ROI Forecast for Kannon Sales Training

Due to general business conditions, copier sales at Kannon have gone down 30 percent in the last year. As part of an overall expense-reduction strategy, sales management decided to reduce salesforce expenses.

The costs for the staff, facilities, equipment, and consumables needed to deliver classroom training increased 300 percent in the last year. Sales Training Division (STD) management determined that classroom training expenses need to be reduced. The current training program is 75 percent classroom training and 25 percent e-learning. The goal is 25 percent classroom training and 75percent e-learning.

Upper management required a business impact study to evaluate the effects of the change. It also required a post-change ROI study to evaluate the program ( ROI Fundamentals: Why And When To Measure Return On Investment (Vol. 1); Jack Phillips & The ROI Institute, 2008, pp. 38-39).

A Pre-Program ROI Forecast informed upper management of the expected ROI and gave preliminary data to  compare to the post-change ROI. For a ROI forecast, program outcomes are estimated before implementation. Data collection is through interviews, focus groups or through the research of previous studies ( Costs and ROI: Evaluating at the Ultimate Level (Vol. 5), Jack. J. Phillips and  Lizette Zuniga, 2008, p. 106).

Data Collection
Reaction, Learning and Application

The level 1 reaction objectives for this pre-program ROI forecast are
 
1. Learners agree that the increased e-learning is useful
2. Learners agree that the training was appropriate to their needs
3. Class reaction sheets rating remain at historical averages.

The sales managers were briefed about the increased e-learning training program. When asked about estimating the first reaction objective to what extent was training useful, sales managers’ estimated, on average, that sales reps would give a 3 on a 1-4 Likert scale. For the second objective, about appropriateness to the sales representatives’ needs, sales managers estimated 3 on a 1-4 Likert scale. The third reaction objective is that class reaction sheet scores remain at their historical average or are better. Sales managers estimated sales reps would give classroom training 3 out of 4, self-paced e-learning 2.5 out of 4, and live online e-learning, 3.5 out of 4.

For level 2 learning there are two objectives. The first is that annual product knowledge assessment scores meet or exceed the historical average, and the second is that the course test scores remain within the historical average. Together these objectives measure learners’ acceptance of the increased e-learning and how well learners retained the materials compared to  classroom training. For this forecast, sales managers estimated the assessment score at 80 percent for the first objective, the annual assessment, and for the second objective, course tests, they estimated an average score of 75 percent.

For both level 3 objectives, application of product functionality knowledge and application of product market knowledge, sales managers estimated to what degree learners would use what they learned. The estimate was that sales reps, on the average, would score 80 percent on the behavioral checklist.

Business Impact

There are three level 4 objectives. The first is that learners, or sales representatives, will continue to achieve a 10percent sales increase after training. The sales director, regional sales managers, and sales associates were asked to estimate the impact of the increase in e-learning.

The second objective is that learner participation in training will remain at the current 90 percent level. It is an intangible, so its effect will not be estimated. The third objective is that classroom training costs will be reduced by 50 percent. For the purpose of this forecast, the objective will be considered to be achieved and included in the ROI calculations. Most important is that the sales increase objective is achieved so it will be the focus of this forecast.

The benefit of this training is expressed in profit.

Profit for the 10 percent sales increase is:

• Size of Salesforce = 1,000
• With 90% training participation = 100 without training
• Annual Sales for untrained reps: 100@$500,000 (sales force average) = $50,000,000
• Sales per Rep with training = $550,000
• 90% participation = 900 trained
• Annual Sales for trained reps: 900@$550,000 = $495,000,000
• Total Sales = $545,000,000 x 5% Profit Margin = Estimated Annual Profit = $27,250,000

Profit for 5 percent sales increase:

• Size of Salesforce = 1,000
• With 90% training participation = 100 without training
• Annual Sales for untrained reps: 100@$500,000 (sales force average) = $50,000,000
• Sales per rep with training = $525,000
• 90% participation = 900 trained
• Annual Sales for trained reps: 900@$525,000 = $472,500,000
• Total Sales = $522,500,000 x 5% Profit Margin = Estimated Annual Profit = $26,125,000

Forecasted ROI

• The cost of the training, detailed in Appendix A, is $4,150,000
• The projected benefit of the training is increased profit.
• The forecasted ROI for 10% Sales Increase
  ROI = 27,250,000 - 4,150,000/4,150,000 x 100 = 557%
• The forecasted ROI for 5% Sales increase
  ROI = 26,125,000 - 4,150,000/4,150,000 x 100 = 530%

Key Intangibles

In this study of the replacement of classroom learning by e-learning for sales training, a number of intangibles have been identified in four categories: reaction, learning, behavior, and impact.

For the sales reps, a key intangible associated with increased e-learning is convenienc and reduced travel and costs. This would contribute in a positive way to a work-life balance intangible. On the other hand, from level 1, classroom training reaction data, sales reps liked the social environment of the classroom.

Another learning intangible for e-learning is learner control. The pace of the learning experience controlled by learners allows them to go back to review content or jump ahead if the content is already known. This is particularly important to adult learners. One of Knowles’ principles is that adults are self-directed therefore instruction should allow learners to discover things for themselves ( The Adult Learner: A Neglected Species (3rd ed.); Malcolm Knowles, 1984). 

An intangible that affects transfer to the job is the 24/7 access to e-learning. Because the learning is always available, it can be reviewed and used as a reference to help support the transfer of learning to the job.

The intangible that relates to the organization is the move to a learning organization. Because of increased learning opportunities afforded by conveniently available e-leaning, there is an even greater opportunity for the sales rep and others to learn within the organization.

Communication Plan

Upper management required a business impact study to evaluate the effects of the change to increased e-learning. It also requires a post-change ROI study to evaluate the program and as an accountability measure ( Communication and implementation: Sustaining the practice (Vol. 6).Jack Phillips & Wendi Friedman Tush, 2008).

When completed, this Pre-Program ROI forecast will be presented to upper management as a way to show the value of the program before it begins. The expected ROI will be discussed along with intangible benefits of the program.  The pre-program ROI will be compare to the ROI after program implementation. In this way, performance can be evaluated.

Appendix A: Estimated Fully Loaded Program Costs (C)