Budgeting season is here—how much have you allotted for employee training?
That’s the big question, isn’t it? As the head of HR for a small or midsize business (SMB), you already know that employee training needs a ton of financial support.
You already know that workers are eager for more training from their employer, that learning and development is a vital component of the employee experience, and that, historically, companies that invest more in employee training reap rewards in the form of higher revenue and profit margins.
What you don’t know is how to turn this need into a specific number. That’s the challenge.
The thought of dropping everything to write out a budget proposal can be daunting enough to convince you to avoid the task altogether. It’s not like an itemized training budget is mandatory to run a business, right?
But here’s why you should do it anyway: SMBs that don’t create a line-item training budget will only spend on training when they have a surplus, causing them to underinvest relative to what’s needed to engage and retain top talent.
Putting your money where your mouth is, so to speak, will ensure your business stays financially committed to employee learning and development in order to retain your best workers and increase their engagement and productivity.
In this article, we’ll cover the major cost categories that every employee training budget should account for and offer two simple tools you can use to calculate a quick-and-dirty training budget right now. We’ll end with tips on how you can save money on employee training.
The 4 major cost categories every training budget should account for
For SMBs, employee training is no longer just about checking compliance boxes. More and more, training is being seen as a strategic lever they can pull to not only develop important skills and engage workers in their day-to-day, but also to attract top talent keen on organizations with a developmental focus.
As a result, employee training costs skyrocketed last year:
Data from Training Magazine’s Annual Training Industry Report. Small business is defined as having between 100 and 1,000 employees (Source)
If you’re a cost-conscious SMB, that number can be startling. What is all that money going toward?
That answer will vary from business to business but, in general, here are the four types of costs you should account for in your employee training budget:
1. Training staff (~50% of your budget)
Whether you decide to outsource your training staff needs or hire folks on internally, you need people to own the employee training arm of your organization.
This team is in charge of developing training materials, delivering courses to learners, (either in-person or through training technology), and reporting on results to leadership.
There is no set trainer-to-employee ratio that applies to every company, but having one corporate trainer for every 50 workers is a good starting point. Add in any personnel for IT or support purposes, and your staff costs will quickly eat up half of your training budget.
2. Training tools and technologies (~25% of your budget)
How are you delivering training to your workers?
If it’s in a classroom setting, you need to rent out a proper facility or create one yourself with items such as desks, whiteboards, and a projector. If you’re training remote workers, you need some sort of virtual classroom platform. If you’re training through an online course, you need computers, a learning management system (LMS), and a course authoring tool.
If you’re among the 42% of small businesses leveraging blended learning with both in-person and self-paced training elements—which has proven to be the most effective training method—you have to consider the costs for tools to support both .
If next year is the year you’re finally going to purchase an LMS, or shell out for a desperately needed upgrade from the system you have, there are many affordable options built with small business budgets in mind. Just be sure to account for things such as support and system maintenance.
3. Training content (~20% of your budget)
A training course without training content is like a car without an engine—either way, you’re going nowhere.
When budgeting for training content, you need to carefully assess all of the topics you’re covering in the coming year. Then you’ll need to decide if it’s better to create the content for each topic in-house (which is more costly, but also more personalized), or purchase it ready-made from an external source (which is cheaper, but also more generic).
For classroom trainings, training content can consist of paper materials and assessments, slideshow presentations, videos, or lectures from outside subject matter experts (SMEs).
For online trainings, eLearning courses must be created from scratch in-house or purchased from a third-party vendor.
4. Miscellaneous (~5% of your budget)
This last budget bucket covers things that may pop up throughout the year such as:
- Travel costs and per diem for workshops and conferences
- Tuition reimbursements
- Consulting fees
You may also have translation or localization costs if you run a multinational business. That’s the beauty of a miscellaneous category though: You can customize the line items here to your company’s unique situation.
2 methods to calculate a quick-and-dirty training budget
Now that you have a grasp on the different costs you need to account for in your training budget, it’s time to run the numbers.
If your company has prepared training budgets in the past, you already have a great template to work from. Simply compare year-to-date costs to the predetermined budget, and adjust up or down for next year accordingly.
But what if you’re starting completely from scratch? Don’t worry. We’re looking at two methods you can use to calculate a quick-and-dirty training budget right now.*
Method 1: Using total salary
A good rule of thumb is that companies should spend anywhere from 1 to 5% of their total salary cost on training, depending on how much they want to emphasize training in their organization.
So if you have a ballpark estimate for what your total salary cost will be next year, you can come up with a good faith estimate for your training budget.
Use our calculator tool to try this method now:
PROS WITH THIS METHOD: Tying your training budget to your salary costs will ensure that you don’t overspend on training relative to payroll. This method also gives you more flexibility to throw budget at groups that need more training than others.
CONS WITH THIS METHOD: When your total salary cost runs in the millions, the difference between investing 1% and 5% in training can be vast. During times of heavy turnover, it can be difficult to forecast total salary cost.
Method #2: Using number of employees
With Training Magazine’s annual Training Industry Report, you can look at last year’s average training cost per learner for your size of business and multiply it by the number of employees you expect to train next year to arrive at a total budget number.
In 2017, small businesses spent $1,886 per learner on training.
Use our calculator tool to try this method now:
PROS WITH THIS METHOD: If you want to ensure that no learner gets left behind, this method effectively ties a specific dollar amount to every employee. As opposed to total salary, you can estimate your headcount for next year with a fair amount of confidence.
CONS WITH THIS METHOD: This method assumes that all employees should be invested in equally, which isn’t the case (e.g., more money should go toward new hires or those receiving training for specialized skills). Cost per learner also decreases as companies grow, so this estimate will veer higher than necessary for larger companies.
How to save money on employee training
Despite your best efforts and your impassioned arguments, you already know what will most likely happen next: Your CFO will take one look at your training budget proposal and tell you it’s too high, and that you need to make some cuts.
Even if the C-suite does miraculously sign off on your budget at first pass, it’s important to identify areas in your budget for potential cost savings and efficiency gains. This will give you flexibility in the future when other needs or priorities arise.
With that in mind, let’s look at some opportunities where you can potentially save on employee training:
- Leverage user-generated content (UGC). Your own employees are sitting on a wealth of knowledge that can benefit your entire organization. Leveraging what they know for reusable training courses will not only empower your best workers, it will also save you money on content creation costs. Learn more here.
- Kickstart a mentorship program. The rise of mentorship programs in businesses large and small isn’t just a feel-good story. Mentorships provide a medium to deliver cost-effective informal training and develop important leadership skills at the same time.
- Training, now on iPhone. According to Gartner, by 2022, more than 75% of smartphones used in businesses will be owned by employees (full research available to Gartner clients). Take advantage by creating training with mobile devices in mind so workers can train at home and you can save money on technology costs.