What Is the True Cost of Employee Training? (2024)
- Published:
- Modified: October 3, 2024
While learning and development (L&D) is critical for an organization’s success, it’s understandable that many companies want to optimize their training budgets during economic uncertainty.
The immediate training costs that come to mind include costs associated with hiring a trainer, learning material experiences, and time spent in training sessions. However, employee training costs go beyond these surface-level direct expenses.
Training investments are often complex to calculate. Costs include developing training programs, the technology required to deliver learning experiences, and indirect costs like time commitment and loss of productivity.
Understanding the full scope of these costs is crucial for businesses to ensure they maximize the return on their training investments. In this article, we’ll dive into the hidden costs of employee training and why it’s important to view it as a strategic investment rather than just an operational expense.
What Is the Average Cost of Training Employees?
On average, the training cost companies spent per learner was $954 in 2023, with each employee receiving 57 hours of training, as compared to $1,207 per learner in 2022, with each employee receiving 62 hours of training.
Direct vs. Indirect Employee Training Costs
When we talk about the costs of employee training, we think of the time and money needed to develop training materials, hire trainers or instructors, rent training facilities, and purchase learning management systems or other L&D-related tools. These are direct training costs.
However, there are also hidden costs associated with employee training. These costs can arise from various factors and can significantly impact overall training expenses.
Here are examples of both direct and indirect employee training costs:
Direct costs
- Training materials – Developing or acquiring training materials is a significant upfront cost for employee training. This includes designing in-house training content, purchasing off-the-shelf courses, and securing licenses for digital resources such as eLearning platforms or videos.
- Learning Technology—The Cost of implementing any employee training software, such as a Corporate LMS, digital adoption platform, course authoring software, microlearning platforms, etc. The cost of adopting and maintaining these platforms includes subscription fees, updates, and customization to fit the company’s training needs.
- Trainer Fees – Whether using internal trainers or hiring external consultants, trainer costs are a key part of employee training expenses. This can involve salary costs for in-house training teams or fees for external trainers or training firms.
- Facility and Equipment Costs – For in-person training sessions, organizations may need to rent training facilities, provide materials such as computers, projectors, or whiteboards, and cover the cost of physical resources like manuals and workbooks.
Indirect costs
- Employee time away from work – One of the hidden costs of training is the lost productivity when employees are away from their regular duties. While they’re engaged in training, their daily tasks may either be delayed or passed on to other team members, impacting overall efficiency.
- Reduced efficiency during training – While employees are learning new skills, they often experience a temporary dip in productivity as they adjust and apply what they’ve learned. This learning curve can impact their immediate performance and, by extension, the company’s output.
- Onboarding and training for temporary staff – When full-time employees undergo training, companies may need to bring in temporary staff to handle their workload. The cost of onboarding and training these temporary workers adds another layer of expense.
- Ineffective training programs – If a training program is poorly designed or irrelevant to the learners’ needs, it can lead to wasted resources and time. Ineffective training not only incurs direct costs but can also result in poor employee performance or the need for retraining.
How to Calculate Training Cost Per Employee?
When you factor in all possible training-associated costs (including direct and indirect costs), you can calculate how much training will cost your organization. The only other piece of information you need is the number of employees.
- The first step is to calculate the direct costs: Direct Costs = (Total cost of training materials + LMS fees + trainer fees + facility costs)
- Next, calculate the indirect costs: Indirect Costs = (Hourly wage × Hours of training × Number of employees) + temporary staffing costs + efficiency losses
- Once both direct and indirect costs are calculated, sum them up and divide by the total number of employees trained.
Total Training Cost Per Employee = (Total direct costs + Total indirect costs) / Number of employees trained
Let’s take an example.
If a company spends:
- $10,000 on training materials and trainers
- $5,000 on LMS fees
- $2,000 on venue and equipment
- $30 per hour for each employee, with 10 employees attending an 8-hour training session
Direct Costs = ($10,000 + $5,000 + $2,000) = $1,7000
Indirect Costs = ($30/hour × 8 hours × 10 employees) = $2,400
Total Training Cost Per Employee = ($1,7000 + $2400) /10 = $1,940
Is the Cost of Training Employees Worth It?
Now that we know the cost of employee training is high and intimidating, it is a valid question to ask whether organizations should bear the cost or not.
The following statistics will make the answer to this question evident:
- Company training programs yield 218% higher income per employee than those without formalized training. These companies also enjoy a 24% higher profit margin.
