Imagine traveling to a country speaking a foreign language without researching, planning, or using a tour guide.

• You either spend your time and money picking random exciting tourist events or events that you regret.
• Or, you're so clueless that you end up doing nothing much.
  

It's the same with training budgets. Companies are spending $130 billion to train their staff, and only 25% of such training is effective. 

The common reason these trainings are unproductive is due to poor research, planning, and guidance. 

This article will show you what a well-planned training budget looks like and the critical steps for creating an adequate training budget of your own.

💰 What's a training budget?

A training budget refers to the direct and indirect costs and resources used to train employees in an organization. It includes the cost of courses, books, and other learning materials. It also includes indirect costs like wages, compensation, and time spent setting up training.

Setting aside a training budget is essential for employee empowerment. It helps employees access the quality knowledge they need to perform effectively at their jobs.

In many cases, employees can more or less freely decide how to spend their training budget. 

Ultimate freedom, ultimate empowerment. Right? Not necessarily.

However, a properly used training budget also influences customer satisfaction.

A well-trained employee knows how to address customers and avoid situations, whereas poor customer service and low morale can lead to profit loss and affect your ROI.

📈 Why are Training Budgets Important?

Increases customer success and experience 

Your employees are the gatekeepers between your organization and customers. So they must receive proper training to offer improved services. A bad customer experience can negatively affect your organization's reputation.  

86% of customers will do business with you again when they have a positive experience. However, if the reverse is the case, 53% will switch to partnering with the competition. 

Improves employee lifetime value

A rich training budget buys a good employee experience. When you can afford to give your staff the resources they need to upskill, they translate that as you investing in their potential. 

Which eventually builds their confidence and leads to employee engagement. Engaged workers view the success of the organization as vital to themselves. 

On the other hand, the disengaged worker only does the work because you tell them to. As a result, the former performs better and continues to improve over the years. Moreover, they will stay longer in the organization as you've set the bar high for the competition. 

These factors will help you know your most valuable employees and make better human capital decisions that bring more significant ROI. 

Improves talent retention 

94% of employees will stay with their employers if they invest in long-term learning. A reasonable training budget paired with a development plan shows your commitment to helping your employees upskill. In addition, it breeds trust in the workplace and sets the bar high for the competition. 

Future-proofs your organization

In 2022, 42% of core skills needed to perform existing jobs will change because of rapid technological changes. Also, by 2025, 75% of the workforce will be dominated by millennials who value continuous learning. 

Providing the resources, they need to grow prepares them for the rapidly changing work environment. Conversely, not providing resources makes their skills rusty and redundant, negatively impacting your organization's success. 

A training budget secures the longevity of your organization by making employees equipped to adapt to future developments and changes by providing the necessary resources for their upskilling.

Improves work output and performance

What you feed your organization is what comes out the other end. Better trained employees need reduced supervision, show up to work more, and relate with customers better. 

All these factors will boost sales and the success of the organization. But cutting back on employee training rather than investing in it will have disastrous consequences. 

📊 Benchmarks: How much training budget do companies grant their people?

The training budget companies give their employees varies. Generally, companies are aware of the ROI of training their staff. But because of the COVID 19 pandemic, there have been significant changes to the spending patterns of organizations.

Though many companies complement physical training with e-learning platforms to reduce training costs, they still allocate enormous funds for staff training.

According to the Industry Report, U.S.-based organizations having between 100 to 999 employees spent approximately $1,678 per employee on training in 2020 alone.

The report also reveals that large companies allocate $22 million for training, while mid-sized companies spend $808,355. Small companies spend $506,819.

For Abby Wilson of LGBTQ flags Australia, "the training budget we set is usually around the same amount of salary that we have per individual. When we can, we raise it up by around 2-3%." 

The Penta Academy sets an annual training budget of €1,000. Penta additionally makes free programs and courses available for employees via their LinkedIn accounts.

⚖️ How Do You Calculate Training Costs?

1. Determine your training needs

Max Benz, Founder of Banking Geeks, says that: 

"When it comes to setting training budgets for employees, there are a few factors to consider. First, you'll need to assess the needs of your workforce.
- What areas do they need improvement in?
- What skills do they need to acquire?
‍
Once you have a good understanding of the training requirements, you can begin to research the cost of various programs. You'll also need to factor in the time required for training and any lost productivity that may result.

Finally, you'll need to set a realistic and achievable budget. By taking all of these factors into account, you can develop a training budget that will meet the needs of your employees while staying within your financial constraints."

