How to Calculate and Reduce the Cost of Training New Employees?

In the world of hiring new talent, making a positive first impression on an employee and ensuring a hire feels comfortable at the company is highly important. That’s why employee onboarding now has a huge impact on talent’s motivation and productivity.

According to statistics, 69% of hires choose to work with the company long-term if they got satisfaction from an efficient onboarding experience. Similarly, lousy onboarding makes new employees twice more likely to quit the job in the nearest future.

Since human resources professionals and business owners want to do onboarding and acquisition right, the cost of training sessions and technology is another challenge they have to deal with. In this post, we will take a look at the cost of onboarding new employees and how you can trim the expenses without missing out on talent education.

• Transparent and Hidden Costs of Onboarding New Employees
• Ways to Calculate Average Employee Training Cost?
• How to Manage Onboard Costs Effectively?
• Techexactly Onboarding Solution
• Conclusion

Transparent and Hidden Costs of Onboarding New Employees

Although some employee training expenses are straightforward and easy to plan for, others are hard to notice until you are in the middle of the education process. To improve the precision of estimating talent onboarding, business owners have to take both hidden and transparent expenses into account.

If you look for an answer to the “How much does it cost to train an employee?” question, here are some estimates.

1. Training content

To make sure an employee has all-time access to the company’s best practices, knows how to handle assignments, and will not make costly mistakes, business owners have to create documents a team can use for reference and education — training courses, guides, and manuals.

Even if a business owner has in-house content and design professionals, redirecting the team’s efforts to designing onboarding materials instead of working on revenue-driving projects reduces the business’s prospective income.

Purchasing third-party learning content is another way to educate newcomers — while it is generally cheaper than creating custom manuals, company managers have to factor these expenses in when creating the onboarding budget.

2. Office tools for new employees

For every employee that fits the company culture, a set of office supplies is necessary. To make new hires feel like they belong, business owners need to provide them with a comfortable desk and access to standard office equipment.

Here’s what employees typically expect to have at the office:

• A personal laptop
• A personal tablet (optional)
• A desk and a chair
• Coffee and snacks
• Trash bins
• A shelf or a cabinet
• General office supplies (pens, pencils, etc.)

Providing every employee with essential office equipment is a considerable expense that managers need to take into account — on average, business owners spend up to $100 per employee per month on office supplies.

3. Onboarding technology

Other than creating learning content, talent managers and business owners need to come up with efficient ways to relay new concepts to the team. There are several ways to improve the efficiency of employee onboarding:

• Physical classroom training — you will need to have enough room for new hires to learn comfortably, invest in additional equipment (a whiteboard, markers, etc). 
• Remote classroom training. Business owners can invest in a real-time video conference tool to run onboarding sessions. 
• Hosting courses on third-party learning systems. This way, company managers can repurpose learning content and speed the training process up — however, you need to plan the onboarding budget with LMS fees in mind. 
• Using custom learning management systems. Although developing these tools is more expensive, after years of training, the investment will turn out to be cheaper than paying monthly subscription fees. The flexibility of custom learning tools is another reason why they are superior to an off-the-shelf solution.

When it comes to affording technology, the average training cost per employee is $315.

4. Time managers and HRs spend to train new hires

To offer excellent employee onboarding, your entire team should be engaged in educating, welcoming, and showing newcomers around. According to statistics, an average company manager spends up to 14 hours a week assisting in employee onboarding.

During onboarding sessions, the productivity of the company’s senior teammates is not at its peak either since they are busy mentoring newcomer peers.

As a result, during the onboarding process, an average business owner loses $1,296 per employee due to fluctuating team productivity.

5. Employees leaving the company prematurely

Company staffing is a long-term investment — business owners believe that it will pay off once the employee has worked at the company for several years. However, according to statistics, most hires you are onboarding right now will not make it past the 12-month benchmark.

Studies show that 16.4% of hires quit one week after being hired, 17.4% of the respondents quit after a month of working, yet another 65.12% quit after 2-6 months of work.

There are various reasons for premature employee turnover — these are the most common ones:

• Lack of employee training
• The job description didn’t match the workflow
• Managers were rude
• Changed my mind about the type of work I want to pursue
• Wasn’t fun

Since business owners can’t fully protect the company from premature employee turnover, planning for this hidden expense is the next best thing to do.

On average, the cost of replacing an employee who left the company is $3,328.

Ways to Calculate Average Employee Training Cost

Understanding the costs (both hidden and transparent) of employee onboarding helps business owners plan yearly onboarding budgets precisely. However, this is not the only way to approximate the cost of training new employees for your business.

Even if you haven’t run talent onboarding before, there are some formulas that help business owners allocate enough funding (taking the company’s revenue and scale into account) on talent education. Let’s take a look at the two most popular ways to answer the “How much does it cost to train a new employee?” question. 

Strategy #1. Using the company’s revenue as a baseline

When it comes to the employee training budget, the rule of thumb is that it shouldn’t exceed 5% of the company’s total yearly revenue. Thus, in order to set a budget for talent onboarding, a business owner needs to find 1-5% (depending on how much you are willing to invest in the team) of the business’ projected income for the next year.

