For any sales manager who’s ever felt like the Rodney Dangerfield of the boardroom – you can’t get no respect – here’s news. There’s a way to definitively show how you created massive value for your company – even if you were faced with a drop in sales. It’s not a secret government program either, just one of the basics of all sales efforts. That’s right. Plain commonsense sales training. With a twist.

By presenting hard, scientific data that illustrates, with perfect clarity, that the ROI for the sales training that YOU brought into the company generated a verifiably impressive return on investment (ROI), you could be the hero of the day. And your team will be on top of the world.

Real Productivity Gains

If this sounds like a fantasy, it’s not. Because sales is on the front line of revenue and profit, any investment that increases sales productivity has an immediate and direct impact on a firm’s bottom line. That’s not the case with investments in other corporate operations. For example, a new and better payroll system might save some money, but it’s unlikely to generate additional income. Similarly, an improvement in the manufacturing supply chain may reduce inventory costs, but it’s not going to move more product through the pipeline.

High-quality, effective sales training can result in extremely impressive ROIs, according to experts who study these things. For example, an independent study recently revealed that sales training Acclivus Corporation (Dallas, TX) conducted at a major telecommunications firm paid for itself in 16 days and resulted in a six-month ROI of 812 percent. By contrast, a typical IT investment can easily take a year or more to pay for itself and seldom if ever generates a triple digit ROI.

That’s not an isolated case. A sales training conducted by Richardson (Philadelphia, PA) for Kinko’s Inc. in Dallas, TX, resulted in the trained salespeople generating three times as many sales of a new product than the salespeople who did not go through the training. Similarly, sales training that Integrity Systems (Phoenix, AZ) conducted at a chain of car dealerships generated $352 for every dollar spent. Dramatic ROI figures are also claimed by many other sales-training firms, including Tom Hopkins International (Scottsdale, AZ) and Brian Tracy International (Solana Beach, CA).

Until recently, however, the ROI potential of sales training has remained a secret, primarily due to the lack of an effective and scientific methodology for calculating the financial impact. That’s changed over the past two years, according to Pat Galagan, managing director of content at the American Society for Training and Development (ASTD). “The whole notion of accountability has taken on more importance,” she says, “and the training profession is getting much better at calculating ROI.”

If your goal is to clearly articulate the value of sales training to your firm’s top management, you’ll need to own the process for measuring ROI. If you’re willing to do the work to gather the right data (your CRM system helps) and perform some simple calculations, you’ll end up with a set of presentation slides guaranteed to knock your management’s socks off.

The Science of ROI

In the past, the value of sales training was generally expressed in terms of revenue growth. The equation looked something like this: “sales up = training worked; sales down = training sucked.” While this approach has a certain Neanderthal simplicity, it’s not going to impress a CFO who’s well aware that any increase (or decrease) in sales revenue could be the result of many factors, including the state of the economy, the general buying habits within the industry, the behavior of competitors, massive discounts, and so forth.

What’s needed is a way to express ROI that can take a pounding in the boardroom and emerge unscathed. The key to such bulletproof ROI is to lift a technique from the science lab and compare the performance of one sales group (that gets trained) against the performance of a second sales group (that does not get trained). The presence of the untrained group (aka the “control”) filters out other factors that might be influencing sales, because both groups are operating under similar marketing and sales conditions.

Comparing two groups means, of course, that you can’t train all your salespeople at once. Furthermore, you must choose groups that are representative of your entire sales staff rather than using sales training as a punishment (“Let’s train the under-performers to help them out”) or as a reward (“Let’s send the top sellers to Hawaii for sales training.”) Comparing two groups also allows you to assess whether the sales training you’ve selected is effective at creating ROI before you roll the training out to the entire sales force. You’ll also need to choose a period of time over which you’re going to measure the impact of the training. Comparing two fiscal quarters of sales activity – one before training and the other after training – is probably best, although some sales groups show noticeable improvements in just a few days.

Another benefit of using a subject group and a control group, as opposed to training the entire sales staff, is not immediately evident. Because you’re comparing the relative performance of two groups operating in the same environment, the ROI figures will be unaffected by the economy, the market or any other uncontrollable factor. If the sales training creates a positive ROI (which is almost certain), it will show up even if you’re having a terrible quarter for sales. This gives you the opportunity to report positive news to your top management, even if the overall sales figures are down.

The Basics of Measuring ROI

There are four basic methods of expressing ROI. The first is the net benefit over a given period of time. To obtain this number, you subtract the quarterly revenue (or whatever else you’re measuring) generated by the control group from the quarterly revenue generated by the subject group. For example, if the control group generates $100,000 in quarterly sales, and the subject group generates $150,000 in quarterly sales, then the net benefit for the quarter is $50,000.

The second way to express ROI is the average net benefit per trainee. To get this number, you divide the net benefit by the number of trainees in the subject group. This is a valuable number because you can multiply it by the number of untrained salespeople inside your total sales organization to get the potential quarterly net benefit of training everyone.

