Training is a foundational step in fulfilling long-term business goals. By providing the training to close skill gaps, you’re developing employees for their benefit and yours.
A 2023 study found that companies with comprehensive training programs have 218% higher income than those without formalized training. So, why not jump into training employees as soon as possible?
While the benefits of training an employee are pretty clear-cut, it’s the costs that can get complicated. Developing the right materials, selecting an adequate venue, and even bringing in an external trainer can all add up.
In this article, we break down the factors that go into budgeting for training and how you can calculate training costs per employee. We also look at how businesses can calculate the ROI of training employees following a training program.
We’re covering:
- What is the average cost to train an employee
- What factors affect employee training cost
- What are the different types of training costs
- How to calculate training cost per employee
- How to calculate the ROI of training
- How to start training employees
- FAQS
What is the average cost to train an employee?
Getting a precise figure for the average cost of training employees is difficult. One 2023 industry report surveyed US-based small, medium, and large businesses and found that companies spent an average of $954 per learner—but it’s really not that simple.
While this figure is useful for determining an approximate range and starting point for your budget, your precise costs will probably be different. Why? Because determining the average cost to train an employee is a complicated process with many variables at play.
For example, are you training employees online or in-person? Are you bringing in a specialist or relying on an in-house trainer? Do you need to develop bespoke training programs and materials, or are you using a premade course for your employee training?
Factors that affect employee training cost
When looking to train employees, you’ll first need to understand what influences the final cost. Here are nine key considerations to help you understand training expenditures and what goes into budgeting for employee training.
1. Business size
Depending on the size of your business, you may have limited resources for training. Mid-size and larger companies with more than 1000 employees may not need to outsource training. Instead, they may have in-house training departments or on-the-job experts available to lend a hand to new employees or those seeking to increase their knowledge.
If you’re a smaller business, you may end up paying higher costs per employee because of the need to outsource training. In fact, a 2023 industry report found that US-based small companies (100 to 999 employees) spent $1,420 per learner, midsize companies (1,000 to 9,999 employees) spent $751 per learner, and large companies (10,000 or more employees) spent only $481 per learner when training employees.
However, it’s also crucial that you consider the number of employees that require training, as you may not be training all employees at your organization. For example, consider a large company that’s training a particular department on how to use a new software. If the department that requires training includes 75 employees, then costs are based on these 75 employees—not the 1000+ that work at the company. It depends on the training audience more than the size of your business as a whole.
2. Job function
The job function—and subsequently the type of learning content—plays a considerable role in training costs. Functions that require specialized advanced skills or involve high-risk activities—like healthcare, engineering, or IT— often demand more extensive, instructor-led training. Other functions that require more generalized skills typically cost less.
3. Geographic dispersity
Another key factor to consider is the geographic dispersity of the training audience. If the 200 people that need to be trained in a company are all located in the same building, training will be cheaper than if they are scattered across ten states or countries.
For more geographically dispersed audiences, remote training or e-learning becomes the more economical option. For co-located groups, F2F usually is the less expensive option.
4. Skill sets
Your employees’ skill set also makes a crucial difference in the overall cost of training. Employees with limited existing knowledge need to receive more extensive training and guidance to learn the basic principles of the subject at hand. With more material to teach and a lower starting point, your training provider might need to develop more extensive material and spend more time on delivery.
On the other hand, employees who already have a firm grasp of the subject start with a stronger foundation, meaning they need less training to get them to the required level. Training these learners requires less material and less time spent delivering training.
5. Training method
It’s not just what your trainer or training provider is delivering, it’s how they’re delivering it. Some training delivery methods are more cost-effective than others.
For example, face-to-face learning (F2F) tends to be more expensive to deliver, but cheaper to build. It’s more cost-effective if you already have the facilities and trainers that you need, but expensive if you need to organize a venue or arrange travel. E-learning, on the other hand, tends to be cheaper to deliver, but more expensive to build. It becomes the more affordable option as the size of the target audience increases.
