January 16, 5:21 am
How to save money by increasing your training budget
What’s that? Increase my training budget and save money? You heard correctly.
Most companies under-training their employees suffer from higher turnover. The costs of replacing those people far outweigh the costs of improving their training. It’s really that simple.
But, let’s consider the facts (this data is actively demonstrated in a short video clip, but is also reproduced here):
1. In companies where training is considered good, about 12 percent of the employees are thinking of leaving.
2. In companies where training is considered poor (or non-existent), about 41 percent of the employees are thinking of leaving.
3. The average cost of replacing a person making more than $60,000 per year is $38,000. The average cost across the board is $17,000. The lowest amount I ever saw a company pay to replace an employee was $2,000.
Now do the math using very simplified examples:
a. If I have ten employees and good training, on average, one person will leave (about 12 percent).
b. If I have ten employees and poor or non-existent training, on average, four people will leave (41 percent).
c. The net difference is three employees.
Now let’s count the cost of losing those three employees due to poor or non-existent training. If those three are part-time entry-level workers (the absolute cheapest employees to replace) it looks like this:
3 x $2,000 = $6,000
If those three are “average” employees, the math looks like this:
3 x $17,000 = $51,000
If those three are salaried employees making more than $60,000, the math looks like this:
3 x $38,000 = $114,000
So, take a look at your training budget. If you invested more in training so your offerings weren’t considered poor or non-existent, you would retain more people.
And, you would save on all those hidden costs that eat up your profits when you have to replace someone. Again, view the videoclip for yourself. Pretty astounding info.
By they way, you’d also get more productivity from your employees, because they were trained better.
Filed in Work, Training, Motivation, Team Building, Workplace, Retention
Dan,
Terrific argument for the value of training. I hope this gets wide distribution. It’s an especially important point to make during these difficult times.
Mihcael
Excellent post on seeing training and development as investments rather than costs, Dan!
I especially like the video component of you blog - very nice!
I’ve featured your post in my weekly Rainmaker ‘Fab Five’ blog picks of the week (found here: Great set of posts Peggy! While most will agree that feedback is critical, many forget that how one receives feedback is just as important as how one gives feedback.
This is great info for any up and coming manager!
I’ve shared your post with my readers in my weekly Rainmaker ‘Fab Five’ blog picks of the week (which can be found here: http://www.maximizepossibility.com/employee_retention/2009/01/the-rainmaker-fab-five-blog-picks-of-the-week.html) so that they might reinforce the distinction of training as an investment and not a cost!
Be well Dan!
Agree 100% with your argument here about the value of training and importance of retention. Can you share with us the source of your average $17,000 cost for replacing an employee? Or any recent research on the same subject? I would love to discuss these ideas more widely, but it would be good to have sources to quote for the $ numbers.
Hello Dan!
Talking about “getting more productivity from your employees, because they were trained better”, you got my big “YES” on this statement because Ive been employed on a company where the employers are not trained well and it will cause more on budget since the finish product are not good and more accidents occur because they were not aware on the area.
Mind if I am going to repost your math calculation on how to save money by increasing your training budget?
-Jake