The Ultimate Guide to Training Budgets: A Key to Improving Employee Lifetime Value

An effective training budget is crucial for organizational growth, employee satisfaction, and maintaining a competitive edge for your workforce. This guide covers all aspects of creating, managing, and optimizing a training budget for companies of all sizes.

What is a training budget?

A training budget refers to the direct and indirect costs and resources used to train workers in an organization. It includes the cost of courses, books, and other learning materials. It also includes indirect costs like wages, compensation, and time spent setting up training.

It typically has four components that need considering:

• Training needs assessment
• Training objectives
• Training costs
• Return on investment

Setting aside a training budget is essential for employee empowerment. It helps employees access the quality knowledge they need to perform effectively at their jobs. In many cases, employees can more or less freely decide how to spend their training budget. 

And a properly used training budget also influences customer satisfaction—a well-trained employee knows how to address customers and avoid situations, whereas poor customer service and low morale can lead to profit loss and affect your ROI.

Why are training budgets important?

Investing in training has a huge impact on employee retention and engagement. Recent employee development statistics show just how impactful ongoing learning opportunities can be for both individual growth and organizational success.

Here’s what a well-planned training budget brings to your organization:

Increases customer success and experience

Your workers are the gatekeepers between your organization and customers. So they must receive proper training to offer improved services. A bad customer experience can negatively affect your organization’s reputation. 

So implementing a dedicated LMS for customer training can empower your reps with the knowledge and skills needed to provide an outstanding customer experience.

86% of customers will do business with you again when they have a positive experience. However, 53% will switch to partnering with the competition if the reverse is the case. 

Improves employee lifetime value

A generous training budget buys a good employee experience. When you give your staff the resources they need to upskill, they translate that as you investing in their potential. 

Which eventually builds their confidence and leads to employee engagement. Engaged workers view the success of the organization as vital to themselves. 

On the other hand, the disengaged worker only does the work because you tell them to. As a result, the former performs better and continues to improve over the years. Moreover, they will stay longer in the organization as you’ve set the bar high for the competition. 

These factors will help you know your most valuable employees and make better human capital decisions that bring more significant ROI. 

Improves talent retention

94% of employees will stay with their employers if they invest in long-term learning. A reasonable training budget paired with a development plan shows your commitment to helping your employees upskill. In addition, it breeds trust in the workplace and sets the bar high for the competition. 

Future-proofs your organization

For workers who will remain in their roles until 2025, 40% of core skills are expected to change.

Providing the resources they need to grow prepares them for the rapidly changing work environment. Conversely, not providing resources makes their skills rusty and redundant, negatively impacting your organization’s success. 

A training budget secures the longevity of your organization by equipping your people to adapt to future developments and changes and providing the necessary resources for their upskilling.

Improves work output and performance

A better-trained workforce needs reduced supervision, shows up to work more, and relates with customers better. 

All these factors will boost sales and the success of the organization. However, cutting back on employee training rather than investing in it will have disastrous consequences.

The consequences of inadequate training budgets

Underfunding training programs can have serious repercussions for your organization. Here are some key risks:

1. Widening skill gaps: Without adequate training, employees struggle to keep up with industry changes, leaving your organization at a competitive disadvantage
2. Decreased productivity: Lack of training results in more mistakes, slower processes, and reduced efficiency across your workforce
3. Higher turnover rates: Employees are more likely to leave for organizations that invest in their development, leading to increased recruitment costs
4. Loss of employee engagement: Underfunding training lowers morale and engagement, as employees feel undervalued and see fewer growth opportunities
5. Diminished customer experience: Poorly trained employees may struggle to meet customer needs, leading to negative experiences and potential loss of business

How do you calculate training costs?

1. Determine your training needs

A detailed employee development plan should review skill gaps and your organization’s needs. It should also consider your staff’s career aspirations and find common ground to help them get there. 

You’ll need to work with other managers, your whole People Ops team, and the employees you need to train. This will give you a 360-degree view of creating the best training strategy.

