RTO Registration – Part 2 – Market Analysis
So you want to start an RTO. No problems! The first question I ask is: What do you intend to deliver? and What makes you think there is space in the current training market for another provider of that qualification?
These are really important questions as they go to the core of the business planning that is required before you commit to becoming an RTO. As of today, there are officially 5,054 RTOs in Australia (Training.gov.au). Our case study organisation (see Part 1 – Introduction) is intending on delivering in NSW and QLD. There are approximately 3185 actively operating RTOs in QLD and NSW combined (1677 NSW and 1508 QLD). When you take into account the number of RTOs that are notified as delivering in those two states alone, it is an astounding 3478!
The training market environment
It is a highly competitive market and over the past two years we have seen some very aggressive entities move into the sector and make it increasingly difficult for the smaller RTOs. These companies concentrate on low infrastructure delivery (workplace or online delivery) and apply significant marketing and sales resources to keep the enrolments coming in. Add to this mix, the public providers who are under pressure to compete with the private sector, maintain their enrolment figures and obtain a return on investment on their massive infrastructure. My view is that these two groups are at opposite ends of the quality stakes.
- On one hand, we have the cookie cutter absolutely punching out enrolments / completions in a style that resembles Tailorism (Google, Fredrick Tailor). These organisations operate with a focus on efficiency first, balanced with achieving a positive client experience (and hopefully a return customer). It’s business.
- On the other hand, we have behemoth organisations with big infrastructure and lots (and lots!) of public servant trainers. These organisations operate with a focus on quality first, balanced with offering programs that are commercially (and industry) acceptable.
Where do you see yourself in this mix?
The remaining groups within the sector are predominately made up of enterprise RTOs (Government and Private) and small / medium private providers, some of which are not-for-profits. Our case study RTO will definitely sit in the small private provider group and will need to demonstrate how they are going to establish their market in such a competitive environment. Indeed, ASQA will need to establish that the ‘applicant’ is financially viable and has made acceptable assumptions about their expected enrolment numbers. This requires in-depth market research and sound business and financial planning.
I would advise the organisation to base their market research on their specific niche. They have identified their niche as “Medium to large enterprises, providing contextualised training aimed at current sales personnel”. Niche is critical to our case study organisation as it is the only way they will be able to compete. Find a segment of the market which is undersupplied (and which you have expertise) and compete on a platform of quality and context. Let me say those two words again: “Quality” and “Context”!!
The market size and estimated revenue
How is this going to be different from what’s already being provided out their? There are 76 RTOs with that same qualification (BSB40610) delivering in NSW and QLD. Of these, a quick search through TGA shows that about 48 of these are competing small / medium private providers. To get to this figure, I scanned through the list and removed those who are clearly operating in a different sector of the market. It is important to narrow the list down to as few as possible to enable a proper analysis of your potential competitors.
It is necessary to do some research to establish two important facts: How big is the market? And How much is the training worth? To establish this information there are some useful websites that can be used to research relevant data. In relation to our case study, I visited the following sites:
From these information sources, I have established that the base price for the Certificate IV in Business Sales in NSW is $2450.00 (list C). In QLD it is only $850 where the government contribution is capped at only 25%. From this, we can conclude that government do not put a high priority on this qualification but they do recognise that it is a valid contributor to productivity. It could be worse! There could be no available funding! I think this reflects the fact that businesses are more likely to contribute to sales staff training as sales and marketing functions are critical to their revenue maintenance.
Amongst many other things, I also established that:
- 93.2 per cent of Sales Managers are in full time jobs and work on average 45.1 hours a week.
- In NSW and QLD there are 60,910 persons who identify themselves as Sales Managers.
- The replacement rate in that occupation is 13.5% resulting in 8,222 new Sales Managers per year in NSW and QLD alone.
- In NSW and QLD, of the 60,910 Sales Managers, approximately 15,958 identify that they have no qualification to perform their current job.
- The gross potential market is 24,180 based on a combined figure of 8,222 new entrants and 15,958 existing workers.
- We also know that 67.3% are male, 24.3% are aged between 25-34, 35.6% are aged between 35-44 and 23.5% are aged between 45-54. The median age is 41.
