With the economic winter now upon us, budgets are freezing everywhere. Nonetheless, spending does not stop. The CFO organization can almost always release funds given a compelling enough executive business case. Below, we show how a skills investment can:
- Minimally impact the income statement
- Generate significant revenue growth
- Yield high payback
1) Minimal Impact on the Income Statement: Training need not be Expensed as one large lump, rather it can be treated as an Asset and written down over many quarters.
- Training licenses are Intellectual Property assets that can be amortized over years.
- Delivery fees can be acquired as a Pre-Paid Expense which is an amortizable asset. The accounting team decides the license to delivery fee ratio (often 67/33 or 50/50).
Suppose you have 100 SEs receiving a 5 days skills program costing about $250,000. Instead of a one-time $250,000 expense, the asset amortization would average $31,250 for each of 8 quarters. Huge difference on the income statement!
2) Revenue Growth Potential: Suppose the skills initiative includes manageable post-training goals to improve key metrics just 5% each. In our example the improvements are: Avg Qualified Deals per SE: 20 to 21; Win Rate: 50% to 52.5%; Avg Deal Size: $50,000 to $52,500; Avg Decision Days: 180 to 171. Annual revenue grows from $100M to $122M.
- In fact, 5% key metric improvements always yield a 22% revenue gain, and
- 10% improvements always yield a 48% revenue gain.
3) High Payback and High Consequences: In our example, $22M more revenue results from a $250k skills investment. What would be the consequences of doing nothing?
- 5 days of selling instead of training would normally yield ~$2,000,000.
- In one year, for not amortizing $31k each quarter, the potential Opportunity Cost is $20M in missed revenue which impacts margin contribution and bonuses.
The business case for skills improvement can be compelling, even when budgets are "frozen".
Contact Us if you would like us to walk you through a financial model with your specifics.
Tough times are the best times to improve skills to prepare for the inevitable upswing. Spending a little money now can generate 100s fold more money downstream. As Abe Lincoln said, "If I had 8 hours to chop down a tree, I would spend 6 of them shapening my axe."