Your required training method depends on the training programs you create, and it’s something you can discuss when choosing a training provider.
6. Equipment
The equipment you require to deliver impactful employee training also influences the cost. For example, some training activities for employees may require learning management systems or online learning tools that can incur higher costs.
Equipment and supplies can also affect the cost of training employees. If the course uses lots of pre-printed documents, posters, and game pieces, that will be more expensive than if it relies just on PPT and chart paper.
7. Productivity loss
Typically, when employees are completing training, they’re not working. This means your organization’s productivity takes a hit. The cost of this productivity loss is an important variable when considering the cost of training employees.
However, this is something you can aim to mitigate with your chosen training solution and provider. For example, creating e-learning, which is usually in bursts of 2 hours or less, can help minimize productivity loss, or at least spread it out over a longer period to reduce its impact.
8. Literacy levels
The existing literacy levels of employees at the time of training can be another significant cost to consider. E-learning solutions can seem like a convenient option, but if your workforce has lower computer literacy levels, they’ll first need to learn the basics of using computers before they can undertake a skill-focused course. If your audience has low reading levels, your training materials need to use more graphics than words, which can also increase production costs.
9. Environment
Environment doesn’t just refer to a physical location for your training. You’ll also have to consider the socio-economic and political context of the area. If training employees in developed nations, you have stable access to vital resources like electricity and an internet connection. In less developed regions, safety risks, scarcity of resources, and poorly developed infrastructure may require additional or more expensive components that could increase costs.
Wondering where to start? We’ve developed a helpful explainer to run you through the key steps for estimating the cost of training employees—from questions to ask to the average cost for different types of training.
What are the different types of training costs?
The secret to training employees while keeping the project cost-effective is analyzing all the expenses that may arise. To ensure you can accurately budget for training employees, you have two main training costs to consider.
Direct costs
Direct costs are the expenses associated directly with training your employees. They often make up the bulk of your training budget. Direct costs may include:
- Hiring a training provider
- Learning management systems
- Appropriate material for course instruction
While direct costs are the most apparent expenses, they’re the starting point for understanding the total expenditure for your training project.
Indirect costs
In the context of training employees, indirect costs are expenses necessary for the overall success of the project but not directly linked to the training itself. These costs usually appear across multiple apartments and will become evident when the training project begins. Some examples of indirect costs include:
- Loss of productivity
- Administrative costs associated with managing training
With an overview of the expenses and factors above, you’re in a better prediction to estimate the cost of training your employees. However, an estimate isn’t exact—you need to calculate the exact cost when all is said and done.
How to calculate training cost per employee
To calculate the cost of training an employee, divide the total cost by the number of employees trained.
For example, if the total expenditure for an employee training program is $100,000 for 100 employees, the cost of training per employee amounts to $1,000.
Calculating the cost of training per employee helps you measure the ROI of your training program, helping you make more informed decisions for future training cycles. Here’s what you need to include when calculating the cost of training per employee:
Training materials and equipment
Training materials and equipment are a substantial part of any course. Physical and digital equipment used in training include workbooks, templates, and presentations. You may also need to include printing and shipping costs for materials, which is a huge cost. Some training methods even require specialized software that you need to purchase and have licensed.
When calculating the cost of training, consider these industry-specific tools, materials, and equipment, as well as their varying complexities influencing their overall prices.
Loss of productivity
As your employees undergo training, they’ll be absent from their daily duties. This productivity drop may be a considerable expense for your business. For example, if an employee with a $25 hourly rate attends a four-hour training session, then the loss of productivity would amount to $100.
Payment for outside help
To facilitate learning and instruct your employees, you may need to hire industry experts, trainers, instructional designers, graphic designers, and other professionals.
Paying experts for their services is a direct expense that frequently goes hand in hand with materials and equipment.