- Companies are 17% more productive and 21% more profitable when they offer training to engaged employees.
- 76% of Gen Z learners think that learning is the key to a successful career.
- 70% of employees would be somewhat likely to leave their current jobs to work for an organization known for investing in employee development and learning.
These statistics clearly show the importance of employee training in increasing employee productivity and satisfaction. A well-designed employee training program makes your employees work smarter and reduces your operating costs.
How to Measure ROI of Employee Training Programs
Here’s how to measure the ROI of your training programs.
1. Calculating direct and indirect costs
To measure the ROI of training, it’s essential to first identify both direct and indirect costs associated with the program. By calculating the total of these costs, organizations can establish a clear baseline for how much is being invested in training, which is crucial for comparing against the benefits and improvements gained from the program.
2. Tracking performance improvements
Tracking performance improvements is key to evaluating the success of employee training and its ROI. After training, organizations must assess specific metrics such as productivity increases, quality of work, efficiency gains, and error reduction.
This can be done through performance reviews, KPIs, and comparing pre- and post-training results in areas relevant to the training goals. By monitoring these performance changes over time, organizations can quantify the improvements brought by the training, which helps calculate the return relative to the investment made.
3. Reduction in employee turnover
Employee training programs, particularly those that focus on career development and skills enhancement, often lead to higher employee satisfaction and engagement, reducing turnover rates. A reduction in turnover leads to substantial cost savings, as recruiting, hiring, and onboarding new employees are expensive and time-consuming.
By comparing turnover rates before and after training initiatives, and factoring in the costs of employee replacement, organizations can demonstrate the long-term financial benefits of training in terms of employee retention. This, in turn, contributes positively to the overall ROI.
11 Ways to Reduce Your Organization’s Training Costs
To help you allocate your training budget better, here are some proven strategies to reduce employee training costs without sacrificing quality.
1. Reduce the amount of training material
Often, training programs are filled with excessive content that doesn’t add value to your employees. Not only does the production of such content take resources from your learning and development (L&D) team but also trainees have to spend a lot of time to consume it, which translates into indirect training costs.
The simplest way to cut your expenses is to stop over-producing learning resources. Focus on delivering concise and targeted information that directly aligns with the learning goals.
Consider adopting a modular approach to training, where you break down the content into smaller, more manageable chunks. This allows employees to access specific modules as needed, rather than going through lengthy training sessions that cover unnecessary or repetitive information.
2. Keep an eye on knowledge gaps
Without analyzing your employees’ knowledge gaps, you can’t determine where exactly the training needs are. As a result, you end up investing time and money in training programs that don’t address the real needs of your organization. In other words, you waste your resources.
That’s where training needs assessment and skills gap analysis exercises come in. These learning analysis processes help identify the gaps between the skills or knowledge your employees currently have and the ones they need. It also helps tailor upskill training programs to address those specific gaps, ensuring that your investment is targeted and impactful.
3. Put training needs assessment in auto pilot
Performing training needs assessment manually requires significant effort to collect, analyze, and interpret data from various sources. As your organization grows or faces frequent training needs, the manual approach becomes increasingly inefficient and difficult to scale.
You can cut your employee training costs by standardizing and automating training needs assessment. One of the ways to do so is by implementing technology, in particular AI-powered software, that puts the process on autopilot, saving time and resources.
Dedicated skills management platforms focus on understanding and visualizing the data on your team’s skills and abilities.
Software like MuchSkills and Sloneek performs real-time skill gap analysis to help you create a competency model or skill matrix, uncovering insights into your team’s strengths and weaknesses. All you need to do is to define the skills you want to monitor for each department or role, and the platform will facilitate the rest of the work.
4. Invest in a Digital Adoption Platform (DAP)
Cut down your software training costs by implementing a digital adoption platform (DAP) to your tech stack.
Whatfix DAP provides enterprises with a no-code editor to create interactive and context-sensitive guidance directly within the software interface. It assists users in real-time by offering step-by-step walkthroughs, tooltips, and on-screen prompts that highlight the relevant features employees navigate the software. It also aggregates your company knowledge and IT support content into an embedded self-help wiki that overlays across your digital applications, like your CRM, ERP, HCM, and more.
With Whatfix, enterprise insurance provider Sentry saved $1M in training resources (both internal and customer-facing) across content development and support, while also providing better, more contextual guidance to its sales team, policy administraters, and claims processers that improved productivity and create a better customer experience.
