Cost of training employees: Clear breakdown & saving tips

Cost of training employees: Clear breakdown & saving tips

We all know training is key to success in any organisation. But let's face it, it can be expensive.

Here’s the good news - the world of employee training is changing.

Thanks to the power of generative AI and other learning technologies, there are now smarter, quicker, and more budget-friendly ways to get your team up to speed.

This guide'll dive deep into understanding the cost of training employees. We'll also shed light on the often-underestimated impact of ineffective training and how it can silently drain resources and morale.

Most importantly, we'll share some valuable tips on decreasing training costs and leveraging the latest technology and strategies to ensure everything you invest in training is a step towards a more skilled, productive, and satisfied team.

Let's step into a world where training efficiency meets effectiveness, transforming your approach to talent development.

Understanding and calculating training costs: A combination of direct and indirect expenses

To effectively manage and optimise your training initiatives, it's essential to have a comprehensive understanding of the associated costs. The following sections will delve into the various components contributing to training expenses, covering direct and indirect costs. This detailed exploration will provide you with the necessary tools to calculate the cost of training within your organisation more accurately.

Direct costs: The billed items for training

When budgeting for employee training, direct costs are the most visible element. Direct costs in employee training are expenses directly attributable to the training process in the form of bills. 

These include:

• Trainer fees: Payments to external consultants or internal staff designated as trainers. It covers their hourly rates or salaries, expertise, and experience. External consultants typically command higher fees due to their specialised expertise and experience in a specific field. On the other hand, internal trainers might incur additional costs beyond their salaries, like bonuses for their extra training responsibilities.
• Training materials and resources: Expenses related to purchasing or developing training manuals, online courses, interactive modules, and other educational materials. Creating these materials from scratch can be time-consuming and requires significant expertise, especially when the content needs to be tailored to specific job roles or industry requirements. Furthermore, keeping the content up-to-date and relevant in fast-changing industries poses an additional challenge.
• Software tools: Costs for e-learning platforms, learning management systems (LMS), virtual classrooms, and any other software tools used in your employee training program. These expenses vary based on factors like the number of users, the sophistication of the features offered, and the level of customisation required.
• Venue and equipment: For in-person, instructor-led training sessions, costs related to renting external venues and the necessary equipment (like projectors, laptops, audio systems, etc.) form a substantial part of the direct costs. Additional usage fees could be added if the training requires specialised facilities beyond standard venues, such as laboratories, workshops, or simulation centres.
• Travel and accommodation: These expenses are relevant for off-site training and include transportation, hotel stays, and daily allowances for participants. This cost varies significantly based on the location of the training and the number of attendees.
• Examination fees: In cases where training programs conclude with a formal assessment or certification exam, there are often associated costs. These fees can be substantial, especially for internationally recognised qualifications.

While the listed categories encompass the main direct costs in employee training, additional expenses may arise based on factors like company size, the target audience for training, and the specific nature of the training. Nonetheless, these categories generally offer a thorough overview of standard training situations.

Indirect costs: The expenses not billed to the training program

While direct costs are more visible and straightforward to calculate, indirect costs in employee training are less apparent but equally significant. These costs are not billed directly to the training events but impact the overall training budget and efficiency of the program. Understanding these costs is crucial for a comprehensive view of your L&D investment.

• Opportunity cost: This represents the productivity loss when employees attend training instead of performing their regular duties. While not a direct financial transaction, the value of the work not done during this time, proportional to the employee's annual salary, is a real cost to the company. For instance, if an employee earning £25 per hour spends 8 hours in training, the opportunity cost is £200 - a figure not billed but implicitly incurred.
• Decreased productivity during transition: After training, employees often need time to adapt to new skills or technologies, leading to a temporary productivity dip. This phase of reduced efficiency isn't directly charged to the training program but is an indirect cost resulting from the learning curve. This cost is realised through potentially slower work pace or temporary declines in output quality, which are real but not reflected in a training bill.
• Administrative and management time: The time and effort invested by HR or administrative teams in organising, scheduling, and managing training programs represent a notable indirect expense. Unlike trainer fees, which are direct costs attributed to the individuals delivering the training, the administrative and management time is more nuanced. This includes coordination, logistics, participant communication, and follow-up activities. This distinction is vital as it highlights the unseen yet essential labour contributing to the successful implementation of training programs, reflecting an indirect employee training cost to the company.
• Infrastructure costs for in-house training: Using company space, utilities, and maintenance involves costs often not itemised in training expenses. While these resources are critical for conducting training, their associated costs are absorbed indirectly by the organisation and not reflected in specific training bills.

