Cost-Benefit Analysis of a

Customer Service Training

Program

Yangyang Zhang
05/08/2014

Table of Contents

Introduction................................................................................................................ 3
Rationale for the Choice of Customer Service Training Program.................................4
Potential Cost Categories........................................................................................... 5
Potential benefit categories........................................................................................ 7
Calculating the ROI................................................................................................... 10
Presentation of Findings to the Senior Executive Team............................................12
Preparation............................................................................................................ 12
Presenting............................................................................................................. 12
Reference................................................................................................................. 14

Introduction
There is only one boss. The customer. And he can fire everybody in
the company from the chairman on down, simply by spending his money
somewhere else. Sam Walton, founder Walmart. Nowadays, customer
service is an essential factor which contributes to a companys success.
Good customer service will differentiate the company from other
competitors. For example, if two companies sell the same products and have
similar prices, the one who has better customer service will gain more
profits. Good customer will also help retain customers and build good
reputations. (Rick Suttle) This training program is aimed to train all the sales
associates within the company. Because sales associates will serve
customers directly, it is very important to increase their awareness of
customer service and improve their customer service skills.

Rationale for the Choice of Customer Service Training

Program
The reason why I chose the cost-benefit for customer service training
program is because customer service is critical for the success of a company.
We need to improve our customer service to increase our competiveness, to
build and retain a good relationship with our customers and improve our
reputation. Studies from the Institute of Customer Service (ICS) show that
consumers ranked customer service as the biggest driver of loyalty ahead of
product, brand and marketing. Most business leaders agree that Customer
Service is a major factor in their future plans. For many it represents the
main differentiator, as the realization that competing on price alone is a
recipe for disaster for many businesses. (Michelle Ansell,2013) Hence
conducting the customer service training to sales associates will bring a lot
benefits.
In my perspective, this customer service training program will have
economic gains associated with both lower costs and enhanced value. Firstly,
improved customer service will lead to reduced complaints and that means
we will lower our costs on complaints solving. Secondly, improved customer
service can bring higher efficiencies. When a company focuses its efforts on
the areas that directly affect customer satisfaction, it will than utilize its
resources more efficiently. Moreover, improved customer service can bring
sustainable competitive advantage to the company. (SEO,2008)
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Potential Cost Categories

The cost categories for conducting a customer service training for all the
sales associates are as followed:
Training costs- include all the sacrifices incurred in setting up and
maintaining the training and instruction. These costs are both fixed and
variable and consist of the following:

Facilities fees-these include the rental fees for places and equipment

as well as the fees of training materials.

Instructor costs- the benefits we provide to instructors including salary,
traffic expense, hotel expense, food expense etc.

Covering costs- the sacrifices made by the company in covering the duties of
absent sales associates. This cost is variable depends on the customer
volume during the training. I f the customer volume is large on that period,
the covering costs may be increased as we dont have enough sales
associates served at that time.
The data can be obtained from HR department and Administration
department. The facilities fees can be gained once the place, equipment and
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materials are settled down. The costs for the instructors can be gained after
negotiated with instructors about their salaries and accommodations.
Covering costs can be gained once the number of sales associates are
decided and the customer volume on that training period. The salaries of
sales associates are fixed while the customer volume is out of our control
and it is variable. But we can choose a period that we may face the minimal
customer volume according to our annual sale records, and choose that
period to conduct our training program to minimize our covering costs. To
assure the integrity of these data, we must keep records on every expense
accurately.
The costing information is based on the assumption that there are 140
full-time sales associates and 40 part-time sales associates in the company.
And it is a one-time per year program means that we conduct this training
program once a year. We will separate the whole sales employees to tree
groups, 60 employees a time. When the 60 employees are taking training,
the others remain in their position and works. When the first 60 finish the
training, and then comes to the next group part and then the last group.
Below is a summary of the costs that would be incurred in conducting the
customer service training program.
Description
Training places
Computer
Projector
Training materials
Instructor salary

Rate per unit

$500
$1,000
$350
$50
$1,000

Number of unit
1
1
1
180
3
6

Total costs
$500
$1,000
$350
$9,000
$3,000

Traffic expense
Hotel expense
Covering costs
Food expense
Total costs

$500
$600
$180,000
$300

3
3
NA
3

$1,500
$1,800
$180,000
$900
$198,050

Potential benefit categories

The potential benefits a company can gain by conducting a customer
service training program for sales associates are as followed:

Reduce complaints: As the overall customer service is improved, the

complaints from customers will be reduced. We will have less support
call. To calculate the accurate data of complaints, we could record the

amount of complaints calls we received after the training.

Reduce litigation costs: If customers are dissatisfied with a company's
customer service, they can file a complaint with the Better Business
Bureau, Consumer Affairs or even a class action attorney. After
customer bought the products, they have certain rights to sue the
company, as customers are protected by the Federal Trade
Commission. (Rick Suttle) Hence improved customer service will save

costs on those litigation costs.

