How Much Does it Really Cost to Train a New Employee?

We’ve heard the numbers before: The average company spends around $1,208 per employee per year on training costs. But that statistics can be misleading, especially when company size and industry come into play. The truth is that the costs to truly train an employee vary widely–and in some cases, may be much more than necessary. Since employee training is only as effective as its content and delivery method, the true cost of ineffective training might be much, much more.

Employee Training Costs by the Numbers

The amount spent on training per employee depends on the size of the company, with smaller companies spending the most, but training employees for fewer hours. According to a 2014 “State of the Industry” report by the Association for Talent Development, companies with less than 500 employees spent around $1,888 per employee on training, but it only translated to 27 (or fewer) hours. Mid-size companies (500 to 9,999 employees) spent $838 per employee, but trained about the same amount of time. Interestingly enough, large companies of 10,000+ employees spent the least per employee but trained 36 hours.

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The industry obviously affects the number of employees and the amount of training. Manufacturing industries, for example, traditionally have the most employees and require more technical empoyee training. These companies spent, on average, $535 per employee, training 27 hours per year. Healthcare and pharmaceutical industries spend more ($1,392 per employee) but train less: 24 hours each year. Finance, insurance, and real estate industries fall somewhere in the middle of the pack, spending $1,107 per employee and training 33 hours per year.

The Forgetting Curve

The numbers look promising, but the problem isn’t in the spend, but the retention. In the 1885 book Memory: A Contribution to Experimental Psychology, famed German psychologist Herman Ebbinghaus found that memory decreases at a rapid rate following instruction. After 20 minutes, subjects had forgotten 42 percent of what they had learned. After 24 hours, they’d forgotten 67 percent. After a month had passed, the subjects had retained a measly 21 percent of what they’d learned during instruction.

Contrast that with the amount spent on traditional training. If learners only retain 20 percent of what they learn, companies could be getting only $241 of learning out of every $1,208 they spend. It’s not the actual cost of employee training, but the true investment made into learning, talent management, and skill building that matters.

In short, smarter employee training costs less money and wastes less time. The majority of staff training doesn’t need to be broad and abstract; learners just need to know exactly what to do so they can put training into practice and do their jobs effectively. Relevancy, speed, and efficiency can stretch training dollars to ensure that companies don’t spend more than they need to. Perhaps it’s not a matter of spending more on employee training, but making sure that every dollar counts toward creating talented, skilled employees who can act–starting now.