Making the decision to offer professional development training to your employees may be a no-brainer. Trying to figure out how much to invest in that training, however, might be a bit trickier.
Before launching a schedule of off-site workshops, webinars, or field certification tests, it can be important to first consider how much your business should spend on your company’s employee learning and development (L&D) program.
In a 2022 survey of 260 small, midsize, and large U.S. companies, Training magazine’s Training Industry Report found that for the 2021–2022 period, spending on training hit a record high of $101.6 billion, up 10% from the year before. According to the survey, companies spend about $1,207 per employee for learning on average. Services organizations outranked other industries, spending $1,512 per employee, followed by retailers/wholesalers at $1,299. Costs are also dependent on business size: large businesses spent $1,689 per employee; midsize, $826; and small laid out $1,396.
"Although calculating the 'right' employee training budget for a business is not an exact science, having a ballpark figure can help avoid overspending on training."
For a farsighted business that values its people, it’s often not a matter of whether to devote funds to training, but how much. Although calculating the “right” employee training budget for a business is not an exact science, having a ballpark figure can help avoid overspending on training.
Here’s a look at four ways to calculate how much to invest in your team’s training program.
Method 1: Set a Total Budget Based on Total Salary
There are several ways to calculate professional development and training costs for a business owner with a small team. One of the simplest methods involves determining your training budget as a percentage of your total staff salaries.
To do so, you can find out how much your company spends on annual payroll, then choose a percentage, say, 1% to 5%, and multiply the two figures. With an annual payroll of $500,000 and using 2%, for example, $10,000 could be dedicated to training. You might want to adjust the percentage annually to keep up with the changing needs of your business and the outcomes of previous training investments.
Implementing this method can help avoid overspending relative to your total payroll. It also lets businesses set aside more money toward staffers with skill gaps who will require more professional development training. That may include those who might need to hone soft skills, like negotiating or speaking confidently in front of colleagues, managers new to hybrid oversight, or staffers interested in moving to the next level within your business. However, this method doesn’t always capture all the nuances of every business’ needs.
Method 2: Set Individual Training Budgets Based on Individual Salaries
When calculating an individual’s annual training budget, a good place to start is to allot anywhere from 1% to 5% of the staff member’s yearly salary toward training. For example, at a business that chooses a 5% allowance, an assistant manager with an annual salary of $45,000 would then have $2,250 earmarked toward professional development training or upskilling courses for the year. This approach may be prudent for very small businesses with just a handful of staff members.
Whichever percentage you select, try not to forget to accommodate fluctuations in your training budget. Shifting strategies, operational needs, or unanticipated company initiatives are just a few factors that may detract from projected numbers. It’s also important to remember to adapt specific budgets to reflect changes in employee roles or specific development needs. For instance, newer employees or those in fast-changing fields might require more significant training.
Method 3: Use an Industry-Standard Professional Development Training Budget
For a more customized approach to setting a training budget for your small business, you might consider the average training expenses of same-size businesses in your industry. You can refer to industry trade publications or professional organization surveys for specific details on how your peers and competitors approach training. Alternatively, you can look for online reports for up-to-date training budget data by industry.
Keeping your finger on the industry pulse can be particularly helpful for employee retention. After all, limited training and upskilling opportunities can have consequences. If your employees feel your business lacks adequate professional development training classes and programs, they may decide to seek out a more supportive employer.
According to LinkedIn Learning’s 2023 Workplace Learning Report, which surveyed 1,579 L&D and HR professionals and 722 learners, businesses are grappling with attrition anxiety: 93% of companies were concerned about employee retention, believing the top way to improve retention is by providing learning opportunities.
Method 4: Plan Ahead to Budget for Aspirational Certification and Training
Another way to gauge your training budget is to devise a cost breakdown based on future initiatives, taking into consideration the skill sets staff members may need to acquire for your business to stay competitive, as well as acknowledging employees who are eager to advance in the company. Planning ahead for aspirational certification and training can help businesses budget better for professional development training.
Here’s how to set the ball in motion:
- Investigate costs: How much does each course and/or certification cost? Try to factor in the potential return on investment for each course or certification, as some options might have higher up-front costs but lead to greater long-term results.
- Consider training style: Try to determine how the training gets delivered. Is it a hands-on course? An online lecture? An in-person workshop? Aim to align training styles with the learning styles and preferences of staff members, as well as the operational logistics of the business.
- Look for savings: Consider looking for cost-cutting options, such as a group course with an instructor coming on-site to your business, individual e-courses delivered online to your staff members, or group training via e-learning in a virtual classroom.
- Plan for payment: Finally, decide whether the business will pay up front for course completion or after the course/certificate is completed. Up-front payment might secure a discount, while paying upon completion might ensure funds are expended only for successful training.
Remember that planning for aspirational training may require continuous dialogue with employees to not only identify their career aspirations, but to match them with your business’ strategic objectives. This can be key to making sure professional development opportunities are both desired by employees and beneficial to the company.
Strategic Advantages of Professional Development
Emphasizing professional development is more than an investment in individual skill sets and the long-term success of a business. It also provides a strategic advantage that can aid in attracting and retaining quality employees – an increasing concern in today’s business climate.
You might consider the following data:
- Development stalls attrition: According to the University of Phoenix Career Optimism Index 2023, which surveyed 5,000 U.S. adults and 500 U.S. employers between December 2022 and January 2023, 68% of workers in the throes of job hunting or planning to job-hunt within the next six months said they’d be more likely to remain with their current employer if more upskilling opportunities were offere.
- Training opens more doors: In the same survey, 37% of Americans said they don’t have access to opportunities that would help them develop the necessary skills for advancement.
- Turnover is expensive: The Work Institute’s 2022 Retention Report, which looked at employee insights and trends in 2021 and culled data from 97,784 interviewees, shows when an employee leaves, it costs a company around 33% of their base pay, or roughly an average of $15,000 per turnover.
The Takeaway
Insightful small-business owners, attuned to the big picture and industry trends, often understand it makes good business sense to offer professional development training opportunities to current and potential staff. Developing a training budget before investing in professional development can help ensure your financial commitment aligns with your business and human resources goals, putting you on track to stem attrition, attract qualified talent, and nurture skill sets that ultimately benefit the company.
A version of this article was originally published on March 12, 2019.
Photo: Getty Images
