December 11, 2017

LMS Pricing: Avoiding Hidden Costs When Selecting eLearning Software

LMS PRICING

There’s a myriad of learning management systems out there. Any one of them will do the basic job of storing, organizing and delivering your eLearning content. If you, however, decide to dig deeper into the vast variety of feature sets, functionalities and supporting services LMS vendors offer, the task of comparing them all in order to choose the one that best suits your unique needs will be an arduous endeavour. 

Clearly, there’s a chain of important questions that you need to ask yourself before answering the main question “What type of LMS does my organization need?”. Skip them and you run the risk of spending days on end trying to compare every little feature each vendor offers, to no avail. A quick list might include:

  • Who will be using the software?
  • Would the number of learners be constant or frequently fluctuating?
  • Would the IT department allow a cloud-based 3rd party solution or the nature of our business will favour a locally-based deployment?
  • What type of features/modules am I looking to find in an LMS?
  • How important are the post-purchase support services for me?
  • How long would it take to get a ready-to-use system?
  • Does my organization require any customizations of the software?

Before we take a look at the high-level structure of the LMS pricing models available on the market, it’s safe to say that all learning management systems can be divided into two main categories depending on how they are deployed: cloud-based and self-hosted. It’s a good starting point for your research as it will help you dismiss a good portion of the vendors right from the start. You should be aware (or you can always consult your IT department on it) which direction your organization is likely to go by assessing your company infrastructure, the market regulations and requirements your organization operates in (say you are in the financial sector or healthcare services where the cloud-based storage of personal data might not be an option at all). You or your IT department will need to assess the organization’s existing architecture (the additional equipment you might need to host the software), and the available IT resources (the time the internal IT team will need to spend overall on setting up, updating and supporting the system). Not only will this exercise help you narrow down the number of potential vendors but it will also shed light on some of the hidden costs that are associated with adopting an LMS.

The good news is that any eLearning software that has been chosen wisely to meet your organization’s training needs will save you money in the long run (and sometimes in the short run too). While diving into the feature set each LMS vendor offers should also be an important part of your assessment (and we’ve discussed The Most Used LMS Functionalities few weeks ago), this blog post aims at focusing on eLearning software pricing models to help you narrow down your selection and eventually find the perfect match for your business requirements and budget.   

Here's a quick and simplified categorization of the available LMS pricing models that does not claim to be exhaustive in any way:

  • Free/Open Source On-premises LMS

If your organization’s training needs are somewhat small-scale and you are on a really tight budget, a free or an open-source option might be the way to go. Bear in mind, however, such learning management systems are likely to be offering the basic features only, and what’s more, they don’t come with any support. As they are available on-premises, it goes without saying that they will require additional infrastructure and IT resources on your end to launch, use and support the system. An additional disadvantage might be the uncertainty of any system updates and whether they would introduce any breaking changes to the core system. It’s absolutely okay to adopt a free/open-source LMS as long as you are aware and have carefully estimated the hidden costs of using one. Organizations tend to lean in the direction of free eLearning software whenever they plan to use the system as a short-term solution or for one-off training sessions. 

  • Perpetual On-premises License

On the other end of the self-hosted eLearning software spectrum are the systems that offer perpetual licenses. A perpetual license allows the holder to use a specific version of the given LMS indefinitely with a payment of a single fee. This pricing model is suitable for large enterprises that have a large number of learners (the number can vary), and a need for vast variety of training courses. Perpetual licenses set the bar for the highest one-time upfront fee of all the LMS pricing models yet the lowest long-term cost if used long enough. Or so it seems: there are hidden costs here too, as once again your organization will have to estimate and provision for the ongoing costs of hosting, maintaining, upgrading and supporting the software (cost that’s unlikely to be included in the upfront fee). Plus, there will be an annual subscription cost in case the license holder requires software updates and technical support. Another downside of perpetual licenses is that the high initial investment limits the organization’s agility to switch to another LMS solution in case the current one doesn’t meet the company needs over time. 

Despite the above-mentioned limitations, a solid reason for choosing a self-hosted perpetual license is the higher security level of storing sensitive personal data. If your training department is running a six-digit people development budget in a large corporation in, say, the heavily-regulated energy services, financial sector or healthcare industry, and your organizational structure features dozens of departments and even more sub-divisions dispersed around the globe, the perpetual licensing plan might be a meaningful investment for your training requirements. 

  • Periodic Cloud-Based or Self-Hosted License

The periodic license enables organizations to either self-host or access the eLearning software from within the vendor’s cloud. Organizations pay a flat fee on an annual or a monthly basis to use the platform as often as needed regardless of the number of training modules that have been created or the number of users accessing the system. The LMS vendor would usually offer a discount if the organization is willing to commit to an annual subscription rather than pay monthly. When the license time runs up, the organization will need to renew its subscription in order to access the platform online. While the upfront investment is much lower compared to the perpetual license type, the cost tends to get higher over a longer period of time. 

  • Pay-per-user cloud-based LMS

The pay-per-user learning management systems are cloud-based which means no software downloads, installations and updates are required on your side. This is the most common enrolment-based pricing model which enables organizations to pay a small flat fee for the number of learners who access the platform each month regardless of the number of modules or features used. This makes the plan quite suitable for companies with a fixed (or slightly varying) number of users and especially for SMBs where the number of employees does not exceed 1,000. In general, it’s a very affordable option yet bear in mind that if your business experiences vast seasonal peaks that require sudden spikes in the number of learners, this pricing model might be quite costly for you. It’s an option preferred by pharmaceuticals, retail companies and in general organizations that run large distribution networks or sales force teams that need to be continuously trained on large product portfolios and services.  

  • Pay-per-active-user cloud-based LMS

Another cloud-based LMS licensing model is the pay-per-active-user one. As its name suggests, it’s a variation of the pay-per-user license type. The difference is that instead of paying on enrolment basis the organization is charged only for the learners who are actually using the system. Fortune 500 companies may prefer this pricing model, double-check your training budget before going down this way, though. If your organization is in the manufacturing business or is affected by seasonality and your number of learners is varying a lot, the pay-per-active-user license might be a good fit. Still, you have to count in the hidden cost of paying for the entire feature set regardless if used. This is precisely why many SMBs are looking for more flexible pricing models and eventually finding a solution in the pay-per-use one. 

  • Pay-per-use cloud-based LMS 

Finally, we’ll touch on the pay-per-use LMS licensing plan type. This is a flexible pricing model which is well suited for organizations with a large number of learners who don’t necessarily need a wide range of LMS modules and features. In essence, the organization pays for the number of times the LMS platform has been accessed. Before adopting such a pricing model, however, make sure to check and confirm what this particular LMS platform’s definition of ‘use’ is. For some LMS vendors the payment terms will be defined around using a whole “module”, while others may have in mind a single “course” or even just a “course feature”. Clarifying the terms beforehand will save you from paying more than expected and budgeted.

Our final piece of advice: stay focused, do your due diligence and pilot project, and you’ll find out you’ll be able to wade through the heaps of LMS platforms quickly and easily in order to find the one that best matches your organization’s unique needs. You may also benefit from our advice on How to select the right LMS for your company.

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