Do I Need to Take the GMAT? The Cost-Benefit Analysis

You can choose from a variety of entry exams if you're considering attending business school, but these days you may also be able to opt out entirely. Who wants to take an exam, right? So, choosing that could seem like a no-brainer. But it turns out that even when their desired institutions don't need it, some students still choose to take the GMAT for valid reasons. Just to what extent do any of those factors relate to you is the real question.

First, are test exemptions or test-optional rules in effect at all of your target schools? Sharpen your pencil and get ready to study if some of the schools on your list do require exams and you don't want to cross them off. But if all of your top-choice colleges actually do provide you this option, then we need to do some analysis.

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.

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.

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.  

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.  

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!

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