When considering indirect costs, adopting a framework that identifies any company resource being consumed in the training process but not explicitly billed to training programs is essential. This could include anything from employee time to physical space and utilities – essentially, any asset the company pays for that supports training activities. Recognising these resources ensures a more accurate and complete financial picture of your training investment.

Cost of training a new employee: How do you calculate?

When looking at the cost of training a new employee, several industry reports provide insightful data:

• Association for Talent Development’s 2022 Report: This report reveals that the average organisation spent $1,280 per employee on workplace learning in 2021. Additionally, it finds that the average cost per hour of training is estimated at $103.
• Training Magazine’s 2022 Study: Conducted between April and July 2022, this research shows that companies spent $1,207 per learner on average in 2022. This reflects an increase from $1,071 per learner in 2021. The study focused on US-based corporations and educational institutions with 100 or more employees.

While industry reports provide a useful benchmark, the more precise approach is calculating the training costs specific to your organisation. This ensures the figures are tailored to your unique business context, employee roles, and training methods.

Here’s a simple formula you can use:

Average training cost per new employee = (Total direct costs + Total indirect costs) / Number of trainees

Basically,

• Calculate total direct costs: Sum all the expenses directly linked to the training program.
• Estimate total indirect costs: Add up the less obvious costs associated with the training.
• Total number of trainees: Count the number of new employees who have undergone the training.
• Apply the formula: Divide the sum of the total direct and indirect costs by the number of trainees. This will give you the average cost of training per new employee.

For example, if your total direct costs are £10,000, your total indirect costs are £5,000, and you trained 10 new employees, the calculation would be: (£10,000 + £5,000) / 10 = £1,500 per employee

By applying this formula, you gain a clear and customised understanding of what it costs to train a new employee in your specific organisational context. It helps identify specific cost drivers and opportunities for optimisation, ensuring that your training investments are effective and efficient.

Short-term savings, long-term losses: The hidden costs of ineffective training  

Some organisations might think about cutting back on employee development because of high training costs. However, this decision can overlook significant hidden costs of inadequate training. These costs may not be immediately obvious but have a real impact on day-to-day operations and long-term organisational health. Let's explore these often-overlooked aspects and understand how they represent a cost to the company.

• Decreased productivity of new hires: New employees who lack adequate training typically face difficulties meeting their job requirements, which significantly hampers their productivity. They often take longer to reach full functionality in their roles, contributing to inefficiencies within the team. A telling data point highlights this issue - 46% of new hires who don’t receive adequate training fail to meet their primary objectives. This statistic underscores the importance of effective training in ensuring new employees are equipped to contribute effectively from the start.
• Existing employees struggle with change: When not regularly trained, your current team can struggle with adopting new technologies or process changes. This gap in training leads to a decline in their productivity as they grapple with unfamiliar tools and methods, hindering the team's overall efficiency.
• Lower job satisfaction and high attrition rates: Inadequate training can lead to lower job satisfaction, contributing to higher attrition rates. Employees who feel that their development needs are not met are more likely to seek opportunities elsewhere. Notably, about 70% of employees are somewhat likely to leave their current jobs for an organisation that invests in employee development and learning. Moreover, the cost of replacing lost talent is significant. Recruiting, hiring, and training new staff demand substantial time and financial resources, often exceeding the investment required for effective ongoing employee development.
• Legal and compliance risks: In many industries, providing adequate training isn't just beneficial - it's a regulatory requirement. When organisations fail to meet these training standards, they risk non-compliance with legal and industry-specific regulations. This oversight can lead to serious legal challenges and potentially hefty fines. The risks extend beyond financial penalties; non-compliance can damage an organisation's reputation and trustworthiness.
• Increased workload for other team members: When employees lack adequate training, their colleagues often bear the burden, taking on extra work to compensate. This increased workload can lead to stress and burnout among team members, disrupting team dynamics and productivity.

