4 Ways to Budget for Your L&D Program in 2024

Learning and development (L&D) is imperative for employee and organizational success. L&D is pivotal in enhancing employee skills, driving organizational growth, and staying competitive. 

However, an effective L&D program requires adequate resources and a sufficient budget, which isn’t always easy to acquire.  

Read on to dive into key questions such as how to budget, the importance of having an L&D budget, and the evolving emphasis on L&D in organizations in 2024 and beyond.

Common approaches to budgeting for L&D

There are several common ways to budget for learning and development programs, and companies may use one or more of these approaches as they plan their employee training programs. 

1. Percentage of payroll

Setting an L&D budget as a percentage of payroll is a popular approach due to its simplicity.

Many organizations choose a percentage between 1 and 5 percent multiplied by their total payroll to determine their employee development spending. 

For example, an organization with a $500 million payroll would budget between $5 million and $25 million toward L&D. This budget could be allocated toward learning opportunities for all employees or more focused on specific groups, like high-potential leaders.

Alternatively, organizations may set individual training budgets based on each employee’s salary. For example, an entry-level employee earning $35,000 per year may have an individual training budget of $350-1,750, while a director earning $100,000 per year could have a $1,000-5,000 budget.

Read more: 5 Reasons to Increase Your L&D Budget

2. Industry benchmarking

Many L&D teams look to other organizations for benchmark figures to guide their budget. This approach can help you build a competitive L&D program with adequate resources.

The average training budget in 2023 was:

• $16.1 million at large companies, for an average of $481 per employee
• $1.5 million at midsize companies, for an average of $751 per employee
• $459,177 at small companies, for an average of $1,420 per employee

Budgets vary widely by industry. For example, education has an average L&D budget of $1.2 million, while manufacturing allocated $5.4 million.

Keep in mind that these are averages. Some companies will allocate more spend toward L&D and others will spend less. Let your organizational values and company goals guide you. For example, an organization aiming to create a learning culture may invest much more in employee development than their competitors.

Read more: Why People Teams are Going All in on L&D

3. Optimize previous budgets

Companies that have invested in employee development can assess their previous L&D spending to inform their 2024 budget. This approach involves a retrospective analysis of what worked well, areas that need improvement, and adjustments based on evolving organizational needs. 

Evaluate the effectiveness of past L&D initiatives by considering factors such as employee feedback, performance metrics, and the achievement of learning objectives. Identify the programs that delivered a high return on investment, those that need refinement, and those that should be replaced with more effective initiatives.

Read more: 6 Proven Methods to Measure the Impact of Your Training

You should also meet with company leaders to learn about organizational goals. Discuss the core opportunities and challenges your organization is focused on and plan to address them through your employee development program. 

Heather Cassar, Former Head of HR and Talent Development at Cash App shares, “Budgeting for L&D starts with a deep understanding of what you’re trying to accomplish and why. We often make the mistake of solving for logistics, like the timing of a program or tooling that might need to be changed, instead of the problem itself. A deep understanding of that root problem opens up a path to identify and ask for what you need instead of trying to pitch a case for more headcount or funding that doesn’t actually support the business’s needs.”

Read more: Align L&D With Business Strategy: Maximize Organizational Performance

4. Objective-based budgeting 

The most strategic way to set your budget is to look at your organization’s priorities, develop training programs around them, and determine how much it will cost to accomplish them. 

This includes internal headcount, external consultants, technology, off-the-shelf and custom content, travel, and facilities.

Top L&D program areas for 2023 were:

• Mentorships
• DEI
• Upskilling and reskilling
• Employee well-being
• Career development programs
• Leading through change
• Digital fluency transformation
• Compliance
• Hybrid or flexible work
• Internal mobility program

As an L&D professional, knowing what business problem you’re addressing with your program and the expected ROI is crucial. Clearly defining the expected positive outcomes for the business and the stakeholders is a must when seeking additional budget. You certainly wouldn’t go to the grocery store, hand them money, and leave with nothing! Similarly, budget owners want to understand what they are going to see as an end result.”

 

–Meredith Fish, WorkRamp’s VP of People & Culture

Sync with internal stakeholders, including company leaders and employees, to prioritize your organization’s learning goals and set a budget to help you accomplish them.

