According the 2017 State of the Industry report from the Association for Talent Development, organizations spend an average of $1,273 per employee for direct learning expenditures. Organizations smaller in size spend more per employee and larger organizations spend less per employee but smaller organizations have a much smaller training budget than those larger organizations.
There are a number of different ways organizations determine what their training budget for the year will be but one of the most common formulas for determining what dollar amount to dedicate to learning is using a percentage of what is being spent on salaries. However, that may not always work for every organization.
Here’s three ways to calculate your yearly training budget:
Total yearly salary budget X 1-3% = Total Training Budget
This calculation takes the total salary budget for the entire year and multiplies it by 1% to 3%. The 1% to 3% is what you can use to represent the size, industry, or other organization specifics.
This method ensures that the organization is strategically committed to the learning & development of employees and leadership.
This could also be based on what the company historically has spent on training. For example, last year we spent 2.5% of our salary costs on training. If training needs appear to be the same, then that same % can be applied to the next year
Industry specific per employee average X FTEs = Total Training Budget
Calculating a training budget based on a reputable industry report is a great way to benchmark against similar companies in size and industry. Use these reports to not only ensure that training and professional development investments and strategies are aligned with trends but also ensure competiveness within the talent market.
Predetermine training needs, estimate costs, and calculate
This calculation takes a little more work ahead of the year. It’s less of a formula and more of an estimate based on the needs of the organization. Calculate a training budget using known training needs and estimated costs for items such as materials, instructor fees, travel, technology, consulting, facilities rental, etc.
This way of calculating a training budget is great for when your needs for the entire year are easily determined ahead of time and backed by the strategic approach to the development of the workforce.
Start by identifying your key training initiatives. For example in the next year, we are planning for these training initiatives:
- Leadership development
- Plant operator training
- Safety training
- Supervisory training
- New hire on-boarding
Next, estimate the costs for each initiative that would take into consideration:
- Numbers of participants
- Instructor costs
- Travel and Living
- Materials
- Facility costs
- Food
As with most things, there’s pros and cons to each method of calculating a training budget. For instance, using yearly salary budget multiplied by a percentage may not be ideal if you are anticipating a stage of hyper-growth or an acquisition. Using reported averages and FTEs may not accurately represent the needs of your organization. Predetermining the training needs of your organization is not always ideal due to unforeseen circumstances like a change in leadership or a triggered training for all employees such as harassment training or workplace safety training.
Whichever method of calculation you may choose, it’s always important to remain flexible and try to anticipate shifts and changes to your training budget.
