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.

There was once a chain of nine floor-covering stores that was doing $12 million in annual sales. They had an overall goal to increase profits, which were sitting at an average profit margin on products sold of 34 percent.

Knowing that they could improve their margin if they focused on training and raised pricing, they trained salespeople to use sales tools that helped customers understand the true value the company offered. They focused on solving customer problems by concentrating more on the customers’ needs and helping them find the right products. By demonstrating value, and being better in assisting their customers meet their needs, they increased margin and sales.

As a result, the company increased its margin from 34 percent to 48 percent — a 14 percentage point improvement. In that $12 million company, the result was a $1.68 million increase in gross profit plus increased sales. The improvement in profit was demonstrable. The reality is that the true differentiator was the training. If they’d simply changed out the merchandising without doing the training, it 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 $1.68 million 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.

Lost Opportunity: You Can Train Staff to Close More Sales

Let’s say that your staff should be closing 40 percent of sales, but currently they are only closing 30 percent. That means you are losing 25 percent 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 percent to 40 percent is a reasonable expectation. It can mean training staff how to be more polite, listen better, present products and services more effectively — and ask for the order. It is 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?

Lost 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 percent of annual salary, or roughly between $6,000 and $10,000.

Let’s assume that you have 250 employees and that your annual turnover rate is 30 percent. 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 percentage points, from 30 percent to 25 percent? That is also very doable. That 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 75, a savings 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?

Lost 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 average from $25 to $28, you will increase annual sales from $10 million to $11.2 million.

Which impacts your pocket less, losing a $1.2 million in sales or investing in training?

Lost 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, it 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 10 times 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?

Evan Hackel is the CEO of Tortal Training, an executive coach, speaker, and author of Ingaging Leadership: A New Approach to Leading that Builds Excellence and Organizational Success.
Tortal Training specializes in developing interactive eLearning solutions to make effective training easier by specializing in engagement. For more information on Evan Hackel, or to purchase his book, please visit www.Tortal.net.