Increase customer retention: Nowadays, the competition is fierce in the
market in every industry. Customers have mutable choices in terms of
products. If customers are not satisfied with one companys products,
they can choose another company. So improved customer service will
help retain customers.
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Increase customer satisfaction: Good customer service will lead to

higher customer satisfaction. The customer training program will
improve employees customer service skills and eventually will

increase customer satisfaction.

Increase existing customer revenue: Improved customer service will
make current customers feel more comfortable with purchasing our
products and they will tend to buy more products in this company.

Hence the revenue from existing customers will be increased.

Generate new customers: According to Consumer Affairs website,
people that have a positive experience with a company's customer
service department will likely tell two or three others about their
experience. Contrarily, a person who has a bad customer service
experience will likely tell between nine and 20 people. (Rick Suttle) So
improved customer service will bring us new customers.

The data for the benefits can be obtained from the accurate records from
Customer service department, Finance department and Administration
Department. The specific benefits which can be indicated in amount of
money after a training program can be calculated as below:
Description
Call center savings
Litigation savings
Increased revenue
Total

Cost
$15,000
$10,000
$200,000
$225,000

And the other benefits are:

Description
Customer satisfaction
New customers
Customer retention

Increased rate
20%
10%
15%

Calculating the ROI

We need to take the time of value into consideration when calculating
the ROI for this customer service training program. Time of value indicates
that a dollar today worth more than a dollar in the future because of the
inflation or the interest earned. Because this training program will be
conducted once a year, hence we will calculate the ROI once a year. The net
present value will be calculating using a nine percent marginal costs and the
benefits are considered as one year time period. The present value factor for
one year is 0.917.
Because the value of costs is considered one-time expense, hence the
present value of costs is
Description
Training places
Computer
Projector
Training materials
Instructor salary
Traffic expense
Hotel expense
Food expense
Covering costs
Total costs

Total costs
$500
$1,000
$350
$9,000
$3,000
$1,500
$1,800
$900
$180,000
$198,050

The present value of benefits:

Description
Call center savings
Litigation savings
Increased revenue

Cost
$15,000
$10,000
$200,000
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Total year 1
Present value @9%

$225,000
$206,325

The net present value of the customer service training program:

The present value of costs
The present value of benefits
Benefits minus costs

$198,050
$206,325
$8,275

ROI Calculation
ROI= (Benefits-Costs)/Costs
ROI= ($206,325-$198,050)/ $198,050
ROI=4%
Because the return on investment is 4%, the customer service training
program should be conducted.

Presentation of Findings to the Senior Executive Team

Preparation
My presentation will be based on the cost-benefit analysis of conducting
the training program to sales associates. Before presenting my findings to
the senior executive teams, I will check my cost-benefit of the customer
service training program again to ensure I didnt make any mistakes in my
analysis.
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I will anticipate potential questions by identifying what content could be

susceptible to further questioning. And then practice how to answer the
questions. Be prepared with additional supporting data for my presentation,
including back-up slides in an appendix section or a spreadsheet ready to go.
I will also check the backgrounds of my audience. I need to know
whether they are familiar with my topic and how my presentations will affect
their business. For example, if they all tend to recognize to importance of
customer service, I will spend less time on introducing the importance of
customer service. And if they are not familiar with the training, I will spend
more time describing the whole process of the customer service training
program.

Presenting

When I present the finds to the senior executive team, I will use my time
effectively. Senior managers time is valuable. They have 20+ other things
they could be doing in the 10-60 minutes they have given me. (Eric Matson) I
will cover my content in the time allotted. Also, leave ample time for
discussion or questions.
I will be flexible during my presentation. It is common for senior
executives to ask me to jump back to a previous slide or fast forward through
my slides to a particular section of my presentation. So I will be flexible and
cover what they want to focus on.
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More importantly, during my presentation, I will refer to my analysis

data and prove them that the training is valuable. I will highlight the
importance of good customer service such as good customer service can
gain competitive advantage. Then I will show them my cost-benefit analysis
to convince them that this is a good invest.

Reference
1. Woodward, Nicholas. A cost-benefit analysis of supervisor training.
Industrial Relations Journal. 1975, Vol. 6 Issue 2.
2. Parry, Scott B. Measuring training's ROI. Training & Development. May96,
Vol. 50 Issue 5
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3. Workforce.com, Tool Calculate the Cost and Benefits of Training:

http://www.workforce.com/articles/tool-calculate-the-cost-and-benefits-oftraining
4. What are the benefits of giving good customer service:
http://articlesbasedonseo.wordpress.com/2008/03/11/what-are-the-benefitsof-giving-good-customer-service/
5. Rick Suttle, Why Is Customer Service Important to an Organization:
http://smallbusiness.chron.com/customer-service-important-organization2050.html
6. 7 Tips for Presenting to Senior Executives:
http://www.powerpointninja.com/presentation-delivery/7-tips-for-presentingto-senior-executives/

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