Real dollars, real perspective . . . Why You’re Paying for Training . . . Whether You Know It or Not

It’s expensive to train your employees. But in my experience, it almost always costs much more when companies decide not to train their workers. Those organizations are spending more and, in many cases, sabotaging their own success in ways they do not realize.

And although they think they are saving money, the fact is that their bottom line shrinks. 

A Short Case Study

I once directed a team that took over the operations of a chain of nine flooring stores, a business that was doing $12 million in annual sales. We noticed that the average profit margin was 34 percent. We knew we could improve that margin with the right kind of training.

We used a two-part strategy.

• First, we introduced a more sophisticated merchandising program that included a pricing model, supported by a new store design that communicated the “lower pricing” message to customers.
• Second, we trained salespeople to use the tools, communicate that message to customers and focus more on their needs and helping them find real value rather than simply a low price.

As a result, we increased the margin from 34 percent to 48 percent and increased gross profit dollars by $1.68 million. The true differentiator was the training. If we’d simply changed out the merchandising without doing the training, the increase in profits would have been much smaller.

For years, a failure to train cost that company $1.68 million per year in gross profit. The cost of training for this company was in essence $1.8 million per year, because they didn’t spend any money on training.

Are you, too, paying for a lack of training without knowing it? Let’s take a close look at how that could be happening to you – and how you can fix the problem.

Option One: Train Staff to Close More Sales

Let’s say that your staff should be closing 40 percent of sales, but they are only closing 30 percent. That means if your company is doing $10 million in annual sales, you are losing $3.3 million in sales.

With training, increasing a close rate from 30 percent to 40 percent 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. If you’re not training them, you are paying without even realizing it.

Which costs more: losing $3 million in sales or investing in training?

Option Two: Train to Improve Employee Retention

According to a study by the Center for American Progress, the cost of replacing a worker who earns between $30,000 and $50,000 per year is 20 percent of his or her annual salary, or about $10,000.

Let’s assume that you have 250 employees, and your annual turnover rate is 30 percent. You’re losing 75 employees a year and spending $750,000 to replace them. (You’re also paying unemployment benefits and losing sales during the time their jobs are not covered.)

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.

What if you did a better job of training employees and cut your turnover rate from 30 percent to 25 percent? That 5 percent improvement will pay you back more than you expect. If you have 250 employees, you will save about $100,000 a year.

Which is cheaper: having a turnover rate that costs you $100,000 per year or investing in training?

Option Three: Train Salespeople to Sell More

Let’s assume that your average customer spends $25 during each visit to one of your locations. By training your staff to refer customers to other products, upsell and apply other strategies, you could increase that average ticket to $28.

Let’s also assume that you have 400,000 customer transactions per year. If you increase ticket size by just $3, you will increase annual sales from $10 million to $11.2 million.

Which is cheaper: losing $1.2 million in sales or investing in sales training?

Option Four: Train Employees to Improve Customer Retention

If your company does $10 million in annual sales, and your customer retention rate drops five percentage points, you lose $500,000 in sales. The right kind of training in areas like sales and customer service helps companies retain many more customers. The result can be a big improvement in profitability.

Which is cheaper: losing $500,000 per year or training?

You are paying for training, either up front or through poor results at many times the cost of training. Investing in training up front can provide you a return of ten times your investment or more.

 

About Evan Hackel

As author, speaker and entrepreneur, Evan Hackel has been instrumental in launching more than 20 businesses and has managed a portfolio of brands with systemwide sales of more than $5 billion. He is the creator of Ingaged Leadership, is author of the book Ingaging Leadership Meets the Younger Generation and is a thought leader in the fields of leadership and success.

Evan is the CEO of Ingage Consulting, Delta Payment Systems, and an advisor to Tortal Training. Reach Evan at ehackel@ingage.net, 781-820 7609 or visit www.evanhackelspeaks.com