Everyone knows training is helpful — but getting the training budget for it right is often a challenge.
You’ve probably heard it during tough budget conversations: “Employee training is a luxury, and we need to cut training costs.” It’s true that a training budget can take up a significant chunk of a company’s overall budget. However, employee training is not expensive when you consider the costs of not offering it.
A good way to understand the importance of training, even during lean times, is to think of it in terms of equipment or machinery. You wouldn’t allow your machines to get rusty or skimp on maintenance. Yet when it comes to employees, sometimes we forget they also need ongoing checks and “care” to keep functioning.
If you’re having trouble convincing your CEO or CFO not to slash the training budget during budget reviews, read on. In this article, we’ll discuss why cutting employee training costs can cause more problems in the long run. We’ll also share ways to maximize training budgets to keep employees skilled and successful in their roles.
What is a training budget?
A training budget is money businesses agree to set aside for initiatives that support employee development. The amount companies spend on their training budget varies. Some invest heavily, while others offer the bare minimum.
Depending on the level of financial commitment, training initiatives may take the form of formal, ongoing training programs managed through an online learning platform. These offer a combination of learning methods, from workshops, seminars, and in-person instructor-led training sessions to online courses, webinars, and interactive simulations.
At the other end of the scale, companies offering a more basic approach will rely heavily on ad hoc training to meet ad hoc needs or mandatory training requirements.
It’s worth remembering that a training budget also covers course fees, certifications, training materials, technology, and tools.
Why it pays to have a training budget
L&D budgets have increased since the Covid-19 pandemic outbreak for 57% of organizations. But putting money into a learning and development budget may still seem like a non-essential investment for some businesses.
Start-ups, in particular, may struggle to justify the investment. The ROI often isn’t immediately visible or measurable. And the initial outlay required for an LMS may seem like a nice-to-have rather than a must-have with other business costs mounting. But the truth is, not training employees can yield much higher costs in the long run.
Simply put, instead of asking how much training costs, companies need to ask: How much will it cost to not offer that training in the first place?
The hidden costs associated with the lack of an employee training budget
Higher employee turnover
The stats linking retention and training send out a powerful message. Sixty-six percent of employees say training is beneficial for their loyalty to the company they work for. And HR Managers agree. In the same survey, 86% of them agree that training is beneficial for the retention of employees.
A survey on remote workers also reveals that 72% of employees would stay with a company in the long run if they got training opportunities. And, in other research, 7 out of 10 employers (69%) claimed that upskilling and reskilling training improved employee retention.
What’s the meaning behind these numbers? Employees value learning opportunities, and when they don’t get any, they’re more likely to leave. This, in turn, leads companies to spend money on recruiting and onboarding costs to replace them.
Compliance and safety costs
Let’s begin by stating the obvious: compliance training is mandatory. And failure to fulfill compliance requirements is costly. It leads to financial penalties, workplace accidents, cyber-attacks, and data breaches. In fact, companies that face non-compliance issues lose an average of $14.82 million in everything from legal settlements to business disruption costs.
If this wasn’t alarming enough, there’s also a link between poor compliance training and poor employee engagement. Which, in turn, results in errors and an overall decrease in quality of product or service.
Losing your competitive edge
As this Forbes article points out, when times are tough, you need to ensure your employees are at their absolute best. But how can you keep them up-to-date, help them grow their skills, and gain new knowledge if you remove training?
When your employees aren’t well-equipped, there’s nothing stopping your competition from swooping in and winning over your customers. Eventually, this will result in a drop in sales.
When you think about it in those terms, the cost of assigning a proper training budget is definitely not that high anymore.
How to calculate a training budget
The formula for calculating a training budget is usually based on one of the following:
- A percentage of total salaries
- On a per-employee basis
- Cost of training per employee.
What does this mean in practice? Simply put, there’s either a common pot of money that’s allocated depending on need. Or a set amount for each employee.
Every use case is, of course, unique. But as a guide, the most common calculation is to allocate between 1% and 5% of an employee’s annual salary for training.
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How to train employees (well) if you’re on a tight training budget
What if, despite knowing all of the above, your training budget is still limited? Or can’t stretch to the industry average?
The answer is not to abandon employee training altogether but to be more strategic about it. For example: by conducting performance evaluations, you can see who really needs training the most — and prioritize them.
But apart from being more conscious about the “who”, you can also take a look at the “how”.
Here are some cost-effective online training methods that will see you through the lean times without sacrificing quality:
1. Re-purpose and re-use online training content
We all know the value of recycling — well, you can apply the same principle to employee training. And this is where online training can help. You can create content once and use it multiple times. You can even create different formats from the same material. For example, you could have a video presentation of your company policies for new hires and a PDF version of the same presentation employees can reference when needed.
