KNOWRES CONFERENCE
MEASURING RETURN ON INVESTMENT IN TRAINING
11-12 FEBRUARI 2004

Calculating the Return
on a Training Course

The term, return on investment (ROI), readily becomes apparent when discussing the return on education and training. A recent study conducted in the United States reveals that as many as 67% of the companies listed in the Training Top 100 of Training Magazine calculate a return on their investment in education and training. What is the benefit of ROI to a sales manager and what is required in order to produce a simple calculation of the ROI in the case of a sales training course?

by Diederick Stoel

In performance-based organisations budgets are assigned to those depart­ments which can demonstrate the added value of their expenditure. A training manager who wishes to be certain of his educational budget next year, will need to show that his train­ing plan is profitable, preferably with the aid of a ROI calculation. Yet how does one calculate the ROI on a train­ing course? This article will help for­mulate the answer. It briefly sketches two simple methods which are used by many instructors throughout the world. It will become clear to you that careful consideration can save you a great deal of money, an immediate yield even before the sales training has begun and even before you have produced the final calculation.

Imagine that you spend R250,000 on a course. It yields R350,000. Your net profit is R100,000. This represents a ROI of 40%, namely, R100,000 divided by R25,000 multiplied by 100%. We will be making R0.40 on every rand we invest. This is a simple calculation and therefore easy to perform. However, before we can do this calculation, we will first need to crack a few tough nuts. We can readily list the costs in­volved but how does one calculate the income? Do we also know that the yield which is evident to us, has been produced by the training?

In order to clarify this, we will monitor the situation prevailing at the car com­pany of Donkersloot, a dealer selling make C vehicles and the proud owner of six branches in the Johannesburg and Capetown regions. You will see the im­pact of training expressed in money and how this impact can be separated from all the other effects.

Operating results
In order to calculate the ROI, you will need to be familiar with your organi­sation’s operating results: the number of quotations, the average value of an order, the number of complaints, share of wallet, productivity, customer retention, rate of turnover, out-of-stock figures, the ratio of fast to slow mov­ers, market share, quality, customer loyalty, customer satisfaction and so forth. If all is well, as a sales manager you will have these figures at your fingertips. You should therefore ensure that your sales administration system, or part of it at the very least, is in good shape. Let us now have a look at how Donkersloot establishes a relationship between the activities in its training venues and its sales figures.

The Donkersloot firm
The sales figures for the C make of cars has been stagnating for some months now. Growth is occurring in dribs and drabs. European legislation has also had the ef­fect of pushing up average vehicle prices sharply. The importer of the C make of cars has introduced a financial assistance scheme: buy now and pay next year, inter­est-free. This stunt is supposed to get peo­ple to take the plunge. The campaign launch is scheduled for 1 July 2003. The Donkersloot car company, a make C dealer with six branches, seizes the opportunity to provide short but intensive training for his staff. The subject is closing a deal in the face of a price-based objection.

• Purpose to persuade hesitant custom­ers to avail themselves of the financial assistance scheme promptly and smoothly, and in a professional manner.
• The schedule first a pilot project run­ning in three branches in the Johannesburg region at the end of July followed by those in the Capetown area at the beginning of August.
• Cost €15,000 including analysis, and the design, implementation and evaluation of the training course.

 Question Example or Answer What do we wish to achieve? Higher turnover. What results will we achieve? More orders from sales consultations in which price-based objections are raised. What do we need to do in order to achieve results? Financial assistance scheme – deal with price-based objections What should we be able to do for this purpose? Go along with things, remove any price-based objections and close the deal promptly. What is the best way of learning how to do this? In short courses involving role-plays and actors.

Table 1 Donkersloots’ plan

 Figure 1 Number of cars sold in the Johannesburg region.

 Figure 2 Number of cars sold in the Johannesburg region compared with the Kaapstad area.
 Top 5 Sales 01.01-30.06 Forecast 01.01-31.07 Sales July Sales 01.01-31.07 Difference 1 [2] B make 31.761 37.055 7.822 39.583 +47,8% 2 [1] A make 32.650 38.092 5.354 38.004 -1,6% 3 [3] C make 28.574 33.336 6.111 34.685 +28,3% 4 [4] D make 24.172 28.201 3.544 27.716 -12,0% 5 [5] E make 24.112 28.131 3.555 27.667 -11,5% Table 2 Figures for car sales in July 2003

Accuracy
Both ROI figures are correct in any case. The difference lies in the method used and the precision with which one draws a con­clusion about the course’s yield. This ac­curacy is important if you need to choose one of these two methods in practice. Let us go through the facts again one by one. The focus group has concluded that the added value amounts to about 31% of net profit. They are 71% certain of this. It could therefore be more but, by the same token, it may be somewhat less. In order to express this uncertainty, we can say that the course yielded between 22% and 43.7% of net profit. This is to say that the experts estimate that income amounted to between R158,470 and R314,370. Rounded off, the ROI lies somewhere between 5.6% and 110%.

A control group’s findings are much more precise. We will ignore the statistical rea­sons for this here but the data reveals that we can say with 95% certainty that the ROI for the course varies between 48% and 75%. The variation in accuracy is shown in Figure 3. The truth literally lies in the middle.

Precise knowledge
Let us return to your own situation. Now which method should you use to calculate the ROI? This depends on whom you wish to show the figures to. Do your stake­holders take your word for it that the course pays? Alternatively, would they prefer to see a ROI figure with a reliability factor of 95%? What is required in order to prove that your training courses produce added value? Also, how much money are you prepared to earmark for this purpose? The answer to these questions will deter­mine how you will demonstrate the return on your investment. The moral of the story is that there is a world of difference between faith and knowing something for sure. It is worth one’s while to investigate this world.

In this article you have briefly seen how you can calculate the ROI for a sales training course. You also know what you will need for this purpose: a sales admini­stration system, reliable sources, a healthy dose of common sense and a proper sense of perspective.

 Attendees Focusgroup Mr. Donkersloot - dealer 80% 20% 60% isolation Piet Smidt - zone manager 70% 30% 70% factor Wout Broersen - salesmanager 60% 40% 60% Max. David Whitman - salestrainer 70% 30% 80% 43,7% Harrold Duque - manager 70% 30% 60% Tutu Mbala - manager 80% 20% 90% Jan Pfizer – salesrep 70% 30% 70% Kippi Moekesti – salesrep 60% 40% 70% Isolation Albertina Sisulu - salesrep 70% 30% 80% Factor Eveline Leopold - salesrep 60% 40% 70% Min. 69% 31% 71% 22%

Table 3 Focus group results

 Figure 3 The truth lies somewhere in the middle.
 In addition, you have seen what a ROI calculation can produce. With the aid of systematic evaluation you will discover your training ‘darlings’ and ‘disasters’. Large profits can be achieved by utilising your ROI calculations to improve your training programmes. This will ensure that you will later emerge from the recession with your sales team more rapidly than your competitors. Here is one last tip: have your sales staff express their view of the ROI of their training after they have at­tended a course, as in the case of the focus group. You will then not only have an indication of your anticipated return but you will also be facing in the right direc­tion, namely, looking forward to profit! Diederick Stoel is the managing director of ProfitWise in Amsterdam, the Netherlands, which specialises in making education and training profitable.