In the study noted earlier, fewer than a third of respondents said they captured their training costs. In most cases, this meant there was an expense item on the operating statement captioned "training." Direct training costs—such as purchased training materials, and the cost of off-site programs, facilities and outside trainers—are charged to that account. This captures only a small part of the company's total training cost, however, since it fails to account for the cost and expenses of the employees taking the training, as well as those who planned and facilitated it. The following formula provides a sufficiently accurate statement of training costs for calculating training ROI. For each training event, calculate the following:

Direct Expenses + Personnel Costs = Event Cost. Direct expenses consist of materials, tuition, speaker fees, travel expenses, facilities and food. Personnel cost is calculated by multiplying the number of employees participating in the training by the average hourly pay, then by the number of hours. A more accurate figure is obtained by using burdened personnel cost (average hourly wage times 1.3). The cost of "temp workers," if they are used as a replacement for the workers in training, should also be included.

In addition to event costs, some part of one or more employees' salaries should be allocated to training for planning and coordination.

There is one other, somewhat troublesome, area that should be considered. Much of the training in distribution is "shoulder-to-shoulder," on-the-job training. Although this is an important training cost, it is difficult to calculate unless the on-the-job training is formalized and specific employees are charged with providing it. In that case, make an estimate of the percent of the trainer's time spent providing OJT and an estimate of the percent of the worker's time spent receiving OJT, and add those to the training cost.

Having clearly described the desired behaviors, companies must first determine a benchmark—the frequency with which these behaviors are occurring prior to training. You would want to know how many outside sales calls are to companies not currently doing business with you, and how many of those progress to successful presentation, as evidenced by orders. To determine the effectiveness of the training, you replicate these measurements after training is delivered, and determine the difference. If the training is effective, the measured behaviors should occur with a significantly greater frequency.

The next step is to determine the direct dollar contributions of these behaviors. In this case, if you have correctly diagnosed the required knowledge and skills, and if the training has included some motivation for the employees to apply the knowledge and skills to their jobs, there should be increased revenue generated by new customers. The difference between the increased revenue and the benchmark constitutes the direct contribution of the training:

Increased revenue – benchmark = contribution of training. The final step—tracing the contribution to the bottom line—is straightforward. If activity-based costing figures are available, take the gross profit generated by the new accounts and subtract the cost of serving them. If activity-based costing figures are not available, a good approximation of the new business contribution can be calculated by subtracting an amount equivalent to the average expense. For example, if the expense section of the P&L totals 20 percent of sales, subtract an amount equal to 20 percent of the sales generated by new accounts from the gross profit generated by those accounts:

Gross Profit of New Accounts – Cost of Serving New Accounts = Contribution of Training to the Bottom Line. Is it worth the effort?

As with so many initiatives introduced to distribution over the last several decades, there is a basic question that should be considered: is the return on calculating training ROI sufficient for the time and effort that you must invest? We believe it is, for a number of reasons.

The first is that the bottom line is the bottom line. If any investment you make in your company does not at some point make a contribution to a better bottom line, you probably shouldn't make the investment. ROI training gives you the information on which to base subsequent training investment decisions.

But the advantage of calculating training benefits in dollars goes far beyond that. It allows you to judge whether training is effective in terms of your business objectives, to do more of what works, and to quit doing what doesn't work. Effective training leads to better employee retention, better customer retention and greater productivity. It's a great improvement over what companies are doing now—which is, for the most part, to train and hope.