Given these drawbacks and potential hidden costs, it becomes clear that inadequate training efforts can do more harm than good, even if they initially appear to save money. Embracing financially sustainable training is essential for long-term success. The next section will explore practical, innovative tips to reduce staff training costs without compromising quality, ensuring your workforce remains skilled and competitive.

7 Strategies for cost-effective employee training: Maximising impact, minimising expense

Organisations can significantly reduce training costs by adopting smart strategies and leveraging the latest technologies while ensuring high-quality learning experiences. The following tips offer practical ways to balance this, ensuring your training programs are financially sustainable and impactful.

1. Launch a peer-to-peer mentorship program

Implementing peer-to-peer learning in your employee training strategy is an exceptionally cost-effective choice. It eliminates the need for expensive external consultants and traditional training programs, allowing you to practically leverage your in-house experts to educate and mentor others for free. Additionally, this method fosters a collaborative, on-the-job training environment and strengthens team bonds.
To ensure smooth execution, it's crucial to match mentors and mentees appropriately, set clear objectives, and guide mentors on effectively sharing their knowledge.

2. Optimise training time with microlearning techniques

In optimising training time, microlearning emerges as a practical solution. If you're wondering, what is microlearning?, it's a learning technique that focuses on breaking down complex subjects into smaller, manageable chunks to enhance learning efficiency and engagement. This approach usually conducted online via a mobile device is cost-effective, reducing the need for lengthy and resource-intensive training sessions.
While microlearning might not cater to every training requirement, particularly those demanding comprehensive understanding, its integration with conventional training methodologies can yield a well-rounded, impactful, and time-efficient training experience.

3. Organise collective training sessions

Group training sessions are a strategic way to deliver efficient and cost-effective employee development. By training multiple employees at once, organisations optimise resource usage and foster a collaborative learning environment. These sessions reduce the per-staff cost and ensure a consistent learning experience across the team.
Key to their success is tailoring content to suit the group's collective needs, encouraging active participation through interactive methods, and being mindful of group dynamics to maintain an inclusive learning atmosphere. While group training efficiently enhances teamwork and communication skills, it's important to balance this approach with individual learning preferences, possibly integrating additional support or alternative training methods for comprehensive employee development.

4. Monitor and improve the right training metrics

Monitoring and evaluating training effectiveness is critical in ensuring that the investment in employee development yields the desired results. Utilising platforms like Lingio’s AI-powered learning platform, with its intuitive coaching portal, organisations can accurately track employee training progress and outcomes. This strategic approach enables data-driven insights, fostering continuous improvement in training programs.
Key to this process is setting clear metrics and goals for each training program, coupled with the technology for comprehensive tracking and reporting.

5. Leverage outsourcing for specialised training needs

Embracing outsourcing for specialised training is a strategic decision that can effectively supplement internal capabilities, particularly when in-house expertise is stretched or lacks specific skills. This approach is crucial for addressing complex or rapidly evolving subjects, allowing organisations to access external expertise and the latest industry practices.

Clearly defining your training needs and objectives is crucial to maximise the benefits of outsourcing. This involves thoroughly assessing the areas where your organisation needs external expertise. Partnering with reputed training providers who have demonstrated excellence in these fields ensures quality learning experiences. It's also important to align the outsourced training content with your organisational culture and goals, creating a seamless integration with your existing training frameworks.

6. Seek available external financial support

Exploring external financial support options such as grants, subsidies, and funding initiatives can be a game-changer for your organisation's training programs. This approach alleviates financial constraints and enables more ambitious and diverse training initiatives. Governments, non-profits, and large corporations often announce funding opportunities for workforce upskilling. For example, in November 2023, the US Department of Labor announced a $98 million fund to support academic and skills training for young people. Similarly, the European Union offers various funding instruments for upskilling and reskilling, detailed here.

