Swafford - Sales Training Options (Case Study)

The Swafford Companys sales have been expanding rapidly in the past several years and are expected to continue increasing throughout the next several years. In order to meet this demand, Lanny Larson, Swaffords sales manager, has hired a number of sales representatives and expects to hire about 6 to 10 salespeople per year in the foreseeable future.

In the past, Swafford hired only experienced reps, but lately the company has been recruiting at universities and hiring recent marketing graduates. While the new grads dont have experience, they often have a high level of motivation and a good understanding of overall marketing planning. However, the less-experienced reps need more training on both company policies and sales procedures before they are effective in making sales calls.

Consequently, Larson is designing an intensive, two-week training program that will provide the necessary training at the lowest possible cost.

Currently, Swafford does not have a training program. The new hires just spend a week in a territory with an experienced rep, and then they are given their own territory. While this system was satisfactory with experienced people, it is not adequate for the inexperienced people the company is now hiring.

Lanny Larson has suggested to the president of Swafford, Pat Mattison, that the company institute a one- or two-week training program at company headquarters. Larson has suggested two options. The first option is to hire a staff recruiter / trainer who would spend half of his or her time on recruiting and the other half on training. The new staff specialist would be paid a salary of about $70,000 a year so the added cost with respect to the training responsibilities would be $35,000 a year.

The second option is to contract with an outside company that specializes in sales force training. That company would provide a specialist to set up and conduct a training program at a cost of approximately $15,000 per week (or $30,000 for two weeks, which is the expected length of the program).

Larson was just concluding her presentation to Pat Mattison. I feel that a training program would increase the average annual sales per rep a minimum of 5 percent. So, on average, our reps generate one million dollars in sales volume. With this program, we expect that will increase to an average of $1,050,000 per rep.

Mattison replied, I am not convinced that the training would improve performance enough to justify the costs. First, keep in mind our cost of goods sold is about 50%, so only half of that increased sales is profit. And the training costs also include many expenses that you have not yet mentioned. For example, we would have to pay for travel and lodging for all the new hires to be at company headquarters for two weeks, plus Im sure there will be significant training materials costs. I just want to be sure that the sales increase would more than cover all of the training expenses.

Larson started calculating these costs in her head. She knew that bringing a rep into headquarters would cost $250 per person for travel and roughly $1,000 for lodging and meals for the two-week period. She expected that the training materials would add $100 per rep, and that the audio-visual equipment might run $500 per training session. These costs would be relevant to both options.

Mattison suddenly had a thought for a third option: Have you ever thought about developing an online training program? Everything I read says that the top companies are moving toward this and I heard they save bundles in the process.

Larson, who had already looked into the online option, replied, These online programs have significant upfront costs. Wed need to develop a customized program, and that would cost a minimum of $300,000 to develop. Of course, once its in place, the cost to keep it going would be minimal Id guess $3,000 a year to keep it updated. Besides, I think an online program works best for refresher training or for introducing new product information, not for teaching basic selling skills. Face-to-face is much better for that. So, in other words, I dont see any way we would get the 5 percent increase in sales with an online program.

Well, okay, said Mattison, you put together an analysis that considers the profit or loss of all three of these options; and then make a sound recommendation to me.

Lanny Larson headed for her office to crunch the numbers. She knew that Mattison would want to make an informed decision, and was relying on her recommendation.

Questions:

1. What is the expected profit/loss of each of the three options for training new reps? Complete and attach the cost analysis (excel) template to justify your answer.

2. Which of the three training options is best for the Swafford Company? What is the reasoning for your recommendation?

3. What characteristics of the Swafford Company make online training (as opposed to face-to-face) more/less attractive? Discuss.
4. 

A B C D Internal (Hire) External (Outsource) Online Program 1 2 Reps (number of reps to be trained) 3 4 Revenue 5 Revenue (from increased sales volume) 6 Profit Margin (%) 7 Net Revenue 8 9 Expenses 10 Salary (for Trainers) 11 Fees 12 Travel 13 Lodging & Meals 14 Material 15 A/V Equipment 16 Development Costs/Updates 17 Total Expenses 18 19 Net Profit 20 Year 1 21 Year 2 22 Year 3 23 Year 4 24 Year 5 A B C D Internal (Hire) External (Outsource) Online Program 1 2 Reps (number of reps to be trained) 3 4 Revenue 5 Revenue (from increased sales volume) 6 Profit Margin (%) 7 Net Revenue 8 9 Expenses 10 Salary (for Trainers) 11 Fees 12 Travel 13 Lodging & Meals 14 Material 15 A/V Equipment 16 Development Costs/Updates 17 Total Expenses 18 19 Net Profit 20 Year 1 21 Year 2 22 Year 3 23 Year 4 24 Year 5