As businesses evolve, employers want to ensure that their employees obtain the necessary skills to continue meeting company goals. To ensure success, companies need to know what their L&D budget per employee is.
According to the 2021 Training Industry Report, the average training budget for larger companies was $17.5 million, with midsize companies averaging $1.3 million and small companies $341,505. The budget per employee for all companies was $1,071, compared with $1,111 in 2020.
With new training technology and other learning and development programs, companies have plenty of options to choose from, but deciding on the right one means factoring in the needs of the company and understanding what the costs and return on investment (ROI) will be.
So, how can you calculate your L&D budget to provide the best possible training for your employees?
Here’s what you need to know about L&D budgets and the formulas used to calculate them.
Finding a Formula to Calculate L&D Per Employee
When it comes to calculating L&D budgets for your employees, the cost depends on the size of your company, how much each employee makes annually and your ROI.
Calculating by Company Headcount
When calculated by company size, smaller businesses tend to spend more money on L&D than larger companies. Larger companies can bring in more employees to train simultaneously, which divides employee training costs among more people and creates economies of scale.
The formula: Simply divide the total training/L&D budget by the number of employees on your payroll.
Total L&D/training budget
Number of employees on payroll
Calculating by Salary
This involves identifying the salaries of each of your employees, calculating that total and then multiplying that amount by a percentage range of 1% to 3% to get the budget allocations for each employee. The percentage multiplier is dependent on your company and the amount available to allocate to your L&D budget.
Total salary spend x 1% to 3% = L&D budget per employee
Calculating by Industry
L&D trends can also vary by industry. If you’re in an industry where rapid innovation requires frequent upskilling and reskilling, you’ll want to make sure you maintain a competitive edge. In that case, calculating your L&D budget by industry is an excellent way to go.
This method can help benchmark your company’s spending and determine whether more money is needed for L&D programs.
The industry formula is easy to follow:
Per-employee industry standard spend x Full-time equivalent employee = total budget
To find the number for your full-time equivalent (FTE) employee, you’ll have to look at an employee’s scheduled hours and divide it by the hours your company considers a full-time workweek.
Determine Whether You Need Training or L&D
In a survey done by Training Magazine, U.S. training expenditures rose by 12% from 2020 to 2021. The same survey found that 32% of participating companies increased their training budgets, influenced by pandemic-related increases in virtual learning, as well as engagement and retention efforts.
So what is the difference between training and L&D?
Training Vs. L&D
Leaders who aren’t in L&D or HR might use the terms “training” and “L&D” interchangeably. There is one big difference — the scope of each program type.
Training refers to technically mastering a specific skill or workplace situation. Training methods can include teaching employees to use new software and polishing customer service skills.
L&D programs focus on individual employees and their career development. Examples of L&D programs include coaching, mentoring, leadership development, employee ethics, personal growth and more.
Different Types of Training and L&D
The need for digital learning has increased — along with more attention to employee well-being and retention — due to the COVID-19 pandemic and people experiencing burnout. More companies have invested in online education to keep up with the evolving economy and provide better employee experiences.
Training programs and L&D programs serve different purposes for your business. As new work structures settle into place, leaders should determine the format of any training and L&D programs their employees require and align that with the budget the company can afford.
Instructor training is typically done in person with expert L&D professionals who come into a business to hold training sessions. These sessions usually feature a small group of colleagues who learn from an instructor and participate in peer groups to tackle theoretical workplace problems and collaboratively find solutions.
However, instructor-led training formats typically cost more to initiate. Some costs to consider when it comes to this type of training are:
- Cost of the instructor. Some instructors charge by the hour or day; others offer extended packages.
- Training materials. Learners may need training modules, workbooks, printed resource packets, technology to support presentations and other resources, which can create additional costs for employers.
- Accommodations/travel. If the instructor needs to travel to your work site, you may need to budget for their transportation, lodging and food. Other trainers will fold that into a flat fee.
MOOCs and Learning Management Systems
The need for digital learning has increased due to the COVID-19 pandemic, along with employees’ desire for flexibility to complete trainings at their own pace. Companies have invested in online education to provide better employee experiences.
Massive open online courses (MOOCs) — digital platforms that provide numerous online courses across topics — are available as an online training option that learners and companies can leverage to expand their knowledge.
The advantage of these platforms? Companies can quickly implement them into training programs as an affordable option regardless of budget.
Meanwhile, if you decide to implement a learning management system, you can track employee progress, upload additional training resources, generate reports and much more. Using digital platforms for training is a great way to train many employees at one time, especially when you have remote workers.
Hands-on training can help employees who learn and retain information better when they are physically doing the task. It’s also good for new employees or those who have been promoted. This on-the-job training consists of shadowing a more experienced colleague and being guided through tasks specific to the job or role.
An advantage of this training method is the potential to increase your employees’ engagement and give them real-world practice that they can immediately adopt. This type of training also saves on financial costs, although it requires more time and resources from your team.
Gamified Learning Programs
Gamified learning programs have become a popular trend in learning and development. This type of learning allows employees to obtain information in a fun, engaging way that helps them retain it better.
These programs are digital and allow multiple people to participate simultaneously. The pricing models differ depending on the platform, but these programs can often cost less than $100 per employee.
Coaching and Mentoring
At CareerPoint, coaching and mentoring are our bread and butter.
Coaching and mentoring can help employees work out how to make themselves extremely valuable to their employer. Employees get the chance to connect with managers and the leadership team to understand better where the company is going and the potential responsibilities that come with those changes.
Through coaching, employees can learn how to leverage their skills, self-manage and take the initiative while discovering how their values and strengths align with company goals.
Our mission is to help 1 million young professionals advance in their careers. We want to help employees thrive in their roles and drive value for your business.
Discover more about our corporate coaching program and foster a company culture that puts employees first.
There are several options that you can choose for your learning and development programs. By communicating with your employees and looking at the growth of your company, you’ll be able to understand better the programs you need and then correctly calculate your L&D budget per employee.
Ready to take your team to the next level? Book a 15 min discovery call