A detailed employee development plan should review skill gaps and your organization's needs. It should also consider your staff's career aspirations and find common ground to help them get there. 

You'll need to work with other managers, your whole People Ops team, and the employees you need to train. This will give you a 360-degree view of creating the best training strategy.

Here's how to determine your employee training needs:

• Refer to your employee's job description. 
• Ask employees for their career goals.
• Align their goals to company goals and values. For example, design a vision board and put it on display in the organization. That way, everyone sees the organizational objectives, how they fit into the big picture, and why their role in achieving the organizational goal is essential.
• Test and evaluate their skill set. You can do this through job simulation tests—for example, a mock presentation or sales pitch.
  

Consider asking the following questions:

• Will the training be online or on-site?
• Will there be travel expenses, feeding costs, and accommodation fees?
• Do I need to hire resource persons outside my organization? Are there members of my organization that can mentor and train other staff?
• How much will each of these training costs?
• Will I need to buy materials and learning aids for my staff?
  

After answering these questions, evaluate the cost of training based on the resources they need.

2. Calculate based on salary

Another way to determine the cost of training employees is through this simple formula:

Total yearly salary (per employee) X 1-3% = training budget.

Get the total amount you spend on each employee. Then multiply that by one to three percent of their salary. This will give you your training budget. 

This technique is ideal as you can cover both fixed costs (employee pay, office supplies, and equipment) and variable costs (hidden or unplanned costs). 

3. Hire an HR Agency to calculate your training budget.

You could also hire an HR agency to help you calculate your training budget. This will come in handy when you find it challenging to do it independently.

It will also give you an outsider's perspective and uncover hidden costs you must've missed in the planning process.

Maciej Kubiak, the Head of People at PhotoAiD, shares his take on outsourcing your training budget calculation:

"We have struggled with creating a proper training budget strategy, so we used the support of an external HR company. With their help, we established a yearly budget for employees' development.

Employees don't choose courses entirely on their own. Because leaders know the best needs of a whole team and particular workers, they talk over development plans with their team members. Career goals are set up for the entire team, and leaders present them to employers.

As a result, the training budget is distributed over departments, not particular employees, and leaders are people who connect the company's needs and employees' expectations."

🚩 Limitations: What issues does a training budget bring?

Employees do not know how to spend their training budgets, leaving them untouched. The buzz about the future of work and the skills needed to prepare for it leaves them frantically scouting for courses. 

• They seek these courses based on general information instead of finding those tailored to advance their career paths.
• Other employees spend their training budgets attending conferences that may yield little or no ROI to the organization and the employee just so it's "taken care of" fast.
• Some employees may be torn between the tons of courses online and weighed down by information overload. 
  

Here's what you can do to sidetrack these issues:

• Create a training needs assessment survey form. This survey is an online form that contains questions employees need to answer to help their employees deliver the best training. It will help you identify training priorities and focus your budget on what matters. Handy template: See below.
  

• Work closely with employees to create the training budget. Talk with employees and listen to their input on what should stay in the budget or be removed.
• Invest in one-on-one coaching. Not every problem needs intense training. For example, an employee struggling with communication issues or missing deadlines. So instead, coach the employee directly.

📈 How to make the training budget more meaningful

Here's how you can leverage a training budget to bring progress and development to your organization:

1. Assess employee training needs

Every employee is different.

So a one-size-fits-all approach to training them will have the opposite effect. On the other hand, a training needs assessment will help you know your staff better.

2. Cultivate a learning culture

A learning culture refers to the growth mindset of workers. It is when employees are willing to learn and apply what they've learned to help their organizations succeed. 

One example of a healthy learning culture is Google's microlearning.

Employees send short suggestions on what they think the other person can do to be better at their jobs via emails. This lets them know what they are doing right or wrong without overloading them with information. It's also a way of giving feedback.

Whisper courses are also used to send "nudges" to managers. Nudges are reminders that help Managers to complete their tasks on time. For example, they get emails that remind them to attend meetings and give constructive feedback.

Cultivating a learning culture complements your training budget. It ensures that the training that follows is not a one-time event. Instead, employees continue to practice what they've learned post-training:

• Promote continuous learning by building a library of resources. Reserve an office or section of the organization to house physical learning materials. For example, books, audio, videos, and more. You can also set up a Learning Management System (LMS) to give remote workers access to digital copies of these materials.
• Provide incentives to motivate your employees to perform better. Then reward them when they improve or accomplish major goals. For example, your Sales employee started making $300 dollars extra per week. Give them monetary (money, bonuses, wage plans) and non-monetary (praise, recognition, and promotion) incentives.

