Can We Calculate ROI Right After Training Ends or Wait for Real Results?

Hi friends, do we need to wait until the expected return period to calculate ROI, or can we do it as soon as a program finishes based on projected benefits and not real benefits? For example, a training program was conducted assuming that the expected return period is 12 months. The training was done in June. Can we calculate ROI in July? Sales in May were $20,000, and sales in July were $30,000. Can we calculate the benefit of the program as $120,000 ((30-20) * 12) in July? Do we need to specify that this calculation is based on sales projections for future months? What are the concerns regarding this?

Please reply ASAP.

Thanks, Shayamalee

Dear Shayamalee,

First and foremost, you should have given a little brief about yourself. Why are you asking all these questions? Are you a sales professional, trainer, or student? What is your product or service?

Paragraph-wise Replies to Your Queries

Do we need to wait until the expected return period to calculate ROI, or can we do it as soon as a program is finished based on projected benefits and not real benefits?

"Return on Investment (ROI) cannot be calculated on projected income, and ROI on training is no exception. In fact, I have come across this novel concept for the first time. To measure ROI, we have to wait until actual change happens."

For example, a training program was conducted assuming that the expected return period is 12 months. The training was done in June. Can we calculate ROI in July?

"Once the training is completed, it takes time to convert knowledge into skills. This is not an easy task. The learner has to practice. The conversion of knowledge into skill cannot happen at lightning speed. Neither are training rooms factories where the trainer's job is to load the learners' brains with knowledge. Therefore, the given time span is too short. However, you can check the change in the behavior of the learners, but a month's period is too early for that as well."

If sales in May were $20,000, and sales in July were $30,000, can we calculate the benefit of the program as $120,000 in July (30-20)*12?

"Are you referring to these two months of the same year or July of the subsequent year? If it is the same year, then show me the organization that has shown a 33% increase in sales in just two months! Of course, this is possible only in seasonal sales. If a 33% jump in sales occurs, it could be due to different factors and not necessarily the training.

For certain products or services, the sales process is very slow. For courier/cargo/logistics services, it may take even a year to convert a sale. It requires prolonged follow-up to convert an account."

Then do we need to state that we calculated this based on sales projections for future months? What are the concerns on this?

"Return on Investment (ROI) is different from Projection on Investment (POI). You have mixed these two concepts. You are passing off POI as ROI. Though there is no such term as POI in Economics or Finance, based on your statements, I have devised it."

Final Comments

I am a bit critical in giving my observations; however, I have analyzed your comments dispassionately, and there was nothing personal in them.

Ok...

Dinesh V Divekar

"Beware of false knowledge; it is more dangerous than ignorance."

Thank you very much for your comprehensive and prompt answer. I am working as an HR Executive but am new to Training and Development, working in a sales-oriented company.

Let's assume that we trained a new set of trainee sales reps in June, and it was a long period of training, let's say one week. Due to the training, their soft skills in selling improved, and they were able to collect cash from debtors and distributors on time. In these circumstances, can't we expect such a significant improvement in the following periods?

For instance, we trained staff in June 2011, and July sales increased by $10,000, a 50% increase compared to May (before the training). It's understood that we can't project or consider this training benefit in ROI as $120,000 ($10,000 * 12) by May 2012. This should be a real benefit.

Sales Scenario Analysis

Let's consider the following sales scenario:

- May 2011 (before training): $10,000
- June 2011 (training month): $8,000
- July: $20,000
- August: $30,000
- September: $38,000
- October: $43,000
- November: $47,000
- December 2011: $50,000

When calculating the benefit of the training, should we consider the excess amount over $10,000 (May sales before training)? For example, July benefit $10,000 = ($20,000 - $10,000), August benefit $20,000 = ($30,000 - $10,000), and so on until December. i.e., $10,000 (July) + $20,000 (August) + $28,000 (September) + $33,000 (October) + $37,000 (November) + $40,000 (December) = total benefit $168,000. Is this correct, or do we need to compare these values with an untrained group?

I appreciate your assistance.

Thanks,

Shyamalee

How do you know that the increase in July was due to the training of staff only and not due to other factors, for example, seasonal variations? Have you got figures for the past year to compare?

Also, let's say the economic climate has improved, resulting in a certain increase in sales. How do you know how much that has affected the sales? Similarly, suppose the sales decrease due to other factors which are not under the control of the sales staff. Would you then say that the training was not effective?

I am not sure whether you have come across the concepts of Common Cause and Variable Cause variations. If not, kindly see Statistical Thinking: Improving Business Performance - Roger W Hoerl, Ronald D Snee - Google Books

Regards,

Dear Shyamalee,

First and foremost, get rid of the concept of projection. ROI is calculated for the past and not for the future. If you want to calculate the ROI, then you have to wait for the next six months or a year or even more.

Calculating Sales Efficiency

To calculate the efficiency of the salespersons, use the following ratios:

• **Sales Ratio** = (total sales expenses in the financial year) / (total sales revenue)

The higher the ratio, the better the efficiency of the salespersons. Now, find out the sales ratio for the past five years. Find out the sales ratio after the training. It should be higher than the preceding year. The difference is the ROI on your training.

• **Sales Revenue per Salesperson** = (Total number of salespersons employed on the last day of the financial year) / (total sales revenue)

The lower the ratio, the higher is the efficiency of the salespersons. Calculate this ratio for the last five years. Calculate this ratio for the post-training period also. The difference is your ROI in training. The benefit of calculating this ratio is that you get it in value terms.

Considerations for Trained Salespersons

What if you have been doing training and already the salespersons are well trained? In this case, both the ratios will remain the same. There will not be any significant change. However, maintaining the ratio is no easy task. It requires a lot of spadework and effort.

Ensuring ROI Through Implementation

Lastly, please make a note that to get ROI, you need to create a mechanism wherein you ensure that the training is implemented. Therefore, constant monitoring and follow-up are necessary. Just a week's training will not necessarily yield results. Much depends on the motivation level of the salespersons, the type of product or service that you offer, product knowledge of the salespersons, manager's support to the salespersons, territorial rivalry among the salespersons, operations support to the salespersons, customer service orientation of the operations staff, field visits by the top management, and so on.

Ok...

Regards,
Dinesh V Divekar

"Beware of false knowledge; it is more dangerous than ignorance."