It seems almost strange to think that you have you to justify the dollars your company spends on training employees to be successful. I mean isn’t it common sense? Well, let’s see!
Imagine This Scenario
Merchant Bank Services is preparing to launch a brand new system for product offers. The Technology department has spent the last two years working on innovative software that guides bankers through a series of interview questions with the customer. Based on the data entered, it locates the best financial product for the customer’s unique needs. The software was piloted in the northeast region and was met with much enthusiasm from both customers and bankers. Now it’s time to launch this new software throughout the entire enterprise. Merchant Bank Services’ learning organization has been tapped to create a training program to help bankers use this new system and to identify the best product to offer their customers.
Let’s assume that the training created for this software launch was brilliant! The bankers loved the training experience and are super excited about the new software. Did Merchant Bank Services get a great ROI on this training? Well, we don’t know yet. But we sure can find out!
How to Calculate ROI
Here’s how to begin the calculation of ROI:
- Merchant Bank Services’ goal for new accounts opened during within two months of system launch: $800,000.00
- Learning organization’s team member time spent to produce the training program: $33,250.60 (*formula below)
- Training materials for 800 participants: $10,000.00
- Training time for 800 bank tellers and facilitator: $65,000.00
* Formula for calculating the time spent to produce the training program: ($65,000 salary + 23% added for benefits = $79,950. 79,950/2080 hours in the work year = $38.44/hour of work. $38.44 x 865 hours to create a series of eLearning and classroom-based training equaling 4 hours of seat time
The cost of training was $108,250.00. So once you have achieved new account openings ratios of over 14%, you have realized a return on investment from your training. Of course, to be considered a whopping success, you would want the highest volume of sales possible during the launch to help sell the training program to the company executives!
So, what if account openings tanked during the launch? Is training the only thing to be blamed? Of course not, because even with the most brilliant training program – if you don’t have a great product or a great system — you might never achieve your new account-opening goals. But, without training, it would be almost impossible to get there.
Establishing and justifying training budgets can be incredibly challenging; however, it can and should be done. Tying training directly into quantifiable numbers such as improved sales or productivity can help you demonstrate the value that your learning organization brings to the company.
Things to Consider When Calculating ROI
Below are some key considerations to follow when establishing an ROI:
- Select the baseline criteria to be measured. In the case of our example, the criterion is new accounts opened.
- Identify the number level of the performance before training. In the case of our example that would be zero because this is a new system. However, if it were an existing system, it would be the number of accounts opened per bank teller before attending the training event.
- Calculate the company’s pre-training cost to obtain the criteria. In the case of our example, this could be based on historical numbers of account openings with training before the new system. Or, if this were an existing system, you would calculate the cost of account openings against all costs to achieve the accounts, including wages, R&D, materials, facilities, distribution, marketing, and overhead.
- Calculate the cost to deliver the training. In the case of our example, we included the instructional designers’ time to complete analysis, design and development of the four-hour system training, the cost to provide the participant materials, as well as the cost to facilitate the training, including the actual cost of the attendees’ salaries during training.
- Calculate the outcomes of performance after the training. In the case of our example, we’ll say that we achieved 50% of our launch goal for accounts opened.
- Calculate the net benefit to your company. In the case of our example, based on 50% of launch goal being achieved, $400,000.00 – $108,250.00 (cost of training) = $291,750.00.
- Calculate the ROI. The formula is ROI = Benefits – Costs/Costs x 100. In the case of our example, ROI = $400,000 – $108,250/$108,250 x 100 (or percentage return on investment of $269,051). This training is worthwhile because you are getting a return of $2.69 for every $1 spent on training.
Ready to show your stakeholders the amazing return your next training program will bring on their investment?
And, if you need a little help in ensuring that your key stakeholders’ ROI expectations are met, we are here to help! ttcInnovations is your training partner. You can count on our team of ROI-savvy Innovators to help you to analyze, design and develop instructionally effective solutions that will help you satisfy your key stakeholders’ goals. Contact us today to get started!