decide whether you should take the GMAT: A framework

Use a common business-school framework to decide whether to take the GMAT: a cost-benefit analysis. You have three key questions to answer:

  1. What are the likely costs?
  2. What are the potential benefits?
  3. How likely am I to achieve those benefits?

Take notes as you do your analysis.

What does it cost to study for the GMAT?

As with so many things in life, there are two big categories of cost to getting ready for the GMAT:

  1. Time
  2. Money

Time Spent Studying for the GMAT

What else you would you do with your time if you weren’t studying for the GMAT? If you could use the time to take on a big project at work, gain leadership experience, and get promoted, then that might be more valuable for your application than a test score.

If, on the other hand, you’d be spending that time on a favorite hobby—one that you love but that isn’t particularly valuable on a graduate school application—then it might be worth investing the next three to four months of that time on GMAT study instead. (And if you’d be collapsing on the couch and binge-watching the latest hit series every night…no judgment here, but it’s likely that studying for the exam would be of more benefit to your applications.)

Money Needed to Study for the GMAT

Money-wise, it will likely cost you at least $500 to get ready for the GMAT. The exam fee is about half of that and you’ll need the other half for practice tests and books that teach you what you need to know and give you problems to practice. 

Complete courses that include all of your study materials and a full syllabus tend to run in the $1,000 to $2,500 range. There’s also private tutoring, which is the most customized—and also the most expensive—option.

(Aside: All of the above is tiny compared to what business school itself will cost, of course, so it’s a good idea to apply this same cost-benefit analysis to your overall decision to go to b-school, too.)

And what if you do invest your time and money but don’t get a score that will be competitive at some of your target schools? If those schools are test-optional, just don’t share your scores—so it won’t hurt your application. It just won’t help it, either.

What are the potential benefits of taking the GMAT?

The three most significant potential benefits of taking the GMAT are the following:

  1. Improving your odds of admission to a higher-ranked business school
  2. Earning a better financial package when you are accepted
  3. Proving your quant and analytical “readiness”—to yourself and to schools

Getting into a higher-ranked Business School

Generally speaking, graduates of higher-ranked schools tend to earn more money coming out of b-school—and that translates into greater lifetime earnings overall. In the current system, the organizations that generate b-school rankings use GMAT scores (among other data points) to determine the rankings, and the schools themselves of course want be ranked well because that helps them to attract stronger candidates. So if you’re applying to a school and you have a higher-than-their-average GMAT score, you’re improving your odds at that school.

Paying Less for Business School

For that same reason, a higher-than-that-school’s-average GMAT score can actually directly reduce your costs to attend that school. Many schools offer financial packages—I think of it as a signing bonus—to the strongest candidates. The school may offer you grants, scholarships, fellowships, and other awards to give you an incentive to choose their program over other programs.

(Full disclosure: I wish GMAT scores weren’t used to generate school rankings. If I could wave a magic wand, I would have schools just set a certain “threshold” level and say, “If you score above this threshold, we guarantee to look at the rest of your application—and we don’t care how high above that threshold you are, because we’re never going to disclose the average GMAT scores for our pool of students.” But we have to deal with the system that we actually have today, so we might as well take advantage of it whenever possible.)

Proving You’re Ready for Business School

Getting ready for the GMAT is a serious challenge, and people tend to be most nervous about their quant skills. When was the last time you did math…on paper, with no calculator or Excel available? And with a strict time limit? You’ll have a heavy quant load in the first year of school (stats, accounting, finance…), so getting ready for the quant and integrated reasoning sections of the GMAT can be a head start on getting your math skills back up to speed for b-school itself.

People are also usually pretty nervous about getting cold-called during class, especially when analyzing case studies. There’s real pressure to perform well—to process new information quickly, analyze on the fly, and draw critical inferences about a plan, a series of events, an argument.

Getting ready for the GMAT is a way to demonstrate—to both the schools and yourself—that you’re ready for all of those quant topics and analytical discussions coming your way. From the perspective of the schools, this is especially important if you didn’t take quant-focused classes (and earn good grades) in college or if your job doesn’t have many quantitative or analytical aspects.

In addition, my colleague Reed Arnold pointed out that studying for the GMAT isn’t just good for proving your readiness. The intellectual challenge of getting ready for the test can actually help you push your analytical reasoning skills a lot further—skills that you’ll use every day in b-school and in the business world. (Also: How long has it been since you took an academic class of any type? Getting yourself back into Study Mode before school starts will help you to hit the ground running on day one.)

If I take the GMAT, how do I make sure that I get a high score?

There are no guarantees in life, of course, so I can’t tell you that you’ll definitely get a competitive GMAT score. But I can tell you the kinds of things that improve your odds.

First, have a plan. Studying for the GMAT is like taking a semester-long, university-level course. You’re going to want books, practice tests, and practice problems, and you’re going to want to have some kind of plan, or syllabus, for learning the material. You can create that plan on your own or you can buy some kind of self-study syllabus or live course (which should come with a syllabus).

Second, give yourself adequate time. Depending on your score goal and how much time you have to study each week, you’ll likely need somewhere between 2 and 5 months to get ready for the GMAT. Let’s say that you want to lift your score by 100 points, from around 550 to 650, and you can study for 15 hours a week; in that case, you might only need a few months to get ready. If, on the other hand, you want a 200-point increase and you can “only” study 8 to 12 hours a week, you’ll likely need more time to prepare. (I put the “only” in quotes because…yes, you’re going to have to do some real study to get ready for this test. The GMAT isn’t easy. Neither is business school.)

Third, figure out how you’re going to keep yourself motivated and moving forward in your studies. Are any colleagues or friends also preparing to take the test? Form a study group. If you’re taking a class, ask around among your classmates; chances are at least one other person also wants a study buddy.

And fourth, take advantage of any and all free (and high quality) study materials available to get started and see how it goes before you decide to invest any real money. Take a month and work through all of our free Foundations of Math and Foundations of Verbal study materials, for example, then take a practice test (also free) to see where you’re at before you decide how (or whether) you want to move forward.

At that point, you’ll be in a much better position to decide whether you’re willing to invest your time and money in order to have a shot at the potential benefits—and, if you are, then just make sure you take steps to give yourself a real chance to do well on the exam.

Good luck and happy studying!

Can’t get enough of Stacey’s GMAT mastery? Attend the first session of one of her upcoming GMAT courses absolutely free, no strings attached. Seriously.

stacey-koprinceStacey Koprince is a Manhattan Prep instructor based in Montreal, Canada and Los Angeles, California. Stacey has been teaching the GMAT, GRE, and LSAT  for more than 15 years and is one of the most well-known instructors in the industry. Stacey loves to teach and is absolutely fascinated by standardized tests. Check out Stacey’s upcoming GMAT courses here.

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Should I take the GMAT? A Cost-Benefit Analysis