The True Cost Of A Learning Management System

The True Cost Of A Learning Management System
Summary: Too many businesses only consider up-front costs when looking to switch Learning Management Systems. But the truth is that every LMS costs both time and money, and calculating the real cost of a Learning Management System can be a complex task. Here's why we should be considering hidden costs in the LMS equation.

Breaking Down The Actual Cost Of A Learning Management System

For many businesses, the decision to change their Learning Management System is easy. In fact, research by Brandon Hall Group shows that 44% of organizations are unhappy with their existing LMS, and 48% are exploring new or different learning technologies. The decision to change Learning Management System is an easy one; the hard part comes when trying to decide which LMS to buy. And key to this decision is the cost of a Learning Management System - the same research from Brandon Hall Group found that Learning Management Systems account for 38% of the average learning technology budget.

Too many businesses only consider the up-front, monetary cost of potential offerings when deciding to change their Learning Management System. The reality is that there is a plethora of costs, both upfront and hidden, when it comes to switching Learning Management System - and those costs can encompass time as well as money.

Here’s a quick example from the market. A company with 500 employees is looking to upgrade to a Learning Management System with full analytics capabilities and customization options, and narrow their options down to the open-source LMS Moodle and the cloud-based Coassemble. Management take a look at the two Learning Management Systems and see that Moodle is free, whilst Coassemble will cost $699 a month. They make the logical decision, and switch to Moodle. But months later, after sinking thousands of dollars and countless hours on their ‘free’ LMS, the company regrets their decision. Why?

Just like an airfare can lure in potential customers by appearing cheap, and then heap on added cost after added cost until it resembles nothing like the original price, so too can Learning Management System offerings come bundled with layers of hidden expenses that many organizations don’t see coming.

Let’s break down the true cost of a Learning Management System.

The Costs Everyone Knows About

These costs are often referred to as ‘hard costs’. They’re the cost of the Learning Management System as shown on the box - any licensing fees, one-off setup fees, or pricing models. These hard costs can range from the tens of thousands of dollars, to nothing at all - but as we’ll see later, they’re only part of the equation when it comes to the true cost of a Learning Management System.

Pricing Models

The most visible cost of a Learning Management System is its pricing model. Learning Management Systems can be broadly split into one of two categories: Cloud-based, and self-hosted. Each of these categories has different pricing methods.

Cloud-based Learning Management Systems can be Pay-Per-User, Pay-Per-Use, or simply charge a License Fee. Pay-Per-User models work in one of two ways: They can charge organizations for each user registered to use the LMS (this is called ‘registered’ users), or for each user that actually logs into the LMS and engages with LMS content (this is called ‘active’ users). An example pricing system would be $5 per registered user, per month. Some LMSs that use this pricing model are Latitude Learning and Skillsoft. Pay-Per-Use models charge organizations each time they ‘use’ their Learning Management System. These models can vary wildly as ‘use’ can mean many different things - some examples of common definitions of ‘use’ are: A fee for each user for each course, and a fee for each user for each module they access. License fees are one-time fees to access an LMS for a set period of time. For example, a provider may charge a yearly rate for their LMS no matter how many people are using it.

Self-hosted LMSs are Learning Management Systems that are hosted by the organization using them, which can mean they are hosted on company or 3rd party servers. Pricing models for self-hosted Learning Management Systems cover Perpetual Licenses, Periodic Licenses, and Free models. Periodic Licenses refer to Learning Management Systems that charge a monthly or yearly rate for hosting, whilst Perpetual Licenses have a singular one-off cost that guarantees use of the Learning Management System for as long as the client requires. Free models are open-source softwares like Moodle, which are accessible by anyone with no up-front free. More on these later.

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Setup Fees

Setup fees are one-off payments that some LMS providers charge to install an LMS. A common fee for a cloud-based LMS is $4,000-$7,000, whilst a self-hosted LMS can require fees of up to $25,000. This usually covers setup of the Learning Management System in question, some staff training, a basic level of support, such as via email, and a basic level of customization (for example, company color schemes and branding).

