by Cordell Riley
Every company pays for training. They can pay for it up front or pay for it through poor results at many times the cost of doing it right.
It does cost money to train your employees. But it almost always costs much more money when companies decide not to train their workers. Those organizations believe that they are saving money. But in reality, they are spending more and, in many cases, sabotaging their own success in ways they do not realize.
A Short Case Study
My colleague Evan Hackel once directed a team that took over the operations of a chain of nine floor covering stores, a business that was doing $12 million in annual sales. The average profit margin on products sold was 34%. We knew we could improve that with the right kind of training.
Evan and his team used a two-part strategy.
First, they introduced a more sophisticated merchandising program that included a pricing model, supported by a new store design that communicated the message, “lower pricing” to customers.
Second, they trained salespeople to use the tools, communicate that message to customers and focus on solving their problems by focusing more on their needs and helping them find real value vs. simply a low price.
As a result, the initiative increased the margin from 34% to 48% – a 14% improvement. In that $12 million company, the result was a $1.68 million increase in gross profit dollars plus increased sales. The improvement in profit was demonstrable. The reality is that the true differentiator was the training. If the company simply changed out the merchandising without doing the training, the increase in profits would have been much smaller.
So, are you too paying for training without knowing it? Let’s take a close look at how that could be happening to you.
Option One: Train Staff to Close More Sales
Let’s say that your staff should be closing 40% of sales, but currently they are only closing 30%. That means you are losing 25% of potential sales; if your company is doing $10 million in annual sales, you are losing $3,333,333 in sales.
With training, increasing a close rate from 30% to 40% is a reasonable expectation. It can mean training staff how to be more polite, listen better, present products more effectively – and ask for the order. It is very, very doable. And if you are not doing it, you are paying for training without even realizing it.
Which costs more, losing $3 million in sales or investing in training?
Option Two: Train to Improve Employee Retention
Losing employees is costly. According to a study by the Center for American Progress, the cost of replacing a worker who earns between $30,000 and $50,000 a year is 20% of annual salary, or about $10,000. (If you’re losing employees who earn more than $50,000, replacing each of them will cost you even more.)
Let’s assume that you have 250 employees and that your annual turnover rate is 30%. So you’re losing 75 employees a year and spending $750,000 to replace them.
(You’ll also be losing money by paying unemployment benefits, losing sales during the time their jobs are not covered, and more, but let’s not figure that in.)
What if you did a better job of training employees and cut your turnover rate by 5%, from 30% to 25%? That is also very doable. That 5% improvement will pay you back more than you expect. If you have 250 employees, you will be losing only about 60 workers a year, not 70, a saving of about $100,000 a year.
The link between training and retention is well documented. Well-trained employees are happier and therefore less likely to leave. And because they do their jobs better, you will have to fire and replace fewer of them.
Which is cheaper – having a turnover rate that costs you $100,000 a year, or investing in training?
Option Three: Train Salespeople to Sell Just a Little More on the Average Ticket
Let’s assume that your average customer spends $25 on each visit to one of your locations. Through training, you can increase that average ticket to $28. Your staff can learn to refer customers to other products, upsell, and apply other simple strategies.
Let’s further assume that you have 400,000 customer transactions a year. If you can train your salespeople to increase ticket size from $25 to $28, you will increase annual sales from $10 million to $11,200,000.
Which is cheaper, losing a $1,200,000 in sales or investing in training?
Option Four: Train Employees to Improve Customer Retention
If your company does that same $10 million in annual sales and your customer retention rate drops five percentage points, that means you have lost $500,000 in sales. Yet the right kind of training in areas likes sales and customer service has been shown to retain many more customers. Again, it is “doable.” And the result can be a big improvement in profitability.
Which is cheaper, losing $500,000 worth of customers a year or training?
You are paying for training, one way or another. Every company pays for it. You can either pay for it up front or you pay for it through poor results at many times the cost of doing it right. Investing in training upfront is going to provide you a 10x or greater return on your dollar.