Here’s how to determine your employee training needs:

1. Refer to your employee’s job description, competency model, or career path
2. Ask employees about their career goals
3. Align their goals to company goals and values—for example, design a vision board and put it on display in the organization. That way, everyone sees the organizational objectives, how they fit into the big picture, and why their role in achieving the organizational goal is essential
4. Test and evaluate their skillsets—the most common way to do this is a competency-based 360° feedback review

After answering these questions, evaluate the cost of training based on the resources they need.

2. Calculate based on salary

Another way to determine the cost of training employees is through this simple formula:

Total yearly salary (per employee) x 1-3% = training budget

Get the total amount you spend on each employee. Then multiply that by one to three percent of their salary. This will give you your training budget. 

This technique is ideal as you can cover both fixed costs (employee pay, office supplies, and equipment) and variable costs (hidden or unplanned costs). 

3. Hire an HR agency to calculate your training budget

You could also hire an HR agency to help you calculate your training budget. This will come in handy when you find it challenging to do it independently.

It will also give you an outsider’s perspective and uncover hidden costs you must’ve missed in the planning process.

Benchmarks: How much training budget do companies typically grant their people

The training budget that companies give their employees varies. Around the 2020 pandemic, there were reductions to the spending patterns of organizations, but since then, spending has bounced back.

According to a Training Industry Report, large companies allocated an average of $19.2 million, up from $17.5 million the previous year. Midsize companies saw their average training budget rise to $1.5 million, up from $1.3 million. Small companies, while dedicating a more modest $369,000, still saw an uptick from $341,000 the prior year.

• Companies spent an average of $954 per learner in 2023, down from $1,207 in the previous year.
• Employees received an average of 57 hours of training annually, equating to around 1.4 weeks of training per employee.
• Small and midsize companies outpaced large corporations in per-learner spending, emphasizing their commitment to individual development.

These figures highlight the growing recognition across organizations of all sizes regarding the importance of investing in employee training and development.

For Abby Wilson of LGBTQ flags Australia, “the training budget we set is usually around the same amount of salary that we have per individual. When we can, we raise it up by around 2-3%.”

Training budget example: Leadership development program

To provide a practical understanding of how a training budget might look, let’s create a fictitious budget for a leadership training program. This example will account for common training costs such as workshops, in-person events, and resource allocation.

Breakdown of costs for a leadership training program

1. Training needs assessment
: Before any training begins, a thorough training needs assessment is essential to determine skill gaps and align leadership development goals.

Cost: $2,000 (internal staff time + consulting fees)

2. Workshops and in-person events: 
Leadership training often includes hands-on workshops and in-person sessions. Here’s an estimate for a 3-day leadership workshop.

• Facilitator fees: $4,500 (external expert)
• Venue costs $1,500
• Travel and accommodation: $3,000
• Training materials: $1,000 (books, guides, and workbooks)

Total for workshops and events: $10,000

3. Online leadership courses: 
Complementing in-person training with virtual learning options can reduce costs while still delivering high-impact content. Investing in an online leadership course allows flexibility and scalability.

Cost: $500 per leader

Number of participants: 10

Total for online courses: $5,000

4. Internal resources for continuous learning: 
Ongoing development for leaders often involves internal resources, such as coaching from senior executives, peer learning sessions, and access to learning management systems (LMS).

• Cost of LMS: $3,000 annually
• Executive coaching sessions: $2,500 (internal costs)
• Peer learning events: $1,000

Total for internal resources: $6,500

5. Evaluation and follow-up
: After the training, you’ll likely want to assess the program’s effectiveness—evaluation might involve taking feedback via post-training surveys, for which you’d use survey tools and staff to review them.

Cost of assessment tools & time: $1500

Total training budget: $25,000

This budget would cover a balanced mix of in-person workshops, online courses, and internal resources to create a comprehensive leadership development program.

How to make the most out of training budgets

Here’s how you can leverage a training budget to bring progress and development to your organization:

1. Assess employee training needs

Every employee is different. So, a one-size-fits-all approach to training them will have the opposite effect. On the other hand, a training needs analysis will help you know your staff better.