Organisations must stay informed about relevant funding opportunities to leverage effectively, understand their eligibility criteria, craft compelling applications aligning with the funders’ objectives, and adhere to strict application timelines. By proactively seeking and securing such financial support, organisations can significantly ease the financial burden of training, enabling them to offer more comprehensive and diverse training programs while maintaining fiscal responsibility.

7. Harness the immense potential of generative AI for course creation with Lingio

Developing training materials is a major part of direct training costs, often requiring extensive time and resources. Traditional course creation demands significant planning and manual effort. However, the advent of generative AI marks a paradigm shift, offering a way to cut down both time and expenses in course development drastically.

Enter Lingio - Your solution to cost-effective and (near) instant training content

Lingio isn't just another course creation tool. It's a breakthrough in AI-powered training material development trusted by major corporations and public authorities, including Nobina, the Nordic region’s largest public transport operator. Lingio leverages generative AI to transform traditional training content into interactive, mobile-friendly courses in seconds, saving substantial time and resources for L&D teams.

Key capabilities of Lingio include:

• Superfast course creation: Effortlessly upload training content to Lingio for an instant, engaging course generation with AI-powered questions and imagery. Curious to try it? Check out our guide on how to create a course with AI.
• Gamified learning: Lingio integrates gamification developed by experts with EA Games and Spotify backgrounds, offering interactive, enjoyable learning experiences through storylines and quizzes.
• Exceptional completion rates: Lingio’s courses, shaped by expert input, achieve 12 times higher completion rates than standard market offerings.
• Mobile-first: Tailored for the on-the-go workforce, Lingio’s mobile-first courses suit industries with deskless employees, providing convenient access across devices.
• Accurate, reliable AI: Utilising trusted sources and editable AI-generated content, Lingio ensures precision and relevance in course materials.
• Coaching portal for measurable impact: With its mobile-friendly design, Lingio’s coaching portal tracks training effectiveness, ensuring engagement and insightful outcomes.
• Multilingual support: Overcoming language barriers, Lingio translates key terms into 100+ languages, backed by a partnership with IAAP for comprehensive accessibility.
  
  

The Nobina success story: Pioneering cost-efficient material development with AI

Nobina's shift to Lingio's AI-driven training platform marked a significant stride in cost-efficient and effective training. By converting their employee handbook into gamified, mobile-friendly courses, Nobina enhanced the learning experience and significantly cut down on training costs.

Lena Haenel, Head of Training at Nobina, encapsulates the impact: “Ever since Lingio helped bring our e-learning vision to life, the onboarding process for our bus drivers has become incredibly smooth and streamlined. Sharing training and monitoring our staff's progress is easier than ever.”

Key takeaway: The partnership between Lingio and Nobina demonstrates the immense potential of AI-powered solutions in reducing costs while improving training effectiveness. The success of this project serves as an example for organisations looking to modernise their training programs cost-efficiently. You can try out Lingio for free today!

Empower your team with smart training investments

As we wrap up this comprehensive exploration of employee training costs, it's crucial to reiterate a fundamental principle - effective training is not merely an expense but a pivotal investment in your organisation's future.

We’ve highlighted the varied costs associated with training employees, from direct expenses like training materials and trainer fees to indirect costs such as opportunity costs and decreased productivity during time devoted to sessions.

While these costs can be substantial, there are innovative and strategic ways to manage and reduce them without compromising on the quality of training. Implementing cost-effective strategies such as mentorship programs, micro-learning, group sessions, and leveraging advanced platforms like Lingio for AI-driven course creation, can significantly enhance training efficiency.

Investing in employee training is investing in your organisation's success. It's about finding the right balance in employee training programs between cost-effectiveness and quality, ensuring each dollar spent moves your team toward greater skill, productivity, and competitiveness.

With the insights and strategies outlined in this article, you are well-equipped to make smart training investments that yield long-term benefits for your organisation and its people.

