Is an LMS profitable? Calculate the ROI and impact of your LMS for retail

Having the right knowledge among your store staff is essential for helping customers make the right decisions. It increases both profitability and customer satisfaction for a store. But it does not stop there. When staff see that their knowledge leads to customers buying from them, their confidence grows, which makes them enjoy their work more and stay longer. A win-win, in other words.

How do you ensure everyone has the right knowledge and information?

Most retail chains today work with some combination of intranet, store email, and meetings. Channels that all have their strengths, but that typically reach only about half of all staff. With an LMS, that figure is normally somewhere between 80% and 100%. But bringing in an LMS means another tool to pay for and manage. Will an LMS for retail have a positive ROI (Return on Investment)?

To answer that, we first need to define what the effect or result is that we are measuring when working with an LMS in retail. So we know what return we expect on the investment.

For many people we talk to, the conversation often centres on setting up or reaching out with something:

• "We want to set up onboarding for new hires"
• "We want to reach out with product information"
• "We want to roll out a new concept for the stores"

But is reaching out really the goal? No, it is not. Reaching out with something is, nine times out of ten, about driving a change (the tenth case is about regulatory compliance and bureaucracy). And the goal of the changes you want to drive is almost always increased profitability.

The goal of an LMS is profitability

We know that profitability can be driven from two angles.

1. Increase revenue -- In other words, sell more
2. Reduce costs -- In other words, waste less

Selling more is straightforward to understand. If you have 500 salespeople who get better at upselling so they sell just 50 SEK more per day than before, that adds up to 9,125,000 SEK more per year. Here we can also focus on selling more of the products with good margins and getting better at helping the customer solve their entire need to increase the average purchase value.

Reducing costs can be done both directly and indirectly. The biggest cost item is usually staff. That is why it is so important to get new staff up and running faster and to keep them longer, since it always costs money to bring in someone new who (even if an LMS speeds up the process) needs to be trained and get settled.

All of this is really true for every industry. There is no inherent value in training for a company. The value only emerges when it has an impact on business results.

How profitable is an LMS for stores, what ROI can I expect?

How long is a piece of string? We cannot tell you how long your particular string actually is, but what we can do is tell you how long the string needs to be at a minimum for it to be a profitable string (metaphorically speaking).

We will focus our example on selling more, as that is the form of profitability that is easiest to calculate for a general example like this.

To determine how much more you need to sell to break even on investing in an LMS, we use the following formula.

Cost per employee / gross margin = required increase in sales.

For cost per employee, we use our mid-range package and calculate based on 500 employees. The cost per employee is then SEK 9,500 (the mid-range package) / 500 employees = SEK 19 per employee per month.

If your products cost nothing to purchase, this would be the requirement for how much more sales your LMS must drive. But your products do cost money to source, so we need to account for that as well. Since we do not have your specific margin figures, we will borrow from the Swedish Trade Federation's profitability report 2022. There we see that the average gross margin for retail is 32.7%.

SEK 19 / 32.7% gross margin = SEK 58.1.

To recoup the investment in an LMS, each salesperson needs to sell SEK 58.1 more per month. For most stores, you make that back and more on just one extra upsell during the month.

The big question that remains is: Do you believe your salespeople could manage one extra upsell per month if you could ensure that every single one of them always has the right product knowledge (and knows what complements them as upsells), the right sales techniques, and the right information about current campaigns and the value customers can get from them?

If the answer is yes (which it honestly should be for any retail chain), you are welcome to contact us so we can see how much we can increase your profitability.