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Training

What is the average cost of training a new employee?

Isidora Markovic
Isidora Markovic

Employees are the backbone of your organization. Without them, there would be no one to drive your company’s success. But in order to perform to the standard you require of them, they first need access to relevant knowledge. In other words, they need to be trained.

There’s no shying away from the fact that employee training comes at a cost, but it is a necessary one in order for you to retain talent and stay competitive. 

87% of millennial employees  rate “professional or career growth and development opportunities” as important to them in a job. Despite this only 39% report learning something new in the last 30 days.

When you fail to train employees, they have no qualms walking away. The U.S. Bureau of Labor shows that churn has risen year-on-year for the last decade. And this is costing companies a collective $1 trillion annually.

If training mitigates churn then...

How much does it cost to train an employee?

According to the Association for Talent Development, organizations spend an average of $1,252 per employee on training and development initiatives.

Though this figure is a useful starting point to help give an insight into potential spend on employee training, it’s just an average. The amount you will actually spend training a new employee will vary depending on factors such as...

1. Company size

One factor influencing training cost is the size of your company. The larger the company, the lower the cost of training per employee. The smaller the company, the higher the cost - when there are fewer people, training is more disruptive to operations. Small businesses also lack access to economies of scale. 

Smaller businesses underinvesting in training is a discernible worldwide trend. In Europe, companies with 10-19 employees spent only 1.5% of labour costs on training, in contrast to the average of 2.3%. Just one-third of small firms in Australia provide structured employee training versus 70% at medium businesses and 98% at large enterprises. 

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And in North America the situation is no different - companies with 500+ employees have double the participation rate in formalized training than companies with fewer than 20 workers. 

But it’s also cultural - “one-half of small firms perceive no need for further training of their workforce”.

2. Employee’s skill set

The amount of training an individual needs is entirely dependent on their existing knowledge and skill set which will inevitably vary from employee to employee.  

Even if two employees start at the same knowledge level and with a similar set of skills, some people are faster learners than others. Upskilling two people to the same level can therefore cost different amounts. 

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Those who learn slower or have a greater skills gap to bridge in the first instance will require more of a time investment, which translates to greater cost. 

3. Type of training

Different training types have different associated costs.

Do you primarily train your employees using traditional in-person classroom-style training? If so, an external training provider delivers learning. This involves a labour cost - the cost of the instructor who you are paying to upskill employees. Your employees may also have to travel to a center to receive their training.

For these reasons, and others - like Covid-19, the inability to scale training and poor knowledge retention, companies need to veer away from instructor-led training. 

Or, do you primarily train your employees using on-the-job training? This type of training is where people learn while they work, either by observing others or completing tasks firsthand while supervised.

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Maybe you employ neither of the above, and choose to train your employees using learning technologies. These include online training platforms, remote training tools  like eduMe  and Learning Management Systems (LMS).

With technology-based training, the costs are considerably lower as you don’t pay for an instructor for several hours, or require a handful of people to be present in a certain location, at a certain time. 

4. Productivity loss incurred

By default, any time spent training is a loss in employee productivity - time spent training cannot also be spent working. Just how much productivity is lost boils down to two things - how many people are involved in the training, and how long the training takes. 

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Does the training involve another employee’s time? If so - that is double the cost, as two individuals are devoting time to training as opposed to working.

For example, if a manager responsible for earning your company $10,000 a week has to dedicate two weeks to training a new hire, which can weigh up to 4% of their annual target.  

Watch out for hidden costs

Beyond the upfront costs that are visible and therefore easier to factor into your calculations, there are also hidden costs associated with employee training. These include things like:

  • The manager/supervisor and employee’s time 

  • The cost of supplies (food, printing)

  • Transportation/travel time

  • Other administrative costs

Calculating training cost per employee

When you factor in all possible training associated costs - visible and hidden - you will be able to calculate how much training will cost your company. The only other piece of information you need is the number of employees.

Follow this formula to calculate a sum specific to your company:

Total costs / number of employees = per employee training cost

So if your total combined costs (productivity loss, hiring an instructor for face-to-face training, etc) are $200,000 and you have 200 employees, your average training cost would be $1000 ($200,000/200) per employee. 

Training reframed

“Training should be regarded as an investment rather than a cost – there should be a clear ROI expectation set at the start, so [it’s] known the benefit of the return outweighs the initial investment” - Shaun Thomson, CEO, Sandler Training

Employees are an appreciating asset - they become more valuable with time. This is why it’s smarter (and more cost effective) to invest in upskilling existing talent than sourcing new talent. 

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Anything that improves employees’ knowledge and skills will empower them to keep adding value to your business and drive your bottom line. Companies that offer comprehensive training have 218% higher income per employee and enjoy a 24% higher profit margin.  

So instead of viewing training as a cost, it should be reframed as an investment. The immediate beneficiaries of training are employees, but long-term it’s an investment in your company’s success.

The employee-employer relationship is symbiotic - your success is a reflection of theirs. You can only expect to receive a return if you invest. And when it comes to training, what you invest is returned tenfold. 

Are you ready to invest in your company’s future?

Make sure you consider what the right solution for you is. With face-to-face training (F2F) no longer being viable on account of the cost and inability to scale, look to remote training solutions that are designed to maximize impact and minimize time spent training.

With eduMe, you can roll out engaging microlearning modules to anyone, anywhere, in a fraction of the time conventional training takes to create and complete. Engagement lies at the heart of impactful training, and impactful training lies at the heart of employee retention. 

eduMe’s user-friendly design, familiar swiping feature, bite-sized learning format and more were all strategically crafted with this in mind, to improve productivity, motivation and loyalty among freelancers, clients, employees and contractors at modern companies.

Get in touch with us today to start your journey to Workforce Success 👇 

 

 

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