And tailoring your training programs to individual needs can significantly boost engagement and outcomes. Use our individual employee training plan template to create personalized development plans for your workforce.

2. Cultivate a learning culture

A learning culture refers to the growth mindset of workers. It is when employees are willing to learn and apply what they’ve learned to help their organizations succeed. 

One example of a healthy learning culture is Google’s microlearning. Employees send short suggestions via email on what they think the other person can do to be better at their jobs. This lets them know what they are doing right or wrong without overloading them with information. It’s also a way of giving feedback.

Whisper courses are also used to send “nudges” to managers. Nudges are reminders that help managers complete their tasks on time. For example, they get emails that remind them to attend meetings and give constructive feedback.

Cultivating a learning culture complements your training budget. It ensures that the training that follows is not a one-time event. Instead, employees continue to practice what they’ve learned post-training:

• Promote continuous learning by building a library of resources. Reserve an office or section of the organization to house physical learning materials. For example, books, audio, videos, and more. You can also set up a Learning Management System (LMS) to give remote workers access to digital copies of these materials
• Provide incentives to motivate your employees to perform better. Then, reward them when they improve or accomplish major goals. For example, your Sales employee started bringing in extra revenue. Give them monetary (money, bonuses, wage plans) and non-monetary (praise, recognition, and promotion) incentives

3. Develop a career framework

A career framework is a visual map that illustrates job roles and job families and helps workers identify growth opportunities within job families. For example, Accounting, Auditing, and Financial planning together form a job family. Here are three tips for developing a career framework in your organization:

• Identify the purpose of the framework or what problems you need it to solve. For example, miscommunication of roles and responsibilities in the organizational structure
• Pick your tool. You can use tools such as Google Suite or Notion to build your career framework. The most convenient and complete solution is Deel Engage’s career management feature
•  Keep your career framework updated: Organizations are characterized by constantly moving parts. As a result, their framework should accommodate everyone, both new and old. You can do this exercise in the first quarter, biannually, or yearly

4. Create a development process

Creating a development process will turn your training budget into a measurable empowerment experience. By organizing development activities and providing learning materials, you enable them with the tools they need for development. 

You can then schedule follow-up feedback sessions where you gain insights into how employees are performing. Employees can also go through an assessment through 360-degree feedback to give you a well-rounded view of your staff.

Follow these steps to create a unique development process in your organization:

1. Design a template: Check out our free employee development plan examples for inspiration
2. Have an open conversation with your employees: Find out their career aspirations. Having a career framework at this point will make it clear for them to know how to move within the company structure
3. Conduct employee orientation programs to keep staff updated about the organization’s progression. 
4. Use career frameworks to define employee duties and expectations
5. Have a one-on-one discussion with employees about the chosen training areas. There should be a buy-in of employee and manager perspectives for a meaningful training experience 
6. Follow the 70-20-10 model for development plans: The training should include 70% on-the-job learning, 20% formal learning, and 10% learning through feedback 

5. Test and evaluate progress

Create a training matrix before training commences to know the current qualifications for each employee and the status of the qualification. That is if employees have met them or not. 

Share your matrix model with everyone in the organization to keep them updated. After training, use mock tests to evaluate how much they’ve learned from the experience. 

Set budget rules to define what happens when employees don’t use their budgets. For example, if an employee should go on a break, they have to train the next employee who will cover for them.

If you’re working with a small budget, use less expensive training methods like peer mentoring, where a colleague trains a less experienced staff, as we’ll see in the next section.

6. Leverage in-house expertise

One of the most cost-effective ways to maximize your training budget is by utilizing the knowledge already within your organization. Senior staff and subject matter experts can share their experiences through peer-to-peer learning, internal coaching programs, and on-the-job training. This not only reduces external training costs but also fosters collaboration and a learning culture. Additionally, creating an internal knowledge hub with resources like videos, presentations, and guides can keep learning accessible without ongoing expenses.

