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How Much Should You Invest In Your Training Program?
Most companies approach their training budget by determining what is the acceptable amount of overhead for the organization and then subtracting everything they can't do without, such as salaries, offices, equipment, supplies, etc. Whatever is left (assuming it's not a negative number) is available for every possible need (including training) to compete for. This is no way to fund a strategic program aimed at growing the business.
Training is an investment that should have a payoff, or a return on investment (ROI), for the organization. Unfortunately, it can be difficult to calculate this ROI. Until you can calculate it, training is seen as just another overhead expense.
Here is an approach to rationally calculate the ROI for business development training that only requires two variables. If your staff improve their business development skills:
- How much do you think you can improve your win rate by?
- How much do you think you can increase the size of your sales funnel by?
There are a number of approaches you can take to estimating these two variables. For example, a starting point for estimating how much you can potentially improve your win rate by is how many did you lose for reasons other than price. Even better would be to determine how many were lost based on failure to understand the customer's requirements, because these are opportunities that could have been won had you done a better job on the proposal. You could win more of these if the staff writing the proposal had better skills. Regarding the sales funnel, if you know the size of your marketplace and can estimate your amount of penetration, you can measure the gap between your potential and your reality.
These two variables can be used to calculate how much business can be achieved if business development staff perform optimally. Based on your current sales funnel and win rate, you are achieving your current revenue. Change the sales funnel and win rate variables and you can calculate what the resulting revenue could be.
How much would you invest to realize this revenue? You don't want to invest all of it, because then there is no room for profit. So a good place to start is with your profit margin and revenue goals. When you account for your costs, remember that you have already accounted for the cost of the pursuit (because we are talking about bids already submitted and lost). The question is how much you would invest to turn your losers into winners.
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