How to Build an L&D Budget and Survive to Tell the Tale

A learning and development (L&D) strategy is critical to the success of any organization. If your employees aren’t learning, they are not growing.

The right employee training strategy can mean the difference between success and failure when it comes to meeting your business goals. However, effective training comes at a cost. It is vital to set aside a reasonable amount for training to ensure employees continue learning whilst ensuring you stick to a budget.

But how do you arrive at this number? Most importantly, how do you create an L&D budget that will get approved? In this article, we’ll answer these questions and guide you through the steps to creating a winning L&D budget.

What Should Your Learning and Development (L&D) Budget Include?

Your L&D budget should outline all the costs related to courses, materials, and training plans for your organization’s workforce.

It’s simply a roadmap for how the training funds will be allocated throughout the year. This ensures you get the maximum training ROI and don’t overspend on fancy lunches or dinners while providing the best training materials.

How Much Should You Spend on L&D Programs?

The amount to spend on training varies from company to company and depends on the size of the organization and its workforce.

The average L&D budget varies based on many factors, including:

• Organization’s goals
• Revenue and expenditure projections
• Performance indicators

But on average, 1 to 5% of the company’s annual salary budget is considered the standard for employee training. It’s important to start by assessing your organization’s training needs before creating a budget for learning and development.

Learning and Development Budget Considerations

There are several considerations to make before preparing your organization’s L&D budget. Before contemplating how much you’ll need for training, consider the following.

• The current situation in your business (cash deficits, priorities, strategic directions) and the desired outcome (where you want the business to be in 1, 3, or 5 years)
• Who will the budget affect?
• What needs to be included?
• What training platforms to use?
• What’s the process for the budget sign-off?
• The budget’s impact on the organization’s goals and growth (expected ROI, improved productivity, etc.)

Nailing it right from the word go, considering all these factors, will increase your chances of getting the budget approved. Note that the executives might ask these questions, and your inability to provide concrete answers will warrant a rejection.

How to Build an L&D Budget

Without further ado, here are the steps to building a winning training budget.

Step 1: Conduct Training Needs Assessment

Conducting a training needs assessment is a critical first step in creating an L&D budget, as it can help improve the predictability of your trainees’ development in the future. It can also help identify opportunities for improvement in your company by revealing any gaps in skills.

Step 2: Build a Winning Strategy

Before you prepare your budget, you’ll need to define the micro and macro objectives within your learning strategy.

Experts recommend putting together a document that defines key deliverables, expected return on investment, and short-term and long-term goals. This draft should clearly indicate how the training program will pay for itself over time through ROI.

Step 3: Leverage Data

Research is a huge part of the L&D budget creation process.

First, you’ll want to understand what’s happening in your industry and where other organizations are allocating their funds. This can easily be done with a simple Google search.

Next, you’ll want to look at what your internal numbers look like. Do you have enough funds to allocate to the training budget? What areas of your business need funds the most? Where did you fall short of your target before due to financial bottlenecks?

For each of your training items/programs, ask yourself how much of a direct impact it will have on the team’s performance and bottom line. If you can identify training programs that will greatly impact your bottom line and employee development, zero in on them.

Step 4: Set a Budget for the L&D program

There are many approaches you could use to determine how much you’ll need for employee training. The commonly used approach is to set a budget based on the total employee salaries. Experts suggest your training budget be anywhere between 2 – 5% of your total salary budget.

Step 5: Choose Your Learning Delivery Platform

The learning delivery method/platform you choose will greatly impact the training cost. So, you’ll want to choose wisely. You can choose to run in class, opt for Instructor Led Training, or provide an e-learning course that will allow employees to run at their own pace.

An employee training survey can be of great help here. Choose a learning delivery method that aligns with your employee preferences and skill level.

Step 6: Optimize for Results

Your training budget must deliver measurable results.

There are many KPIs and performance metrics you could use to measure success—employee satisfaction scores, cost per learning hour, sales growth, etc.

If you can have clear metrics at hand that can be used to measure your success, you’ll be able to justify the numbers and increase your chances of getting it approved.

Step 4: Be Prepared to Present Your Case

No matter how impactful and well-articulated your L&D budget plan is, it’s the senior executives that will have the final say. They can give you the green light to proceed or reject it if they deem it not relevant or impactful enough to steer the company forward.

For this reason, you’ll need to be prepared to argue your case.

Stakeholder will want to know how you came up with each item in the plan and how it will impact employee development and productivity. This means you’ll need to justify your request and provide data to back up your findings.

If you can’t justify why you need that budget number for training, you’ll be fighting an uphill battle that you’ll likely lose.

Pro Tip: Focus on explaining the expected return on investment from training, so stakeholders feel confident in approving the budget.

Wrapping Up

Any business looking to improve the skill of its employees needs to develop a training budget that will cover all the training costs. These are some of the steps you can follow to create an L&D budget that will get approved.

We hope this L&D budget guide will help you create and allocate a training budget that suits your needs. Feel free to comment and share!