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We've arrived at the last and most important post in this series, which is how to construct the LMS ROI portion of your business case for customer training.
With this final piece of the business case puzzle, you can present your argument in the most complete and best possible light and get the greenlight from senior management.
The first post of this series is a practical overview: "The Customer Training LMS: How to Build the Business Case." The second post provides insights that establish a baseline of the current state: "How to Assess Your Training Business." The third helps you to build on that baseline and construct a clear vision of the future state: "Developing a Compelling Vision."
Now it's time to prove your case with numbers.
It all comes down to the return on investment (ROI) calculation -- the dollars and cents of how the new learning technology will increase the impact on customer behavior in positive ways. Most senior executives will read this first — and if they don't like it, they won't read another word.
In the case of customer training, the two most important aspects of ROI are:
Before we get into the details of that, a bit of background on ROI. It’s just like figuring out a simple interest rate. You start with the net profit you foresee (we will define this later) divided by the cost of the LMS investment, multiplied by 100, and expressed as a percentage. That’s it.
The higher the percentage, the greater the return on investment, which is what management is looking for. In the figure below, that ROI of 400 percent represents a four-time return on investment.
The definition of net profit is revenue less the cost of the investment. Thus, net profit can come from sales or savings.
Usually ROI is calculated in retrospect, so we already know the revenue. "Cost of opportunity" might be a better label. Thus, to determine revenue you must make a conservative estimate of:
John Leh, the founder, CEO, and Lead Analyst of TalentedLearning, has weighed in on numerous business cases for new LMSs. Those business proposals are successful, he says, when "it's all about the numbers. Show that the return is expansive, that there is more than one needle that will be moved. If you show demonstrable success through ROI, senior management is typically onboard."
As Leh notes, the "return" portion of ROI is found in "three easy buckets":
“The categories or line items you use should be consistent with the baseline you’ve prepared and the detail of the future state.”
One thing is sure: If you get the greenlight, these estimates will come back to haunt you or help you. Management will compare actuals to your estimates.
So, make sure to temper the forecasts submitted by the subject matter experts on your team. As business advisor Sirius Decisions estimated, 79 percent of sales organizations miss their forecasts by more than 10 percent. And, as a study by CSO Insights found, about 54 percent of the deals forecast by reps never close.
Our advice: Don't get wild-eyed with your estimates; keep them conservative and then, when you implement your plan, do all you can to leave your forecast in the dust.
What's your current customer churn rate? That's where you can start your calculations. Given the number of customers you have, the average annual customer revenue, your current churn rate and a few other company-specific financial metrics, you can quickly calculate your ROI.
Armed with that information, you can begin to build a spreadsheet that will generate the numbers for you to use in your LMS business case.
Let's use this data as an example:
If you don't already have access to this information, work with the VPs of sales and finance to identify these numbers. (Do this also because those folks will almost certainly be part of the review process, and you do not want to surprise them with data they've never seen before.)
Then work with other members of your expert team to hash out what impact better-trained customers would have on your churn rate. Would it drop by two percentage points? Five? 10?
For the sake of our example, let us assume that you expect your churn rate to be reduced from 20 percent to 12 percent. The result would be an ROI of 29 times within the first full year of implementation. That is a compelling reason to make the investment.
But the giving doesn't stop there.
Besides increased customer retention, Claire Schooley has written about the importance of informing the C-suite on how customer training influences business results in a number of areas, including these:
And we would add these as well:
Then there are the costs that work against the ROI. There are two kinds of expenses to consider in the purchase of customer lms platforms, both of which will feed into your ROI calculations and affect your LMS budget:
These are your costs that don't change, no matter how many customers you are educating. Frequently, they cover one-time expenses associated with implementing a learning management system for customer training, including:
These are the expenses that vary as you scale up the number of customers you educate or the number of courses or training modules you develop, such as:
Click below to download a pre-programmed Excel spreadsheet that will calculate the ROI for both scenarios. Just plug in the numbers and do some "what if" games. It's our investment in your success.