A Review of Learning Management System Pricing Models

Introduction

According to the 2022 Learning Management System (LMS) Pricing Guide, there are several pricing models available to customers:

1. Monthly or annual fees for each user that has access to the technology.
2. Fees added to the customer’s payroll processing bill for each employee.
3. User “pool” size fees that cap the number of “active” users that have access to the technology in a specified time period.
4. Unlimited monthly or annual pricing for the employees of a specified organization.
5. Unlimited annual pricing that includes employees, agents, suppliers and clients.
6. Perpetual and annual software licenses.

All Learning Management System (LMS) suppliers offer some variation of “core” features. The differences between offerings fall into several categories, including:

Scalability – The number of concurrent users that the system/service can simultaneously support and the capacity of the data system to support long-term data collection and management.

Reporting and Visualization Tools – The capabilities of the system to support the creation, assignment, delegation and monitoring of visual, electronic and hard-copy outputs from real-time system data.

Customization and Integration – The ability of the system to support interface and data element modifications, including integration with other customer technologies.

Additional Features – Included technologies that enhance the value of the system. These technologies include items like virtual classrooms, lesson authoring tools, adaptive learning implementations, performance and talent management support, and content management capabilities.

While there are over 100 LMS technologies available for purchase, there are only a handful of LMS vendors that are capable of meeting the requirements of a large organization. The reason for this is threefold; 1) scalability of their technology to meet the demands of a large user population over an extended period of time, 2) the technologies conformance with standards that enable the integration and customization required by most large organizations without enormous expense and implementation delays, and 3) the ability of the software to generate meaningful analytics, reports and visualizations that are needed for a large or complex enterprise.

Software as a Service and Software Licenses Options

Well over 80% of all LMS implementations are cloud-based. Most cloud-based solutions are provided as a Software as a Service (SaaS). With SaaS agreements, the customer normally has several restrictions that can make this option less attractive. Most SaaS providers limit direct client access to their data-systems for security reasons. Most SaaS providers upgrade all customer installations on a set schedule. Some SaaS providers have limited options with regard to vanity URLs, branding options and site customizations. These types of restrictions enable the SaaS provider to reduce their cost of operations. ?With few exceptions, SaaS agreements are priced on a per-user fee basis. For a large organization, this can result in paying far more than what a software license or an unlimited use SaaS agreement would cost. Only 3 of the top LMS providers offer unlimited user SaaS agreements. These unlimited use agreements range in price from $36,000 per year to over $500,000 per year.

Software license agreements provide the customer with specific rights. These rights enable customers to have significantly more control over their learning environment. With a software license, the customer owns the data generated by their license. With SaaS agreements, customers access their data and create interfaces to other technologies using Application Programming Interfaces (APIs). Security protocols can also be significantly enhanced with a software license. With SaaS solutions, customers accept whatever security protocols the SaaS provider offers. Only 5 of the largest LMS providers offer a true software license agreement. ?Once an LMS license is purchased, customers have the option of hosting the software in their own data center, their own cloud service, or in a data center provided by the supplier. Software license agreements never restrict the number of users that can access the technology. If all of these options are not available, then you are not really purchasing a software license. Software license agreements can be term-based or perpetual. The price of a software license for the top LMS technologies ranges from $65,000 to over $2,000,000. They are primarily purchased by larger organizations and Government agencies.?

Pricing Models Matter

For any organization with more than 3,000 personnel to support, per-user pricing (models 1 thru 3 above) will almost never be competitive with unlimited user pricing (models 4 and 5 above).

For example, an organization with 5,000 users to support that pays $3 per-person/per-month for their LMS is spending $180,000 per year. There are almost certainly equivalent LMS technologies with unlimited user pricing available (potentially from the same supplier) for less than $40,000 per year.

While adding $140,000 to the organization’s bottom line may not seem like a lot to an HR or training manager, I suggest that most CEOs and CFOs would not share that opinion.

"Many LMS customers do not realize how much they are overpaying for their LMS technology because at the time it was purchased, the price was competitive."

Per-user pricing can be advantageous to small organizations. Unlimited user pricing models range in price from $30,000 to $120,000 per year. Software license agreements can be significantly more expensive. An organization with only 500 personnel that need access to the LMS would usually pay less with a $3 per-user Software as a Service (SaaS) solution.

Like all technologies, the ability to develop, maintain and enhance LMS systems has become less expensive over time. Many LMS suppliers, in an effort to protect their recurring revenues, have been reluctant to adapt to this new competitive reality. Some have adopted unlimited user pricing models, but failed to let their customers know that they could be paying far less for the same solution they are using today. The issue is that these customers are paying significantly more than they should be paying.

Why Do LMS Customers Pay Too Much?

There are a number of factors that have led many organizations to pay far too much for technology. For many organizations, the selection of their current LMS supplier happened long ago. At that time, the price offered was competitive. For these customers, the price has remained predictable. If their system has worked well, there has been no reason to look elsewhere.

There are numerous organizations that have no oversight when it comes to their LMS technology investment. The department responsible for managing the organization’s LMS is not responsible for the expense that is being incurred and the department that is paying the bill (i.e. IT or payroll) has no idea that the price being offered or paid is not competitive.

For some organizations, managers are aware that their LMS system is costing more than is reasonable, but procurement initiatives are laborious and having to change technology suppliers has historically been painful.

?“Most CEOs and CFOs are not going to be tracking LMS pricing variations on a regular basis.”

Many organizations enlist the support of “consultants” when they procure technologies like an LMS. Many of these consultants and consulting firms have financial entanglements with the technology providers. These consultants and consulting firms usually come to the table with a short-list of suppliers that meet generic LMS requirements with rough pricing scenarios for the solution they represent. Several of these consulting firms charge fees to technology suppliers to be included on their short- list of recommended solutions.

“Consulting firms that profit from customers paying more to seed their own financial relationships with technology suppliers are never going to help you find the best deal.”

LMS technology is usually not the most expensive item in any organization’s technology budget. Over time, paying hundreds of thousands too much adds up to millions of dollars wasted. For a large organization, the impact can be much greater.

How to Move Forward

The most important issue that must be addressed before buying or renewing the contract with a commercial learning technology provider is documenting your requirements for the needed solutions capabilities. Don’t forget your franchises, outside agents, customers, suppliers and independent retail operations when determining the scope of your organizations requirements.

Click the image below for example requirements documentation and supporting analysis tools.

Once your organization’s requirements are defined, issue a public announcement inviting suppliers to send a simple letter proposal stating that your “must have” needs are completely and currently satisfied by their solution with a price range for the solution offered. If none of the responses offers a significant cost savings, then at least you will know that your current technology is competitively priced. You may be surprised to find that a qualified supplier can save your organization hundreds of thousands or even millions of dollars over the term of the new agreement.

See “Home-Grown, Open-Source or Commercial Learning Technologies? Part 3: Commercial” for additional procurement recommendations.

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About KMSI

KMSI has been providing learning and talent management technologies for over 20 years. If our technologies meet your requirements we would love to work with your organization. With KMx Enterprise and KMxASP there are no "per-user" fees; both provide for unlimited users. With all of our offerings there are no maintenance fees and no upgrade fees. Our standards-based approach significantly lowers the cost of integration and shortens the initial launch schedule to weeks, vice months. Our unique “language pack” technology provides customizable translations of all user interface elements in virtually any language.?We will match or beat the price offered by any competitor that provides a similarly capable LMS solution.

KMSI provides technology and has designed performance improvement strategies for many of the largest organizations in the world. KMSI provides training development, instructional content conversion and other specialty and implementation services. Visit www.kmsi.com to learn more.