Facilities and catering
While you can hold some training sessions on-site, in-person programs may require additional expenses for venues, such as a conference hall or a training center. If the session lasts a full day, then you’ll most likely need to pay additional expenses for catering and refreshments for employees.
Assessment fees
Assessment is another vital part of employee training. They play a vital role in gauging the success of a training course. Some assessments have associated costs for using their tools, or certifying the results
Being able to accurately calculate the costs of training employees enables you to budget more effectively, and enables you to make a case for getting buy-in and funding from higher-level management. It’s also an important component for evaluating the value of training
Up until now, we’ve been discussing the costs of training employees from a budgeting perspective. However, another key consideration for organizations when assessing the costs of training employees is the ROI of training. Let’s take a look.
How to calculate the ROI of training
Calculating ROI helps determine if training was a success from a financial point of view. This metric puts a number on how successful your training has been in terms of the value you’ve gained compared to the costs you’ve incurred.
To calculate ROI, subtract the cost of training from the monetary value benefit of training. You then divide that figure by the cost of training, and multiply the answer by 100.
For example, let’s say a safety training program costs $20,000. You run the training, and in the year following the program, costs related to accidents dropped from $100,000 to $40,000. The monetary value benefit of training would be $60,000. Given the initial cost was $20,000, the ROI would be $60,000- $20,000/20,000 X 100 = 200%… a fantastic ROI!
There’s just one problem: assigning financial value to the benefit of your training is easier said than done.
The difficulties associated with ascertaining the benefit of core skills training stem from the inability to accurately put a number on those skills. How do you gauge how much more communicative someone is following training? How do you put a number on how much collaboration has improved? You can’t, really.
When it comes to technical and performance-based training, there are plenty of compounding factors to take into consideration. For example, if sales in your organization increase 20% after training, how do you discern the influence your training had on that number?
It’s really not clear-cut. Plus, is ROI truly a good approach to measuring training effectiveness? Even if ROI is amazing, does it accurately measure the success of training initiatives?
We argue that it’s not, and instead present the Brinkerhoff method as a more reliable measurement of the success of training. So, how does it work?
Robert Brinkerhoff created this method to assess impact by comparing the most successful and least successful learners from a training program. It’s a method for evaluating effectiveness we’ve increasingly used at CLS.
The first step is to identify high performers and low performers. Then, you conduct surveys and collect qualitative data. You then use this feedback to pinpoint exactly what worked for high performers, and what didn’t for low performers.
Further interviews with these cases help you form a comprehensive view of both the success and areas for improvement for your training solution.
Work with a training provider to find a training solution for your business
Figuring out the cost of training employees is no simple task. Doing so involves assessing the direct and indirect expenses associated with your training solution. You’ll need to consider key factors like materials, loss of productivity, and payment for outside help.
Comprehensive Learning Solutions can help you estimate the cost of employee training programs and provide the ideal solution according to your budget. Get in touch today to build the ideal corporate training solution for your organization.
Cost of training employees FAQs
1. How can I reduce the costs of training employees?
Some ways to reduce employee training costs include adjusting the training delivery method, using more cost-effective training materials, and working with a professional to find cost-cutting training options.
2. Is it cheaper to train an employee or hire a new one?
Training an existing employee by giving them the necessary knowledge and skills to complete tasks is cheaper than hiring a new one.
Finding a new employee incurs recruitment and onboarding costs, and you also lose money during the time it takes the new employee to fully settle into the new role. Plus, new employees may also need the same training you’re trying to avoid giving your existing employees. While costs vary depending on the industry and seniority of the role, the cost of hiring employees has steadily increased over the years—with recent reports finding the average cost of hiring a new employee to be $4,700.
3. Is it worth the cost to train employees?
Training requires an upfront investment, but it can yield impressive results in the long run. Well-trained employees perform tasks more effectively and efficiently—making them more likely to perform well and contribute to your organization’s overall success.
