Important LMS Pricing & Cost Considerations: Read This Before You Buy

November 8, 2016

lms pricing

When LMS pricing models and features packages aren’t standardized between different learning management systems, comparing just how much you’ll be spending with each can be tricky.

It can be so hard to estimate LMS costs, in fact, that a survey by Capterra found most companies had lowballed their expected costs during the planning stage by an average of 59%.

You can sidestep that trap by making sure you’re informed about the pros and cons of different pricing models when it comes to choosing an LMS.

Conducting an LMS cost comparison: All inclusive vs packaged

The vast majority of SaaS companies use one of these two approaches to pricing, and the LMS industry is no different. Whether the features included in their pricing are packaged or all inclusive, the principle is the same: you estimate how many seats you’ll need each month, then pay a flat monthly fee for the software — no matter how many seats you actually use.

All inclusive

With all inclusive pricing, the software company offers customers a single flat price for the entire list of services. This price may be presented as a set of tiers based on the number of seats the customer thinks they’ll use, or it may be presented as a custom proposal.

Either way, the total lms cost is presented without an itemized breakdown of individual features.

The benefits of this model are that it’s simple to calculate for the company and simple to understand for the customer. You don’t have to know for certain ahead of time the specific features you will need. The downside is that you pay for features and seats you may never use.

Related reading: Does Your SaaS Vendor’s Pricing Model Provide Your Business Value?

Packaged

With packaged pricing, the customer still pays a flat subscription fee, but they’re able to create their own custom package by choosing the features they think they’ll need.

Most companies using a packaged pricing model will offer a base price for core features, then upsell customers on optional add-ons, such as e-commerce compatibility, white labeling and integrations. Some companies also charge an extra yearly fee for customer service.

The benefit of the packaged model is you can choose the options best for your needs, rather than paying for bells and whistles that aren’t right for their company.

The downside is that you are incentivized to choose fewer features than you may need in an attempt to save money and thereby minimize your own chances of using the LMS as effectively as possible.  

What about customer success?

The issue with both of these models is that by offering a flat monthly fee regardless of how many seats the customer is actually using, they undercut the primary benefit of cloud computing. The advantage of any cloud software over installed, including a learning management system, is that customers get flexibility on infrastructure. But packaged and all inclusive pricing models don’t reflect that flexibility.  

Most companies aren’t dealing with a consistent flow of users. Maybe you have seasonal hiring needs, so the bulk of your employee onboarding happens during a few months out of the year. Or maybe you have long periods of planning and development between courses, when you use fewer seats.

During these slower months, all those unused seats are simply going to waste under traditional LMS pricing. In fact, the cost of the software and reluctance to waste seats can influence a company’s L&D decisions — often negatively. They may truncate a planning phase or push a training project out of sync with the rest of the business in order to make the LMS pay for itself.

Ultimately, packaged and all inclusive models work against the success of the customers.

A new and improved learning management system pricing model: Metered

Some SaaS companies are evolving these legacy pricing models into something more consistent with the flexible nature of modern business: metered pricing.

With a metered pricing model, the customer pays for exactly what they actually used — rather than what they estimate they might use. That eliminates guesswork and allows them to spend their training budgets on what’s actually important for each particular month.

Which supports rather hinders the strategic goals of training. If you think about it, training is cyclical. Peaks and valleys naturally occur as new courses are developed and released. The metered model supports the customer’s actual L&D cycle by allowing them to invest their budgets in developing programs rather than being forced to pay for seats they’re not currently using.

Related reading: Launch Your Online Training Program Like a Lean Startup

The benefit is more than just monetary — ultimately, having the flexibility to spend your training budget on what’s most important in each season will lead to better programs and increased success. A metered LMS pricing model makes the software company and the buyer partners in success. Now the LMS company has an incentive to make the product as attractive and functional as possible to get the customer and its user back into the courses as soon as possible.

View an example of metered LMS pricing here.

Prepare for hidden costs

Most LMS companies, regardless of their base pricing model, will also charge one-time or recurring fees not included in the base agreement. These “hidden fees” can take big chunks out of your budget if you’re not expecting them.

Here are a few to look out for:

  • Implementation/set-up fees: Most LMSs will have an implementation fee. With SchoolKeep, for example, the $750 onboarding fee includes all the support and training you need.
  • Licensing fees: Some companies charge a yearly licensing fee that allows you to use the software, on top of the seat licenses or other fees you’re already paying.
  • Design customization costs: Many LMSs advertise themselves as “white label” but really only permit some basic branding within their library of templates. True design customization that ensure your LMS learning portal matches your brand will cost more.
  • Upgrade fees: If you need to upgrade your plan to add additional users — or downgrade if you need fewer seats — some companies will charge fees for that.
  • Excessive use fees: It’s difficult to know exactly how many seats you’ll need at a given time. If you go over your plan, most LMS will charge an excessive use fee.
  • Other hidden fees: When choosing an LMS, be sure to ask about these common fees that are easy to overlook — maintenance fees, mandatory training fees and customer service fees.

Your LMS costs shouldn’t be a surprise

Once you have a solid understanding of LMS pricing models and know the right questions to ask, you should be able to come up with a realistic estimate of what a new LMS will cost.

Don’t forget to factor in naturally-occurring cycles in your training, and challenge your vendors to offer a pricing model that supports your business — rather than forcing your business to conform with the vendor’s pre-existing pricing structures.

Most of all, consider if the pricing model will support your effective use of it and make you and the LMS provider partners in your success.

Related reading: 5 Reasons You Need an LMS That Integrates with Salesforce

 

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