How to Build an L&D Budget That Scales

L&D is often considered a cost center, meaning it incurs expenses, and doesn’t directly generate revenue. 

And unfortunately, it means L&D is evaluated on imperfect metrics like the cost per learner or training hours per employee, which can be especially challenging as the cost per learner is rising, and the number of formal training hours per employee is falling. 

Whether you’re building an L&D budget for the upcoming year or for the first time, you need to align your strategy, and consequently budget design, to the business. That starts by articulating clearer evaluation metrics that your Finance team can get behind. 

Step 1. Partner with Finance

Before you do anything else, find out who your Finance partners are. It’s always worth double-checking in case there's been any team changes. Also, confirm if there are any other members of your team involved in the planning process, such as more senior leaders. 

Oftentimes, your Finance partner will host a kickoff meeting for the upcoming FY planning process. But I find it easier to prepare for these meetings if I understand the company’s planning approach.

Depending on my familiarity with the organization, here are the questions I would come with to a meeting. 

Whatever you do, please write down the answers to these questions, preferably in a shared document that you can send as a follow-up email. That way, you have a paper trail of alignment that you can return to if you get pushback. 

I once had a Finance partner leave mid-FY, and spent too much time rehashing how decisions were made, such as why we covered T&E for participants in certain programs and not others. 

Step 2. Choose your approach

Every year, it’s worth evaluating how you organize and allocate your L&D budget. I’ve found that most L&D teams budget using a blend of two or more of the following models:

• Program-based budgeting
  ‍Fund priority programs as a portfolio. Assign each one a defined scope, an owner, and success measures.
• Cost-per-head allocation
  ‍Set a standard investment per employee or percentage of payroll, and use it to fund shared capability building.
• Decentralized team budgets
  ‍Give business units budget for role-specific learning. Central L&D stays accountable for standards and vendor governance.
• Individual learning stipends
  ‍Allocate each employee an annual learning budget, with eligible categories and reimbursement rules set upfront.
• Showback/chargeback
  ‍Run L&D as a shared service with a catalog. Bill costs back to business units, or simply make them visible.
• Centralized infrastructure, distributed delivery
  ‍Fund platforms and reusable assets centrally. Let regions and teams cover variable delivery costs like travel and materials.

If you're wondering what it looks like to blend together budgeting models, here are a few common pairings that I've seen.

Step 3. Build your budget

After you’ve aligned on the model(s) that make the most sense for your organization with Finance and your leadership team, you can start building your budget. 

I like to think about this process like building a house (not that I’ve ever done that). The models you’ve chosen are your blueprint. They help you plan what you’re going to do and why, so that the budget is structurally sound. Now you need to frame out your budget. And the goal here is consistency. If you were framing out a house, you wouldn’t want to use lumber when the drawings called for metal. 

Finance should be able to review your budget and know what everything is (this is where that documentation comes in handy). This also makes it easier to compare spend year-over-year, and more importantly to evaluate impact. So when you’re framing your budget, pick consistent labels to categorize spend.

And remember to separate out executive development. I've seen things like executive coaching blow up an L&D budget, making the cost-per-head seem far out of proportion.

Plan for capacity

Perhaps the biggest variance I see in L&D budgets comes down to headcount, which is really an issue of capacity. L&D teams often have the least flexibility when it comes to adding someone to their team. As a cost center, there are additional hoops to jump through to demonstrate to Finance the necessity of that hire.

Of course, if you were hoping to hire an instructional designer, but don't get the headcount approval, your budget may expand in other directions that Finance will accept. That may include a third-party for content creation or the procurement of an AI tool for learning design. Or leaders accepting something getting deprioritized.

When making those tradeoffs, consider: what do we need to be consistently available (whether for creation or delivery), and where do we have flexibility?

• An FTE makes sense for ongoing, predictable work, like ramping onboarding, running recurring compliance training, or sustaining a program without a clear end date.
• A contingent worker fits defined-scope or short-term work instead: a one-off workshop, a content build with a clear finish line, or covering a temporary spike in demand.

If neither option closes the gap in your budget, I recommend reading through my guide to reduce training costs to identify other opportunities to cut costs without cutting quality.

Just be sure to factor in capacity for accommodating the business. It's one thing to keep business as usual running for L&D, but another entirely to build a net new program aimed at transformation.

And if you genuinely don't have the capacity to cover a training need, consider alternative solutions, like providing recommendations on how to use professional development funds.

Step 4. Evaluate your budget

You've likely heard me say that we need to prioritize measurement in everything we do, from designing an L&D strategy and roadmap to assessing a tech stack, and yes, even making a budget.

Earlier, I said that in your conversation with Finance, you needed to align on evaluation metrics. That's because you need to know what they care about and how they report back to the business. More importantly, you want to build a partnership with Finance where they understand the work they're investing in, and why.

The best way to do this is to align expectations, and learn how to tell the story with the data you capture. Depending on the type of program, your ROI evaluation approach may be "good enough" measurement or a more robust evaluation method like Phillips ROI.

And most likely, they have a preference for how that gets reported out (ahem, spreadsheets). So use your educational powers to help them understand not just what you're spending, but why. Be honest when something isn't working, but also highlight transformational moments. You might be surprised to find your newest ally.