Best practices for managing training budgets in your organization

Create a flexible budget

Building flexibility into your training budget is essential for accommodating unexpected needs or taking advantage of new opportunities as they arise. This could include last-minute training requests, new technologies that require upskilling, or unforeseen challenges that demand immediate attention.

To keep your budget adaptable:

1. Set aside a portion of your training budget as a contingency fund for unplanned expenses.
2. Regularly evaluate the impact of existing training programs and reallocate resources to more effective ones.
3. Be prepared to prioritize urgent training needs that arise throughout the year, adjusting the budget as priorities shift.

Flexibility ensures that you can respond quickly to changes in your business environment, maximizing the effectiveness of your training investments.

Gain buy-in from management

Securing approval for your training budget requires demonstrating its value and long-term benefits to senior leadership. To do this:

1. Present a clear breakdown of the expected return on investment (ROI) from training programs, such as improved employee performance, reduced turnover, and better customer satisfaction
2. Align your training budget with broader organizational goals, showing how it supports key business objectives like talent retention and innovation
3. Share success stories, case studies, or data-driven results from past training initiatives to build a compelling case for continued or increased investment

By framing your training budget as a tool for driving company-wide success, you can gain the support of top management and ensure sustainable funding.

Continuously review and adjust

A well-managed training budget is never static. Regular reviews and adjustments are necessary to ensure the budget remains aligned with both immediate needs and long-term goals. Establish a process for evaluating the effectiveness of training programs and reallocating resources where needed.

Here’s a simple checklist for ongoing budget management:

• Monthly reviews: Track spending against the allocated budget to ensure you’re staying on target
• Quarterly assessments: Review the outcomes of key training programs and evaluate whether they’re delivering the expected ROI
• Annual adjustments: Based on performance data and changing business priorities, adjust the overall training budget for the upcoming year

If you continuously monitor and adjust the budget, you ensure it stays relevant and effective, allowing your organization to adapt to evolving needs while maximizing the value of every dollar spent.

How to train people on a small budget

Sometimes, you find yourself under the constraints of a tight budget. Unfortunately, this means you can’t give your people the appropriate funds to start their training. But it’s also an opportunity to get creative.

You don’t have to break the bank to give employees practical training. Instead, start by compromising and substituting expensive training costs with cheaper alternatives.

1. ‍Invest in virtual training. Employees don’t always have to be physically present. They can video call managers and coaches from the comfort of their couches, eliminating travel and accommodation costs. For example, Amazon offers virtual training for remote workers. The company provides a laptop with all the IT assets workers need for the process
2. Search for platforms that offer free courses, such as Coursera, GoSkills, and OpenLearn 
3. Get employee training grants, such as the Canada Job Grant (CJG) and the U.S. Department of Labor skills training grants. You can also partner with other organizations or companies that offer training and development programs
4. Encourage cross-training. Teach one employee to teach the rest. For example, employees can have lunch-and-learn meetings every month. During this time, they can trade skills and knowledge.
5. Opt for buying reusable resources. For example, videos, audio files, and PowerPoint slides

Run global training programs with Deel Engage

Deel Engage is the perfect solution for organizations looking to streamline their training budget and get the most out of every dollar spent. Our training module simplifies the management of training resources and helps you maximize the return on investment by aligning training programs with business goals.

Deel Engage empowers your teams by offering flexible, cost-effective training solutions that adapt to their roles, locations, and learning styles.

Take your training budget to the next level with:

1. AI-powered training that personalizes content to fit individual learning preferences and maximizes engagement
2. Microlearning modules that provide bite-sized, digestible content that allows your teams to learn on their own schedules
3. Comprehensive performance management tools to measure the impact of your training efforts and ensure ongoing development
4. Career development frameworks that clearly map out growth opportunities, motivating your people to continue learning and contributing to your organization’s success

Additionally, Deel HR, our truly global HRIS solution, is always included for free.

Request a demo to see how Deel Engage can help you make smarter training budget decisions while developing a high-performance workforce.