5. Repurpose existing training resources
Do you want to reshape your employee training program? Don’t rush to start from scratch. You may already have plenty of helpful training resources that you can repurpose in your new program.
If your previous L&D initiatives proved inefficient, it doesn’t mean they’re bad – it means you need to adjust the format to meet your employees’ learning styles. You can use written materials to create engaging video courses or turn workshop recordings into an extensive knowledge base.
With a DAP like Whatfix, L&D teams can create contextual in-app guidance and self-help support resources that overlay on their digital applications. Whatfix can then automatically export these learning materials into various formats, including PDFs, videos, PPTs, and documents.
6. Implement microlearning
Microlearning is a learning approach that delivers short, stand-alone pieces of content that take little time to consume. It breaks down information into smaller, more manageable units. These modules typically range from a few minutes to around 5-15 minutes in length.
Microlearning offers several benefits in terms of cost reduction. Firstly, it eliminates the need for extensive development of lengthy training materials. Instead, you can create short and specific modules that address specific learning objectives.
It also reduces the time and resources required for employee training. Since modules are short and focused, employees can access them as needed, minimizing disruptions to their work schedules.
To implement the approach effectively, consider microlearning platforms like 7taps or iSpring Learn. These platforms enable you to develop interactive microlearning modules and enhance them with videos, quizzes, and gamified training components.
7. Automate content creation
Whenever you need to write or record a guide, ask yourself whether there’s a way to do it automatically. There are plenty of software systems that can help you automate content creation by capturing and documenting while you do the work.
Consider the following tools:
Loom for creating instructional videos and screen recordings. This tool allows you to capture processes in real-time, making it easy to create engaging video content for training purposes.
Scribe for step-by-step guides and process documentation. With Scribe, you can automate the process of capturing and documenting workflows, procedures, and instructions, saving valuable time and effort.
8. Focus on on-demand and self-paced learning
On-demand and self-paced learning allows employees to access training content whenever they need it, reducing the need for scheduled sessions or instructor-led courses. By using eLearning platforms, digital adoption platforms, webinars, and recorded sessions, employees can learn at their convenience, cutting down on the time and costs associated with traditional training programs. This model also increases engagement as employees can take control of their learning process, revisiting content as needed.
9. Adopt a blended learning approach
A blended learning approach combines the best of both synchronous and asynchronous learning, making it both cost-effective and flexible. Organizations can use online training modules to deliver foundational knowledge, while reserving live sessions for more interactive or advanced learning activities, such as Q&A sessions or workshops.
This reduces the need for frequent in-person training while still allowing for real-time interaction when necessary. By reducing reliance on in-person sessions, blended learning also cuts costs related to travel, venue rental, and trainer fees while enhancing learner engagement and efficiency.
10. Encourage knowledge sharing and peer-to-peer learning
Promoting a culture of knowledge sharing and peer-to-peer learning within your organization will cost you nothing.
Make it easy to exchange insights by using platforms and tools that facilitate knowledge sharing among employees. Implement internal knowledge sharing platforms, such as intranets, wikis, or collaboration tools, where employees can contribute and access relevant information.
Collaborative systems like Nuclino and Notion offer simple tools for teams to share ideas, collaborate in real-time, and organize knowledge instantly.
11. Create scalable onboarding and training programs
Scalable onboarding and training programs enable organizations to train large groups of employees simultaneously without incurring additional costs for each new hire.
By standardizing key training components and using digital tools like learning management systems (LMS) or digital adoption platforms, companies can automate many aspects of the onboarding process, ensuring consistency and reducing repetitive tasks.
These programs can be easily updated and reused, ensuring that the training infrastructure can accommodate new employees as the company grows without significant additional investment. Scalability also ensures that all employees receive the same high-quality training regardless of location.
Boosting your organization’s employee training ROI is all about maximizing efficiency and ensuring employees are consistently learning and applying new skills. Whatfix offers a powerful solution through its in-app guidance and user analytics features, allowing employees to learn in the flow of work. With interactive walkthroughs and contextual learning, Whatfix enables employees to quickly adapt to new systems or processes, minimizing downtime.
Additionally, Whatfix user analytics provide valuable insights into learner progress and areas for improvement, helping organizations refine their training programs for maximum impact. By integrating Whatfix into your employee development strategy, you can ensure training investments deliver long-term value and measurable results.
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