The benefits of budgeting for L&D

Budgeting can feel daunting, but it’s well worth the effort for the tangible benefits L&D can bring to your employees and your organization.

Demonstrate your organization’s commitment to learning

Career development is important to employees: 83 percent of employees report that improving their skills is one of their top priorities. Budgeting for L&D demonstrates that your organization shares that priority.

Dr. Kristal Walker, Senior Vice President of Human Resources at Sweetwater, shares, “A budget implies significance. Anything that is well-resourced is better positioned to succeed. When L&D initiatives are funded, it implies the learning is important enough to include appropriate resources.”

Prioritize learning goals

There are many opportunities for your team members to learn, but implementing too many programs at once will stretch your resources thin and negatively impact your results. An employee development budget encourages your team to focus on top priorities.

“An L&D budget creates boundaries, Kristal says. “While L&D leaders tend to want to take on everything, a budget helps create boundaries around what work should be completed at one time. For example, a company might do an annual company-wide compliance training. A budget will provide focus on that training as the priority for one year. The following year, this company might allocate budget to enhance the onboarding experience for new hires. Prioritizing L&D initiatives impacts budgets while budgeting appropriately can also create healthy boundaries to prevent L&D fatigue.”

Consider your return on investment

Prioritizing your learning goals through budgeting helps you focus on the most impactful programs that contribute to business success. For example, improving employee efficiency and productivity can increase revenue, while reducing voluntary turnover can improve your organization’s net income.

“The most important metric for HR and people teams is the P&L of a company,” Heather says. “Our programs should be based on the needs of the business and in service of our company’s employees. The P&L has a huge influence on that: Where are we winning? Where are we falling short? After you understand that, you can start to build your programs and identify what kind of budget is necessary.”

Adapting to the shifting L&D landscape

The world of work continues to see rapid change—and the L&D function will need to adapt to keep pace with business needs.

Changing job roles

Skillsets for jobs have changed by about 25 percent since 2015; this number is expected to double by 2027. 

Employee development will be important in addressing these current and anticipated skills gaps. Allocating adequate budget towards L&D will allow organizations to provide targeted training that helps their workforce remain competitive and adaptable.

Rapid growth

Many organizations have experienced rapid growth in recent years, but L&D budgets may not have kept pace. Only about half of organizations (56 percent) said their budgets have either rebounded (21 percent) from pre-pandemic levels or increased (35 percent) in 2023. 

Heather shares, “I believe L&D programs will become even more significant in 2024 to help manage the scale of growth over the last 3 to 4 years.” 

Competitive talent market

Three in four employers (75 percent) report difficulty in filling roles. Skilled talent is hard to find, and many organizations are prioritizing initiatives to attract and retain talent—including L&D.

Modern workers want opportunities for professional development and career advancement. L&D teams that address these priorities can stand out in a competitive talent market.

Economic uncertainty

Around one in 10 companies (11 percent) decreased their L&D budget in 2023 with most (91 percent) citing economic uncertainty as the reason.

Heather points out, “L&D teams now have the herculean task of proving the value of the function and how they can serve their business, all with smaller budgets.” Many L&D teams will need to become more strategic around how they spend their budget.

Hybrid work

The rapid adoption of remote and hybrid work produced significant changes to the world of work—and L&D teams are still adapting.

Kristal explains, “Many organizations are seeking new ways to incorporate healthy culture into hybrid and flexible work schedules. As such, L&D priorities shift based on both societal factors and the needs of the business.”

For example, many L&D teams are expanding their focus beyond hard skills development to include workplace wellness initiatives and DEI programming.

Read more: Why Remote Companies Have a Competitive Advantage with Tony Jamous, Oyster

Should organizations be budgeting more towards L&D than in the past?

Learning and development budgets vary by organization; only your team can determine whether you should be budgeting more.

Kristal shares, “Whether or not an organization chooses to budget more or less toward L&D initiatives is not as important as having a budget in general. The amount included in the budget should align with the goals of the training organization and the business at large.”

Make your L&D budget go further with the Learning Cloud

Put your L&D budget to good use and create engaging, effective employee development programs with the Learning Cloud.

Discover how the Learning Cloud can help you reach your employee training goals. Contact us to schedule a free, personalized demo.