You might have to adapt your training from time to time to cover new products you’re launching or new tools you’re switching to. Or, simply new compliance regulations you need to cover. But even with that in mind, the training budget for your online content will still be much smaller.
That’s because you don’t have to pay instructors for physical appearances and arrange hotels/flights/conference rooms/snacks… just for that one time or event. Online training is much more sustainable. You could simply create a min-course with what’s new and ask employees to complete it instead of having to go through the entire training session all over again.
2. Opt for microlearning
Another smart way to cut employee training costs is to focus on microlearning.
Microlearning consists of short sessions (3-6 minutes max) that are instructive but don’t overwhelm your learners with too much content. It has many advantages: from being more engaging to helping with information retention. But it also helps you manage your whole training program.
You can combine microlearning videos in different sequences to create different modules. This will make things much easier whenever you need to make changes, as you won’t have to edit your whole course. You could also create different learning paths for different roles and teams by changing small parts of your training program.
3. Offer ready-made courses
One of the things that skyrocket a training budget is having to create learning programs from scratch. Because in that case, you might need to hire experts to create the content and designers to make it look beautiful. Or, you might need to spend a big part of your time doing it by yourself.
When you want to keep your training costs low, you can give your employees access to a library of ready-made online courses. For example, TalentLibrary™ covers a vast range of soft skills your employees need for success at work. This way, you won’t have to worry about the quality of your content, as it’s already created by top experts. You also don’t have to worry about running out of content ideas, or paying for each course separately.
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4. Create simple eLearning videos
For those times when you need to create your own content, talking head videos can be a cost-effective and quick solution. They are simple to shoot and have minimum requirements when it comes to equipment and post-production (which normally takes a lot of time and money).
Pick a nice spot in your office with good lighting and record a video through your laptop camera at no cost. If you have some basic video editing skills and access to relevant software, you can include some additional resources or notes.
Otherwise, you can share them with your employees afterward as a separate file.
If you want to learn more, here’s our guide on how to produce talking head videos.
5. Socialize instructor-led training sessions
Even on a tight training budget, you don’t have to forgo instructor-led training completely. But you do need to make the most of each session if you’re not able to afford as many sessions as you’d like.
Again, let’s think of the concept of re-purposing materials. Imagine you’re hosting a webinar. This is a great training opportunity for your employees. But why stop there? Instead of having one speaker sharing their experience and knowledge, you can use this time to create smaller training opportunities, too.
During the webinar, incorporate polls, breakout rooms, Q&A sessions, passing on the mic to participants. Anything that encourages participants to interact with each other and the instructor is a new training opportunity. Social learning is an engaging and low-budget way to train employees. And, thankfully, video conferencing tools are very sophisticated nowadays, making it easier for participants to be more active learners.
6. Encourage peer learning
Reduce training costs by relying on internal experts instead of turning to external instructors. And which are those internal experts? Your current employees. Inside your teams, there are already people with a lot of experience in their field or people with some unique talents.
For example, look for an employee with great productivity hacks or someone who’s the spreadsheet pro. Those people can host presentations for the rest of the team and share their tips. All it will cost you is some time off their regular job duties.
An offshoot of keeping your instructor-led sessions social and open to comments and active participation, is that you’re motivating your more experienced employees to share their knowledge with others. This is the first step to doing peer learning sessions, where these experienced employees will jump into the role of a trainer.
Plus, peer learning is a way to show appreciation to your employees and helps boost team communication.
7. Deliver on-the-job training
Another cost-effective type of training is on-the-job training. This basically means that you’re allowing new hires to learn as they do their role, instead of offering a long onboarding training session that could potentially become costly.
On-the-job training and coaching has several advantages. It can be equally helpful to different learning styles, it’s personalized, flexible, and allows new employees to learn by making mistakes in a safe environment. You can also apply on-the-job training for employees who get promoted or transitioned to a new role.
8. Invest in a cost-effective LMS
It may sound contradictory to buy new software if your training budget is tight. But it makes sense if you see the bigger picture. In the long run, an LMS will save you money. Because you’ll be able to create and replicate content at no extra cost and without using more tools, store courses for future use, and get data to discover what works and what doesn’t.
When you research training platforms, aim for vendors with a free trial. This way, you can test if that particular platform covers your training needs, without committing to buying. You can also check whether there’s a smaller pricing plan, even if it means you don’t have access to every feature, so you can still enjoy the LMS benefits without hurting your training budget.
Employee development doesn’t have to break the training budget
Even when your training budget is small, there are still ways to make it count.
You just need to be strategic about your spending, focus on the things that will move the needle forward, and evaluate your results often. Using some of these cost-effective training methods described above will go a long way — along with finding the right LMS to house your training.
| Tags: Training ROI