The Complexity Of Hard Costs

It should already be becoming clear that there’s no easy way to compare Learning Management System prices - should you go with $5 per user, a $20,000 annual license fee, or a cost of $2 per user per course? What are the setup fees for each of those options? Are they cloud-based or self-hosted?

There’s no easy answer as no pricing model is necessarily any better than any other - Pay-Per-User can be cheaper than Pay-Per-Use if you have an engaged user base, whilst large numbers of employees could warrant a Learning Management System with a license fee. Researching and analyzing these costs can be time-consuming and frustrating… And that’s just the hard costs.

The Hidden Cost Of A Learning Management System

The hidden costs of an LMS refer to all the costs that you only really find about after you’ve chosen your Learning Management System. One of the key factors to consider when looking at the holistic cost of an LMS is time. If your new LMS has little or no initial pricing cost, but is taking up large chunks of company time, then it may prove more expensive than a Learning Management System with a large pricing cost that fits seamlessly into your organization’s processes.

Let’s take the free, open-source pricing model as an example:

The Precarious Nature Of Open-Source Software

Open-source LMSs are Learning Management Systems that can be accessed for free, and customized to suit an organization’s needs. An example is Moodle, the most popular Learning Management System in the world according to Capterra. But whilst accessing open-source LMSs may be free, actually using them as your primary Learning Management System is not.

Firstly, you’ll need to set up a server for your open-source LMS. You’ll need to pick a server configuration based on your expected number of users and their usage patterns - something which can be very hard to predict. The server will need to last at least a few years without upgrading, or you’ll be looking at recurring server costs. Chances are your IT department won’t have the knowledge base to choose and set up an appropriate server, in which case you’ll need to hire a professional IT vendor. This will cost around $4,000.

Next, you’ll want to customize your Learning Management System - this means adding and removing features, and changing user IX and design. Customizing Moodle costs thousands of dollars, and making serious changes pushes that figure into the tens of thousands. To finish setting up your ‘free’ LMS, you’ll need to train your staff. If you can’t do that yourself, you’ll need to hire someone who can.

Then there are the recurring costs. On the administration side, you’ll need to pay hosting and security certificate fees. On the recruitment side, organizations with open-source LMSs require at least one administrator to keep track of site and server issues. If you want to create any LMS content, you’ll need to hire an eLearning developer as well. Compare these hidden costs to a Learning Management System like Coassemble, which costs between $99 and $1199 a month and comes with full support and an in-house development team to help convert eLearning materials, and you’ll see that choosing a Learning Management System alternative with higher hard costs can save you serious money.

As you can see, open-source LMSs may have no ‘hard costs’, but that doesn’t mean they’re free. In fact, they can prove to be more expensive than an LMS with a one-off licensing fee. And what’s more, ‘free’ LMSs eat up time. Time to find IT professionals who can set up servers and customise the Learning Management System. Time to implement new processes. Time to train staff or hire somebody who can. Time to hire new staff to manage the LMS, or in-house developers who can create new Learning Management System content.

But this isn’t just true for open-source Learning Management Systems - every LMS has hidden monetary and time costs, such as training staff and converting existing resources.

This brings us to our next point.

The Inverse Relationship Between Hard Costs And Hidden Costs

Often, the Learning Management Systems with the highest ‘hard costs’ have the lowest hidden costs. Paying $25,000 up front for access to a self-hosted LMS may seem too steep at first glance, but when you consider that the price tag includes a system installation and customization by trained professionals, who also cover staff training and provide ongoing customer support, you may find you’ve unearthed a bargain. Furthermore, these hard costs are easier to predict than hidden costs.

The point here is not that organizations looking to change Learning Management System should pick one that has high hard costs. Often, open-source LMSs are still the best option. The point, however, is this - all Learning Management Systems cost you in some shape or form: through money, time, or other resources. Too many businesses only consider the hard costs when looking to switch LMS. It’s time to start considering hidden costs in the LMS equation.

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