by Evan Hackel

Every company pays for training. 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.  People don’t think about it this way, but maybe they should. Let me tell you a story about a company where a lack of training was costing $1.68 million a year.

I 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. Our overall goal was to show that our training and merchandising tools could increase profits. We noticed was that the average profit margin on products sold was 34%.  We knew we could improve that 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 message, “lower pricing” to customers. Second, we 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, we 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 we’d simply changed out the merchandising without doing the training, we would have had a much smaller impact.

Another way to look at it is that for years, a failure to train was costing that company $1.68 million a year in gross profit.  The cost of training for this company was in essence $1.8 million a per year, because they didn’t spend any money on training.   You see, every company pays for training. 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.

Are you too paying for training without knowing it? Let’s take a close look at just how that could be happening to you.

Opportunity: You Can 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 is more costly, losing $3 million in sales or investing in training?

Opportunity: You Can 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.

Incidentally, 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 high turnover rate that costs you $100,000 a year, or investing in training?

Opportunity: You Can 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?

Opportunity: You Can Train 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?

Let’s Review

You pay for training, one way or another.  Every company pays for training. 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.

Your company results are affected by the quality of the training your company provides. Investing in training upfront is going to provide you a 10x or greater return on your dollar.

Additionally, training is the safest investment you can make.  If you spend more money in advertising, it may or may not be effective in bringing customers to your business.  Training is about improving results with the customers you already have coming to your business.

Question, every business is different, how much is poor training costing you?  How could investing in training upfront improve your profits?