Training Dollars Proven to Be High Return Investment
A synopsis of an ASTD Study

"If a man empties his purse into his head, no one can take it from him." Ben Franklin

Likewise, Human Resources and Training professionals have long maintained that there is significant return on investment where training dollars are concerned. Finally, after two years of research the American Society for Training and Development has data to support this claim. They found training affects the bottom line in three ways:

It is a critical element in employee retention.

The cost of developing an existing employee’s skills is significantly less than the cost of recruiting and training a new employee.

Ongoing employee training is crucial to customer satisfaction and retention.

Employee Retention
Zig Ziglar, author of 11 books believes offering ongoing training to employees results in increased productivity and loyalty. While compensation is important, many companies report losing more employees due to lack of job satisfaction than because of pay. Job satisfaction is derived from constant learning, and meeting and overcoming challenges. An employee who has productivity and learning goals and sees a correlation between exceeding goals and advancement will maintain a high level of job satisfaction. Satisfied employees don’t leave.
All too often individuals are hired for a job and then stagnate. It is a natural progression for individual interests to evolve and change. As the individual’s interests change, so must their skills. To retain productive and qualified employees, adequate attention must be given to career planning and professional development. Leading edge firms recognize this, and are making investments in training that far surpass average firms’ training investments. In fact, leading edge companies are spending TWICE AS MUCH on training as average firms. And they report the investments in training funnel directly through to the bottom line. ASTD found that companies that invest the most in workforce learning find higher net sales per employee, higher gross profits per employee and a higher ratio in market-to-book values than those who invest less in workplace learning.
Employees receiving ongoing training are significantly more productive and far less likely to leave.
Skill Upgrade Cost vs. Cost of Replacing an Employee
According to a survey reported in the July, 1998 issue of Workforce, 45% of responding companies indicated that turnover costs are more than $10,000 per employee. Add to that the cost of paying overtime to cover the workload while you find a suitable candidate. Compare that to the cost of professional development training for an existing employee. The typical U.S. private sector firm with 50 or more employees spends about $504 per employee on training. Not only is it far less expensive in actual dollars to train an employee than replace him, there is a far greater return on investment for training dollars than on dollars spent recruiting and hiring a new employee. Using the data from a study by Lyau and Pucel, a $3500 turnover cost if invested in training would net $53,530 in value added. Given these numbers, a company could double or even triple expenditures on training and still realize tremendous savings when compared to the cost of turnover. Whether providing skill upgrade training to prepare existing employees for promotion, or increasing skills to maximize productivity in a current position, the cost of training is significantly less than the cost of replacing that employee. If you invested an additional $500 per employee on training, you could train 7 additional employees for what it would cost to replace just one.
Training pays off in terms of improved job satisfaction, increased productivity and greater value of the individual to the company. While it is difficult to put an actual price tag on these items, the standard model for determining ROI for training dollars is:

ROI= Cost of Training/(Cost of the unwanted behavior X probability of behavior occurring)

Customer Satisfaction and Retention

"Customer loyalty is priceless."…Jeffrey Gitomer

An average organization loses about 15% of its customers every year. But if this can be reduced to 10%, bottom line profits improve 35% to 85%. Marketing costs decrease, your customer base increases, and satisfied customers provide valuable free advertising.
A well trained, knowledgeable employee has greater confidence AND competence. Customers expect the person representing your company to know your products or services and have excellent communication skills. While product quality will always be important, the way customers are treated before, during, and after the sale are far more significant factors in customer satisfaction. For example, a major natural gas utility implemented customer service training for 500 front line CSR’s and 100 supervisors. Data collected by an independent research firm reported that customer satisfaction increased 17% as a result of the training.

Summary
Historically, companies have viewed training as an expense. Unfortunately, when cutbacks were necessary, training was often the first area where cuts occurred. Today’s leading edge companies have shifted their perspective of training as an expense to that of an investment. They recognize that dollars spent increasing and enhancing employee skills are returned via lower recruiting costs, increased productivity, and greater customer satisfaction and retention. There is always room for improvement on the bottom line and stepping up training is a proven formula for enhanced financial performance.