How to Build Your L&D Budget (Plus Free Template)

For many L&D leaders, the five most dreaded words we hear are: “Budgets are due next week.”

But fear not. Building a budget can actually be an insightful and rewarding process. It might even be fun.

In this article, I’ll show you how I’ve built my L&D budgets in the past and why it made me, my team, and our programs more effective… before the finance team even had the chance to look at it.

Two benefits of budgeting

To start, let’s reframe things a bit. Why should you bother to build a budget in the first place?

Aside from the obvious answer, “because my finance team said so,” budgeting provides two major benefits:

1. Budgeting is a creative process: It provides a framework to think about the problems you want to solve and how to solve them. You generate ideas.
2. Budgeting is a focusing process: It puts limits on the number of problems you can solve and pushes you to be efficient in solving them. It forces priorities.

Once you’ve finished, you’ll find that budgeting programs your intuition for decision-making. After spending time determining priorities and assigning dollars to them, your subconscious stores that information. As the year progresses and smaller decisions have to be made in the moment, this subconscious information will help you make better decisions with speed and confidence.

So, with the framing out of the way, let’s walk through the four steps of my budgeting process.

Disclaimer: I’m not a financial expert. I just enjoy playing with numbers. If you have other approaches or suggestions, please share!

1. What problems should you solve?

Budgeting without a clear set of priorities is just aimless number crunching. So don’t bother with the numbers until you know which problems you want to solve in the coming year.

If you don’t already do this, start by scheduling 30 minutes with each business leader across the company. Don’t ask about their “learning goals,” ask about their “business goals.” This gets them speaking their native language. The bonus is that it leaves space for you to talk about learning. They are the business expert; you are the learning expert.

After every conversation, write down the key business needs you heard and the learning needs that might help address them. Repeat this process with all the business leaders in the organization, and you’ll quickly see trends emerge.

Those trends are the foundation of your learning strategy. Then prioritize the problems you want to tackle this year.

Look for the following criteria:

• Widespread: Lots of people are impacted by the problem, or will benefit from solving it
• Evergreen: The problem is not likely to go away anytime soon (think onboarding or new manager development)
• Bottom line impact: Solving it will have an outsized impact on business performance, regardless of how widespread or evergreen the problem might be.

Try to rank them and then pick the top 3-5 problems to solve. Just as an example, these are four key problems I identified the last time I did this:

1. Build better managers. We have a lot of newly promoted managers and newly formed teams as a result of organizational changes. We want to establish a more consistent management culture and build some peer-learning communities.
2. Increase digital fluency. COVID-19 pushed us further into our digital toolset and we discovered many opportunities to improve productivity and efficiency. We want to deepen our fluency with these tools and find more ways to work smarter.
3. Improve teaming. Multiple organizational changes and general pandemic-induced anxiety has people on edge. We want to improve our collaboration, communication, and small-group leadership skills so we can reduce the friction of working together.
4. Level-up product management. Innovation is our number one strategic priority, and senior level product managers have a lot of influence and leverage to help us innovate. We want to gather, share, and iterate on the latest best practices in digital product management and business models.

Only after you’re clear on the problems that need solving should you start thinking about budgeting. But with that out of the way, let’s start tinkering with dollar signs.

Related: 3 Steps to Solving Evergreen Problems: A Framework From Expert Gabe Gloege

2. How much money do you want?

I consider this step the “top-down” approach. Step 3 is the “bottom-up” approach. And step 4 is to meet in the middle.

To start, look at the scale of your organization and determine how much money you might have to play with. There are a two ways to approach this:

1. How much have you spent in the past?

If the information is available, look at your spending over the last three years. Then look at the number of employees in the company for each year. Use those numbers to find the average spending per employee for each year. Let’s call this Learning Spend Per Employee, or LSPE.

Next, look at the trends of LSPE from year to year. Was spending going up, down, or sideways? Now take that information and project what you might spend per employee this year. Then multiply that by the total employees currently at your company.

Now, you have your “top-down” number. This will likely be the easiest number to sell to your finance team. It’s simple, straightforward, and based on past actuals.

If you’re happy with this number, huzzah! If you’re less than thrilled with this number, move on to this second approach.

2. How much do similar companies spend?

Now, let’s figure out if your company is skimping on learning, lavishly spending, or somewhere in the middle compared to your industry peers.