FAQs:

1. How do you calculate the cost of training a new employee?

To calculate the average training cost per employee, you can use the following formula:

• Calculate total direct costs: Add up all expenses directly linked to the training program.
• Estimate total indirect costs: Consider the less obvious costs associated with the training.
• Total number of trainees: Count how many new employees have undergone the training.
• Apply the formula: Divide the total direct and indirect costs by the number of trainees to get the average cost of training per new employee.

For example, if your total direct costs are £10,000, indirect costs are £5,000, and you trained 10 new employees, the calculation would be: (£10,000 + £5,000) / 10 = £1,500 per new employee.

This method provides a clear and customised understanding of the training costs in your specific organisational context, helping you identify cost drivers and opportunities for optimisation.

2. Is it cheaper to train an employee or hire a new one?

Training an existing employee is often more cost-effective than hiring a new one. Recruitment involves significant expenses like advertising, interviewing, and potential agency fees. Onboarding new hires requires additional resources for assimilation into company culture and systems. Existing employees, familiar with the company, can adapt to new roles more quickly, reducing the learning curve. Training enhances employee retention and morale, whereas hiring carries risks regarding the new hire's performance and team fit. Overall, the direct cost of retraining employees is frequently lower than the cumulative costs of recruiting, hiring, and onboarding a new employee.

3. How much do companies spend on training employees?

Companies typically spend varying amounts on employee training, with industry benchmarks providing some insights. The Association for Talent Development’s 2022 Report shows an average of $1,280 per employee spent on workplace learning in 2021 and about $103 per training hour. Training Magazine's 2022 Study found an average expenditure of $1,207 per learner among US-based corporations and educational institutions. However, actual spending varies based on factors like company size, industry, and how much training is required, making it essential to calculate costs tailored to an organisation's unique context.

3. Should I pay for my employees' training?

Certainly, as an employer, paying for your employees' training is a wise investment. This approach ensures that the training aligns with organisational goals, leading to improved workforce skills and productivity. It fosters a culture of growth and appreciation, enhancing employee morale and loyalty. Importantly, covering training costs is a tangible expression of your commitment to employee development, which not only attracts talent but also significantly aids in retention.

4. Is the cost of training employees worth it?

Yes, training employees is a worthwhile investment. It enhances employee efficiency and reduces errors, positively impacting the company's performance. Training boosts employee engagement and retention, saving costs associated with high turnover. It also ensures your workforce stays competitive and adaptable. While initial expenses may seem high, the long-term benefits of a skilled and satisfied workforce far exceed these costs, making employee training a strategic and beneficial choice. For example, the cost of training employees on new technology can be recovered quickly if your team can utilise it well to boost productivity.

5. What is the true cost of employee training?

The concept of the 'true cost' of employee training emphasises its role as a strategic investment rather than a mere expense. It involves deeply understanding its broader impact on organisational health and employee performance. When considering the cost of training, adopting a long-term view is important. In the short term, immediately after a training session, the focus is on direct and indirect costs. However, when evaluated over time, the scenario often shifts from a net cost to a net profit due to the gains from improved performance, enhanced skills, and increased productivity.

Therefore, to truly assess the cost of staff training and development, one must consider the timeline over which the benefits of training unfold, recognising that the initial expenses can translate into significant long-term gains for the organisation.

6. Why is training cost per employee important?

Understanding the training cost per employee is crucial for several reasons. Firstly, it provides a tangible figure that aids in budgeting and financial planning. Knowing this number allows organisations to allocate resources effectively, ensuring that training programs are sustainable and aligned with financial constraints.

Moreover, being aware of the per-employee cost of training helps evaluate your training programs' efficiency and effectiveness. It's a key metric that helps in understanding whether the investment in training is delivering the desired outcomes.

Furthermore, knowing the training cost per employee is important for comparing the effectiveness of different training methods and tools like classroom vs remote training. It allows organisations to weigh various training options against each other, considering factors like scalability, effectiveness, and cost-efficiency. This knowledge can lead to adopting more innovative training approaches, like using AI-powered platforms like Lingio, that can provide a better return on investment.