The third way to express ROI is the ratio of return over a given period of time. To get this number, you divide the net benefit by the cost of the training. For example, if the net benefit is $50,000 (over a quarter, for example) and the training costs $5,000, then the ratio of return is 10 to 1 (one dollar yields 10 dollars of benefit) or, expressed as a percentage, 1,000 percent.

The fourth way to express ROI is the payback period, which is how long it takes for the investment to pay for itself. To calculate the payback period, you divide the quarterly net benefit by 65 (the number of workdays in a quarter), and divide the result into the cost of the sales training. For example, if the difference between the control group and the subject group is $65,000, then the value of the sales training was $1,000 per day. Therefore, if the sales training cost $5,000, then the payback period would be 5 days.

Don’t worry if all of this seems a bit confusing, because we’re going to go through several examples as we look at different ways to measure ROI.

Calculating ROI for Revenue and Profit

There are three metrics by which you can measure ROI: revenue, profit and cost savings. Let’s look at revenue first.

The advantage of measuring revenue is that it’s the easiest metric to calculate because the data is so readily available. Here’s an example. If the control group books $1.1 million in the quarter following training, and the subject group books $1.2 million, then the net benefit for the quarter is $100,000. If the subject sales group consists of 10 employees, then the net benefit per employee is $10,000. If the sales training costs $5,000, then the quarterly ROI is 10 to 1, and the payback period is roughly 32 days (5,000/(100,000/65)). Because we’re comparing the performance of two sales groups, all these figures will remain the same even if the quarterly sales of both groups happened to have dropped relative to the previous quarter.

You can also measure ROI in terms of profit. This is a valuable metric because top management is probably aware that salespeople can close more business simply by offering big discounts, even though those discounts may play havoc with profitability. The main impact that sales training has on profitability is a reduction of the discounts required to close business, thereby making the average sale more profitable. (This assumes that the salesperson has pricing latitude.)

To calculate the ROI in terms of profitability, you subtract the dollar value of the discounts offered by the subject group from the dollar value of the discounts offered by the control group. For example, suppose the subject group writes up $25,000 in discounts while the control group writes up $50,000 in discounts. The net benefit is therefore $25,000 and the net benefit per trainee (assuming 10 employees in the subject group) is $2,500. If the total sales training costs $5,000, then the quarterly ratio of return is 5 to 1 or 500 percent, and the payback period is 13 days (5000/(25000/65)).

Calculating ROI in Cost Savings

The final ROI metric is cost savings. In the case of sales training, cost savings result primarily from a reduction in personnel turnover, a major problem in many sales environments. (Some insurance companies, for example, lose up to 20 percent of their sales personnel every year.) Because lack of training (and a corresponding lack of sales) is a primary reason that salespeople leave, sales training is an excellent way to reduce employee turnover.

To calculate the cost savings resulting from a lower turnover rate, you estimate how much it costs your firm to bring a new salesperson on board, including employee orientation, relocation and product training. (Your HR folks should be able to help you here.) Next, using historical data, you estimate percentage difference between the quarterly performance of the average experienced salesperson versus the quarterly performance of the average new-hire salesperson.

Let’s see how this works. If it costs $10,000 to bring a new hire on board and the typical new hire generates $60,000 in sales, while the average experienced salesperson generates $100,000 in sales, then the financial impact of turnover is $50,000 per new hire.

To get the net benefit, subtract the number of employees who left the subject group (if any) from the number of employees that left the control group. Using the example above, if one person left the control group and nobody left the subject group, then the net benefit would be $50,000 per quarter, the net ratio per employee (assuming 10 employees in the subject group) would be $5,000. If the sales training cost $5,000 in total, then the quarterly rate of return would be roughly 10 to one or 1,000 percent, and the payback period would once again be 13 days.

Note, however, that when you measured revenue, you already measured the lost opportunity cost (the second element of cost savings in this model), so you’re actually measuring the same thing twice. The same thing is true, by the way, when you measure both revenue and profit, because the profit is folded into the revenue. Because of this, you’ll want to make it clear to your management, when you present this data, that the three different metrics are simply different ways of looking at the same phenomenon and are not additive. In other words, it would intellectually dishonest to add the revenue ROI, the profit ROI, and the cost savings ROI to get a fictional “Total ROI.”

Now that you have the basic statistics, it should be easy for you, an experienced sales manager, to build a set of slides that will impress your management. Because presentation styles vary from company to company, the exact contents of those slides will vary. However, whether your management is concerned with revenue, profit, cost savings, or all three together, you now have the ammunition to prove that you had a major positive impact on your company simply by bringing training into the sales organization.

There is one final advantage to calculating the ROI of a sales-training effort. You may sometimes find yourself in competition with other organizations for training dollars. However, since you can now provide an accurate picture of the ROI of sales training, it’s likely that you’ll be able to secure as much training budget as you feel necessary. Ideally, you’ll be able to train your entire sales staff, and then you’ll have an even better story for top management.