- The participation rate in Vocational Education and Training is hard to pin down. After a bit of research, I estimate it at about 8.6%. Interestingly, in 2009, of those people undertaking a Certificate III or IV qualification, 86% were combining their training with full or part time employment.
- On the 31st Mar 2009, there were 45,000 Sales Workers in training undertaking a traineeship. Sales Managers would form a component of this figure.
So, what do we know? I estimate the market at approximately 2050 annual enrolments in NSW and QLD per annum. That is the gross potential market divided by the estimated participation rate. Whilst there is funding available, the main funding source is likely to be industry on a fee-for-service basis who can value a return on investment in training. We know that the target learner is predominately male and is aged between 35-44. I also conclude that the price for this training is about $2,500.00. We think we can secure a reasonable share of those 2050 enrolments per annum. Even 5% is approximately 102 enrolments annually with an estimated total revenue in the second year of $256,250.00. I have estimated this revenue in the second year as it will take some time to build a customer base.
In addition to establishing the size of the market, we also need to conduct an analysis of our competitors. Competitor analysis is an assessment of the strengths and weaknesses of your potential competitors. This is conducted to establish what they are doing right (threats to you) and what they are doing poorly (opportunities for you). It is a great way to help you plan the way your business will operate and further inform your pricing. You can download our own RTO Competitor Analysis to assist with this task.
You can continue to analyse the data from those external information sources and your competitor analysis to build a picture of viability (or not). Don’t be afraid to conclude after your research that what you thought was a great idea turns out to be very marginal. As for our case study organisation, we are definitely going for it! We have to. The blog demands it!!
Early delivery concept
To facilitate continued planning, it is helpful to establish an early delivery concept. Some might say this is a little premature, but I say, you need a concept to provide you the context for planning. Yes the concept will change and evolve as we plan and develop our knowledge about the opportunity. Avoid jumping to this stage before your analysis of the market and competitors. This earlier information gathering and analysis is critical to the early formation of a delivery concept.
Our case study organisation will approach the delivery with a focus on quality and context. The program will be delivered using a blended approach of online engagement, distance education and a series of “Sales Skills Seminars” (face-to-face workshops each delivered over two days in Sydney and Brisabne). We will adopt a very high quality text on which the learning will be based. We intend to focus on medium to large enterprises with a commitment to contextulise the training around their industry sales context (i.e. furniture, white goods, stationary, parts, business services, etc). We will also open up our “Sales Skills Seminars” to casual participants as professional development workshops resulting in a Certificate of Achievement. This will result in additional revenue and a higher profile for our RTO. It also gives business the opportunity to access a lower cost entry point before committing their staff to the full “Sales Manager” program. By securing them as a “customer” you have established the relationship and a foundation for continued services.
In this model, we have combined both accredited and non-accredited training that achieves a targeted outcome for both groups. Dave and Mary do not have the finance for a big marketing and advertising campaign. Their main form of marketing will be a website (this is their shop front) and direct business sales via appointments (and some cold calling) and a professionaly presented information package.
This has been a long blog! I guess the take home message is, you need to do your homework before you launch into becoming an RTO. Not only for your own success, but to substantiate the business and financial plan submitted to ASQA. Your business and financial plan will be assessed against the Financial Viability Risk Assessment Requirements by an ASQA approved financial auditor. Your plan really needs to hold water, otherwise your application will be rejected. Scary stuff!
There are some really great resources out there for business planning. I particularly like the business plan guides & templates at: business.gov.au. We will look at the development of the business plan in the next installment. Good luck with your market analysis and I hope this information has been helpful. I would love to hear about your ideas or your experiences. Just post a comment.
Newbery Consulting provides this information on the understanding that users will exercise their own skill and care with respect to its use. Before relying on this information in any important matter, users should carefully evaluate the accuracy, completeness and relevance of the information for their purposes and should obtain appropriate professional advice relevant to their particular circumstances. The material may include views or recommendations of third parties which do not necessarily reflect the views of Newbery Consulting or indicate its commitment to a particular course of action. Links to other publications have been inserted for convenience and do not constitute endorsement of material within those publications or any associated organisation, product or service. These external information sources are outside our control. It is the responsibility of users to make their own decisions about the accuracy, currency and reliability of the information at those sites.