Go to your favorite search engine or community and search “professional development spending in [your industry or market].” You’ll probably get some reports that break down average training spend per employee for companies according to headcount or industry vertical. 

For example, the 2019 professional development spending report I found showed that midsize US companies (2,000-10,000 employees) spent between $829 - $941 per employee per year.

So then compare that number to your previous annual spending.

Thus far we’ve been calculating total spend using dollars per employee. Another approach I’ve seen is to take a percentage of total payroll, which is usually 2-4%.

At this point, you should have a “top-down” number you want to use as your total learning spend for the year. But you’re not committed to this yet, so don’t take this to the finance team straight away.

Now, do some voting with your dollars. If you had to allocate all of that money across your 3-5 strategic priorities, how would you allocate it? And more importantly, why would you choose those allocations?

There’s no right answer to this. It’s all about the discussions you have (perhaps with yourself) throughout this process. You’re playing with value, walking around the problems and trying to look at them from many angles. This way you’ll understand your priorities better, and it should start generating ideas for the next step.

Related: Doing More with Less: How to Preserve Your L&D Budget by Proving Your Impact

3. How much money do you need?

We just generated a total learning spend from the top-down. Now, it’s time to figure it out from the bottom-up.

Think about your strategic priorities. You probably have a few ideas of how you want to solve them. They don’t have to be crystal clear. Hunches are fine at this point—guesstimates are welcome.

Start listing the projects and vendors you think you might use throughout the year. I usually scope my projects on a quarterly basis, so that is my unit of account. I think about 1-3 projects my team will run each quarter to address our strategic priorities. Then I estimate the cost to the nearest $1000, just to keep the math simple and prevent me from overthinking the details.

So, if I have four strategic priorities, and two projects per quarter for each of them, then I try to brainstorm 32 different projects and a price tag for each.

There is always an additional category that I call “enablement”. This is where I put our tools that we use across most or all of our work, things like an LMS, Articulate 360, Survey Monkey, Notion, and other tools of the trade. Then you just roll all the numbers up and you get a “bottom-up” total learning spend.

In my opinion, it’s very important to start with a clean sheet of paper when you do this. Don’t just duplicate last year’s budget and start making edits. I know we’re all pressed for time, but this is sloppy and short-circuits the thinking process that this whole budget approach is designed around. Start fresh so you don’t take anything for granted.

Bonus activity: once you’ve generated your bottom-up budget, look at your spending from last year. Did you forget about anything? If you did forget something, do you really need it? This is a great way to screen out defunct programs and tools to avoid things like, “Is anyone actually still using this library management software?”

4. Play with the numbers

Now, it’s time to “meet in the middle.”

Look at your learning spend from the top-down and the bottom-up. Are they the same? If not, how wide is the gap? Remember, the top-down budget is based on historical spending trends and industry data. So what does your bottom-up budget say about where you sit in relation to those trends and data? 

If your bottom-up is way over your top-down, how can you solve things more efficiently? What might you need to cut, and why? If your bottom-up is way below your top-down, do you really need to spend all that money? Can you demonstrate real impact well below industry costs?

Or maybe you aren’t thinking big enough. Perhaps you need to expand your team and take on more projects. There aren’t any right answers in this step, just good questions. That’s what this step is about—playing with the numbers in order to strengthen your approach to solving those strategic learning priorities.

One thing you might notice in this step: money isn’t always a proxy for importance. Some problems require outside expertise to solve, and you’re going to have to pay for that expertise one way or another. Other problems lend themselves well to upskilling from within so you can leverage internal expertise and tools. You may find that strategic priority #3 needs more resources than strategic priority #1 simply because of the nature of the problem.

Remember, the budgeting process should help you generate ideas and force priorities. Money is, ultimately, a language for expressing value. So this exercise is about discussing what you value. The numbers are just a means to arrive at that end goal of good ideas executed efficiently.

To help with this process, I’ve shared my budget spreadsheet as a template you can copy and use as you see fit. It includes places to put your quarterly budget numbers as well as your actual spending each quarter. This will help you rebalance your budget each quarter as well as gauge your forecasts and further refine your budgeting skills for the coming year.

Get Gabe's budget spreadsheet template here.

Happy budgeting!