Employee Training Costs: How Much Should Your Company be Spending?

As an HR director or training manager, one of the most important budget questions you’ll want to consider is how you should spend on training new employees.

While the numbers fluctuate from year to year, since the early 2000s, the average cost of training a new employee has reached the four-figure mark. 

This article will look at several factors influencing company training costs and provide some useful tips on how companies can reduce their L&D budgets.

Employee Training Costs: A Detailed Look

To keep employees well-trained and satisfied with their level of professional development, the annual cost comes to about $1,000 per employee.

Here is a detailed breakdown of the costs associated with meeting compliance and safety training standards and keeping employees’ skills up-to-date.

Training Costs by the Numbers:

According to a 2023 Training Industry Report by Training magazine, training costs for 2023 ranged from $481 per employee for large companies to $1,420 per employee for small companies, with the 2023 average being $954 per employee.

Here’s how companies have fared the last few years:

All companies: 

2021: $1,071

2022: $1,207

2023: $954

Small companies

2021: $1,433

2022: $1,396

2023: $1,420

Midsize companies 

2021: $902

2022: $826

2023: $751

Large companies: 

2021: $722

2022: $1,689

2023: $481

Direct Expenses

Direct expenses are costs that are directly related to the training program. These can include:

• Training materials: This includes any physical or digital materials used during training, such as manuals, workbooks, and online courses.
• Instructor salaries: If you hire a trainer or use an internal employee to conduct the training, their salary would be considered a direct expense.
• Travel expenses: If the training requires employees to travel, the cost of transportation, lodging, and meals would be included in the direct expenses.
• Training software or tools: If your training program utilizes software or tools, the cost of purchasing or licensing these would be considered a direct expense.

Indirect Expenses

Indirect expenses are costs that are not directly related to the training program but are still necessary for the training to take place. These can include:

• Employee wages: During training, employees are still being paid their regular salary, which is considered an indirect expense.
• Lost productivity: Training takes employees away from their regular duties, which can result in a loss of productivity. This loss of productivity is also considered an indirect expense.
• Overhead costs: Overhead costs, such as rent, utilities, and office supplies, are necessary for the training to take place and are considered indirect expenses.

How To Calculate Training Costs

Understanding how much other companies spend on employee training can guide your budget decisions by providing a comparison to determine if you’re spending too much or too little. It also offers a solid baseline for crafting your own training budget. However, when setting your learning and development (L&D) budget, you must adjust these figures to fit your organization’s specific needs.

To calculate employee training costs, follow these steps:

Step 1: List every direct and indirect training cost from the categories mentioned previously, and sum these expenses to calculate your total costs.

Step 2: Divide the total costs by the number of employees to find the average training cost per employee. For example, if your total training expenses are $200,000 and you have 200 employees, the average cost per employee would be $1,000 ($200,000 divided by 200).

What Affects Training Costs

Like with anything in business, return on investment matters. Before you make any changes to your training budget, it’s important to determine if you’re implementing your program efficiently and effectively. Are your employees’ skill levels increasing? Have they retained the information they’ve learned? These are just two of the metrics that should be measured when evaluating your program’s return on investment.

Company Size

Training costs vary by company size. Smaller companies face higher per-employee training costs because removing even one employee from production impacts revenues significantly. Larger firms, with more staff, can absorb the costs of training new hires or upgrading entire departments more easily.

Employee Skill Levels

Each employee has a unique set of skills and learning pace, meaning training needs can vary greatly even among employees in the same role. Online training platforms allow for customization of lessons to meet individual needs, helping to manage these differences efficiently.

Types of Training 

The pandemic has increased the popularity of remote training, which often costs less than on-site sessions. However, on-the-job training, which requires paying a supervisor or colleague to train others, remains expensive but necessary for certain roles.

Are Training Costs Worth It?

Investing in training can reduce turnover and enhance employee morale. Over time, employees become faster, smarter, and more efficient, making them increasingly valuable to the company. Therefore, investing in employee development is a practical long-term strategy.

How To Reduce Costs

The benefits of employee training are worth it, but it’s still necessary to find the right program to fit your budget. Online training offers the greatest cost-saving opportunities, but there are other ways to save too. Here’s how:

• Have a Plan
  Creating an effective training program begins with a well-developed strategy, similar to launching a new product or service. For businesses, tailoring the training to the size of the team might involve surveys to identify individual learning preferences, ensuring the training meets everyone’s needs.

• Repetition
  Although it might seem redundant, repeating training sessions is essential due to the rapid loss of information over time. The “forgetting curve theory” shows that up to 60% of the knowledge from a lesson can be forgotten within 48 hours. Without regular reinforcement, businesses risk wasting significant portions of their training budget. Regular testing is a proven method to reinforce learning and improve retention.

• Find (and reduce) “Hidden Costs”
  It’s important to factor in lost time into your budget as well as other “hidden costs” that employers often overlook, such as the cost of training materials or travel-related expenses.

Online Training Can Save Money

Online training offers companies substantial opportunities to cut training-related costs while maintaining quality learning experiences for employees. It streamlines the training process by minimizing administrative overhead. Features such as automated registration, progress tracking, and reporting simplify management tasks, freeing up HR and training staff to concentrate on strategic initiatives.

Additionally, online training supports scalability, enabling companies to train many employees at once without extra expenses. Regardless of whether employees are spread across various locations or working remotely, online training provides uniform access to learning resources without the necessity for physical infrastructure.

Schedule a free demo today to learn more about KnowledgeCity’s user-friendly LMS and robust online employee training program.