Employee training budget = Estimated yearly revenue1-5%

For example, if your business makes $300,000 per year and you are willing to invest 5% of the revenue in employee onboarding, the total budget will equal$300,000 0.05= $15,000

Strategy #2. Using the number of new hires as a baseline

According to statistics, the average cost to train a new employee is $1,886. If you take this value as the amount of money you need to train a hire, multiplying it by the projected number of professionals you want to onboard next year will give you an estimated employee training budget.

Employee training budget = Number of projected new hiresMedian employee onboarding cost

For example, if a business owner wants to onboard 20 new employees this year and is wondering: “How much should I invest in employee training?”, to calculate the budget required for onboarding, he/she runs this calculation:

Estimated budget = 20 $1,886 = $37,720

Although these estimates aren’t surgically precise, running these calculations is enough to understand how expensive talent education is and how common it is for business owners to underestimate its financial impact on the organization’s budget. 

How to Manage Your Onboard Costs Effectively

If the estimated budget is too high for your company to afford, you may be wondering whether there is a checklist on how to reduce employee training costs and make sure your team works at the peak efficiency throughout the process.

The good news is, there are some tried-and-true strategies that help SME owners cut employee education expenses. Let’s take a look at the practices you can implement to be proactive about onboarding and create a sustainable strategy. 

1. Create written guidelines rather than heavily relying on in-person meetings

Creating learning content that instructs the team on the nature of tasks and role clarity is time-consuming — however, at the end of the day, it’s much more efficient than inviting employees over for a conference call.

On the one hand, you will be able to repurpose guidelines, on the other, an employee will have a document to use as a reference point anytime so he or she wouldn’t have to reach out to team leads and managers as often. 

2. Give task-based assignments

While it’s justified to give new coming employees some time to get used to the workplace, the truth is, after a couple of training days, your employees will be eager to test their skills and knowledge by completing relevant tasks.

A talent manager shouldn’t wait until a new coming hire starts asking for the job — instead, make sure you don’t leave the workforce hanging from day one. Take a look at the tasks that match the skills of freshly hired professionals and assign each of them a starter pack of assignments. It’s a win-win way to handle onboarding since you will be profiting from the skills of every hired applicant from day one while they will get a sense of belonging in the workplace.

3. Create onboarding guidelines for the rest of the team

To make sure a new hire can integrate into the team easily and doesn’t rely on a team leader or talent manager for questions/answers, educate the rest of the team on best practices of welcoming new professionals.

Assigning a task of monitoring a newcomer to every senior professional is a reasonable practice — this way, employees will get to know each other better, fresh hires will need less time to familiarize themselves with frequent tasks, and senior peers can improve their management and teaching skills. 

4. Make employee onboarding accessible

Giving new hires facilitated access to guidelines, training courses, and other materials the company uses for the socialization process will increase the orientation pace during a hire’s first days. Although mobile employee training apps aren’t common yet, they are bound to grow popular in the future — according to statistics, 75% of employees will own a smartphone they use for business only.

Talent managers should take advantage of increased technology adoption by designing a training application — this way, you’ll give a new hire a possibility to study while commuting, waiting in lines, etc. 

5. Create a defined, re-purposeful onboarding pack

To reduce onboarding costs, make sure you have all the guidelines, login data, and other materials a new hire might need at a hand’s reach. Having a standard onboarding procedure and relying on reusable content will speed up and improve the efficiency of talent training, cutting onboarding costs as well.

Here’s what experienced talent managers typically included in an “employee starter pack”:

• Map of the office (if yours is big and hard to navigate)
• Access cards or keys for new employees
• A personalized email with corporate account login data and further instructions
• A bundle of training materials — guidelines, cases for references, etc. 
• Necessary forms and documents to fill in — tax paperwork, NDAs, etc. 

Techexactly Onboarding Solution

Introducing technology to onboarding is a tried-and-true way to improve the efficiency of talent education, reduce costs and the amount of time managers and peers have to spend educating new talent.

At Techexactly, we got to develop an app for remote corporate training that allowed our client (an ambitious and rapidly-scaling company) to offer new hires real-time access to learning materials. 

After taking the time to study the most impactful and costly candidate onboarding challenges, our team designed an app that focused on the following:

• Improved onboarding speed and efficiency — talent managers could store all forms and documents in one drive. 
• Higher education efficiency — business managers could attach quizzes to reference guides to make sure new hires understand key concepts well enough. As for employees, they could complete mandatory training via the app in a hassle-free way. 
• Seamless communication and shorter feedback loops — the app had a built-in chat and supported corporate groups. Whenever co-workers mentioned each other in a discussion, they would get a real-time notification. 
• A flexible tracking system. 
• Hassle-free content creation thanks to a built-in CMS suite. 
• Integrations with other talent management platforms. 

Conclusion

Since the competition for new talent is constantly increasing, the cost of training employees is rising as well. The good news is, a business owner doesn’t have to spend a dime on employee education or give orientation up altogether — creating a reusable, well-defined onboarding protocol that allows employees to work productively from day one is a better way to get a return on the education investment as fast as possible, as well as improve talent retention.Dedicated technology tools for employee onboarding improves its efficiency and cut the employee onboarding fee. If you want to improve the convenience of talent education at your company using cutting-edge technology, contact TechExactly. We are looking forward to developing an app that will match your needs.