3. Develop a career framework

A career framework is a visual map that illustrates job roles and job families and helps workers identify growth opportunities within job families. For example, Accounting, Auditing, and Financial planning together form a job family.

Here are three tips for developing a career framework in your organization:

• Identify the purpose of the framework or what problems you need it to solve. For example, miscommunication of roles and responsibilities in the organizational structure. 
• Pick your tool. For example, Notion has features you can use to build your career framework. For example, the job board template. You can also use Google sheets. The most convenient and complete solution is Zavvy's "role card" feature.

•  Keep your career framework updated. Organizations are characterized by constantly moving parts. So its framework should accommodate everyone, both new and old. You can do this exercise in the first quarter, biannually, or yearly.
• Promote accountability. Put an expert in the organization in charge. If you can't think of anyone, source for an external expert. 

4. Create a development process

Creating a development process will turn your training budget into a measurable empowerment experience. By organizing development activities and providing learning materials, you enable them with the tools they need for development. 

You can then schedule follow-up feedback sessions where you gain insights into how employees are performing. Employees can also do a self-assessment through 360-degree feedback to give you a well-rounded view of your staff.

Follow these steps to create a unique development process in your organization:

• Design a template. Check out our free employee development plan templates for inspiration.

• Have an open conversation with your employees. Find out their career aspirations. Having a career framework at this point will make it clear for them to know how to move within the company structure. We discussed this in the previous section.
• Conduct employee orientation programs to keep staff updated about the organization's progression. 
• Use role cards to define employee duties and expectations.
• Have a one-on-one discussion with employees about the chosen training areas. There should be a buy-in of employee and Manager perspectives for a meaningful training experience. 
• Construct a 70-20-10 development plan. The training should include 70% on-the-job learning, 20% formal learning, and 10% learning through feedback. 

5. Test and evaluate progress

Create a training matrix before training commences to know the current qualifications for each employee and the status of the qualification. That is if employees have met them or not. 

Share your matrix model with everyone in the organization to keep them updated. After training, use mock tests to evaluate how much they have learned from the experience. 

Set budget rules to define what happens when employees don't use their budgets. For example, if an employee should go on a break, they have to train the next employee who will cover for them. 

If you're working with a small budget, use less expensive training methods like peer mentoring, where a colleague trains a less experienced staff as we'll see in the next section. 

👬 How to train people on a small budget

Sometimes, you'd find yourself under the constraints of a tight budget. Unfortunately, this means you can't give employees the appropriate funds to start their training. But it's also your cue to get creative.

You don't necessarily have to break the bank to give employees practical training. Instead, start by compromising and substituting expensive training costs with cheaper alternatives.

• ‍Invest in virtual training. Employees don't always have to be physically present. They can video call managers and coaches from the comfort of their couch, eliminating travel and accommodation costs. 
  For example, Amazon offers virtual training for remote workers. The company gives you a laptop with all the IT assets you need for the process. You can use popular tools like Zoom and Microsoft Teams to kick-start virtual training in your organization. ‍
• Search for platforms that offer free courses. EdApp is an example of an award-winning employee training platform. There are others like Coursera, GoSkills, and OpenLearn. ‍
• Get employee training grants. For Example, the Canada Job Grant (CJG) and the U.S. Department of Labor skills training grants. You can also partner with other organizations or companies that offer training and development programs. AT&T has created its own Master of Science degree online. It also offers other related programs for employees.‍
• Encourage cross-training. Teach one employee to teach the rest. For example, employees can have lunch-and-learn meetings every month. During this time, they can trade skills and knowledge.‍
• Opt for buying reusable resources. For example, videos, audio files, PowerPoint slides, and others. etc. 

➡️ Conclusion

To get the most out of a trip to a foreign country, you must plan and research beforehand. If not, you're leaving your experience to chance. Likewise, in the case of training budgets, you're leaving your money and time to chance. 

For better ROI, forward-thinking organizations plan their employees' development right from recruitment. You should be calculating the best ways to upskill and retain new talent and what it would cost you from the start.

As you continuously strive to refine your training budgets, use Learning Management Systems (LMS) to track and record every step of the journey.

Our employee development software will help you create a development plan that leaves no one behind. Get a demo now!