The LMS Buying Guide For LMS Pricing Models And Hidden Costs
When searching for the perfect Learning Management System, you are sure to find a variety of price points. A survey by Capterra found most companies had underestimated 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. Let's discuss what you need to keep in mind.
The Most Common LMS Pricing Models: 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 cost is presented without an itemized breakdown on the cost 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.
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 your 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 Learning and Development 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.
A New And Improved LMS 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 than 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.
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.
Preparing 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. - 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 ensures 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 to the vendor’s pre-existing pricing structures.
Final Word
Now that you’re equipped with the knowledge to get started, we recommend utilizing an LMS Request for Proposals (RFP) to engage potential LMS vendors. Look for a LMS RFP template which explains the relevant operational, application, and architectural requirements of the system for the vendor/s.
We hope this article has left you feeling confident in your search for an LMS. If you want to know more on evaluating, selecting, and deploying a corporate Learning Management System, download the free eBook The Complete LMS Buying Guide For SMBs.
Related articles:
1. 6 Ways To Conduct A Comprehensive LMS Evaluation
2. How To Compare Online Course Platforms Quickly
3. The LMS Buying Guide For Successful LMS Implementation And Onboarding
