Investing in your employees is synonymous with strengthening your organization’s fundaments, as your staff drives your company’s success. However, to ensure that they perform up to your standards, they must first have access to relevant knowledge, meaning they must be adequately trained. Although employee training comes at a cost, retaining talent and remaining competitive is essential. 

According to Forbes, professional or career growth and development opportunities are crucial to 87% of millennial employees; still, only 39% have confirmed learning something new within the last month. When you neglect to train your employees, they are likely to leave. Based on the U.S. Bureau of Labor statistics, churn has increased yearly for the past decade, costing companies $1 trillion annually.

What makes up for the cost of employee training?

Organizations spend substantial amounts per employee on training and development initiatives. We can discuss average sums, though it’s worth remembering that the actual cost of training a new employee varies depending on factors such as:

Company size

The size of your company has a significant impact on training costs. The larger the company, the cheaper it is to train an employee. In contrast, when it comes to smaller companies, the training cost is higher, and training, as such, is more disruptive to operations when fewer people are there. Therefore, small businesses would definitely benefit from access to economies of scale. Unfortunately, underinvesting in training is a discernible trend among smaller companies. For example, in Europe, small businesses with 10-19 employees spend only 1.5% of labor costs on training, compared to an average of 2.3%. The situation is similar in North America, where companies with 500+ employees experience twice the participation rate in training sessions compared to companies employing fewer than 20 workers.

Employee skill set

The training an employee needs mostly depends on their current knowledge and skill set, which certainly varies from person to person. In addition, some people learn faster than others, so even if a group of employees represents similar skills and knowledge levels at the start, they may soon find themselves at different levels of expertise. As a result, upskilling people to the same level may happen at different times and cost differently. Individuals with a slower learning pace or a more significant skill gap to bridge will require a greater investment of time, resulting in higher costs.

Types of Training

Different types of training involve various associated costs. For example, suppose your company primarily provides traditional in-person classroom-style training. In that case, an external training provider delivers the training, and the cost of the instructor hired to upskill employees is included in the labor cost. Additionally, employees may need to travel to receive training, leading to further expenses. Due to various factors, such as COVID-19, limited scalability of courses, and poor knowledge retention, companies are moving away from instructor-led training. On-the-job training is another option where individuals learn while working, either through direct supervision or observing others. Suppose you train your employees using learning technologies such as digital training platforms, remote training tools, and Learning Management Systems (LMS). In that case, the costs are significantly lower as you don’t need an instructor for several hours or require multiple people to be in one location at a specific time. There are various training programs and techniques that can be used to help onboard new hires, such as:

  • Instructor-led training: This method is expensive but can be highly effective as new employees work with an expert.
  • Self-paced online learning: A more affordable alternative to instructor-led training is self-paced online learning that simultaneously uses interactive videos, activities, and tests to deliver information to multiple employees.
  • Coaching or mentoring: One-on-one coaching from a mentor is similar to instructor-led training. However, it also provides the added benefit of allowing the new employee to build a professional relationship with their supervisor or mentor.
  • Hands-on learning: For technical roles involving complex equipment, hands-on training may help guide new employees as they learn to use the tools.
  • In-person group training: Although not as personal as one-on-one training, in-person group training still offers benefits such as team collaboration practice and is a relatively inexpensive onboarding method.
  • External courses: Some employers may send new employees to formal external courses for initial training, which can be cost-efficient as it requires minimal time and resources to conduct in-house training.
  • Online courses integrated by LMS: A learning platform is a great way to organize, store and share your company learning materials with new hires and employees on their development path. It’s also an efficient tool for automating learning processes. 
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Watch out for Hidden Costs

Besides the visible upfront costs, you should also consider hidden costs associated with employee training. These costs include the time of the manager/supervisor and employee, the cost of supplies (food, printing), transportation/travel time, and other administrative expenses. Also, the time spent on training can be considered a hidden cost. Loss in employee productivity has its price, as the time spent on training cannot be used for work. The loss of productivity is connected with the number of people involved in the training and the time it takes. If the training involves more than one employee’s time, the cost multiplies as the participants devote their time to training instead of working. For instance, if a manager generating $10,000 a week has to devote two weeks to training a new hire, it can account for a substantial percentage of the company’s annual target.

Ways to make employee training more cost-effective

Rather than considering training as a cost, it is best to see it as an investment with a clear ROI expectation set at the beginning. This way, it’s known that the benefit of the return outweighs the initial investment.

  • Employees are assets, getting more valuable with time. Hence, investing in upskilling your current employees seems more cost-effective in the long run than sourcing new ones. In addition, anything that improves employees’ knowledge and skills empowers them to add more value to your business. According to Huffpost: “Companies offering comprehensive training deliver 218% higher income per employee and a 24% higher profit margin”. 
  • Retaining current employees can be less expensive than hiring and training new ones. In addition, creating a positive work environment and promoting job satisfaction makes employees more likely to stay with the company, reducing the need for extensive retraining. 
  • Hiring employees with the necessary skills for a job can minimize training costs. For example, someone with experience in a particular field may only require a brief period of on-the-job training compared to someone with little or no experience. 
  • Making required forms available online allows employees to complete them before their start date, freeing up time for on-the-job training. Hence, digitalizing onboarding paperwork will also contribute to cutting costs. 
  • Another way is to identify areas for improvement early on through performance reviews. It can help prevent long-term performance issues and lead to more targeted and effective training. Developing specific goals and metrics based on performance reviews can also guide future training courses.

The actual cost of employee development

Considering all discussed factors and variables, it’s easier to comprehend the subject’s complexity and, at the same time, estimate the expected training cost for a given working position. What’s also worth highlighting, training should be reframed as an investment instead of an expense. While employees are the immediate beneficiaries of the development courses, it’s a long-term investment that will pay off with time. To receive a return on investment, you must invest first, and in terms of training, what you invest will be returned tenfold.