The true cost of an LMS

Posted on 22 October 2020

Understanding the true cost of an LMS is not as simple as it sounds.

For many companies, the choice to change their LMS is straightforward. In fact, research by Brandon Hall Group reveals that 44% of organisations are unsatisfied with their current LMS, and 48% are exploring new or different learning technologies. The choice to change LMS is an easy one; the hard part comes when attempting to determine which LMS to use. The key to this decision is cost – the same analysis from Brandon Hall Group found that LMSs account for 38% of the typical learning technology budget.

The cost of an LMS is more than simply the price tag

Too many companies only take into account the up-front, financial cost of potential choices when deciding to change their LMS. The reality is that there are a plethora of costs, both upfront and hidden when it comes to switching LMS – and those costs can encompass time in addition to cash.

The costs everyone knows about

These costs are often referred to as ‘hard costs’. They’re the cost of the LMS 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 calculating the true cost of an LMS.

Pricing models

The most visible cost of an LMS is its pricing model. LMSs can be broadly split into one of two categories: cloud-based, and self-hosted. Each of these categories has different pricing methods.

Cloud-based LMSs 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 organisations 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 organisations each time they ‘use’ their LMS. These models can vary wildly as ‘use’ can mean many different things – two examples of common definitions of ‘use’ are: a fee per user per course, and a fee per user per module accessed. 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 organisation using them. Pricing models for self-hosted LMSs fall under Perpetual Licenses, Periodic Licenses, and Free models. Periodic Licenses refer to LMSs that charge a monthly or yearly rate for hosting, whilst Perpetual Licenses have a singular one-off cost that guarantees use of the LMS for as long as the client requires. Free models are open-source software like Moodle, which are accessible by anyone, with no up-front free. More on these later.

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 LMS in question, some staff training, a basic level of support, such as via email, and a basic level of customisation (for example, company colour schemes and branding).

The complexity of hard costs

It should start to be clear that there’s no easy way to compare LMS 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 to these questions, as no pricing model is necessarily any better than another – Pay-Per-User can be cheaper than Pay-Per-Use if you have an engaged user base, whilst large numbers of employees could warrant an LMS with a license fee. Researching and analysing these costs can be time-consuming and complex… And that’s just the hard costs.

The hidden costs

The hidden costs of an LMS refer to all the costs that you only really find about after you’ve chosen your LMS. 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 an LMS with a large pricing cost that fits seamlessly into your organisation’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 customised to suit an organisation’s needs. An example is Moodle, the most popular LMS in the world according to Capterra. But whilst accessing open-source LMSs may be free, actually using them 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 customise your LMS—this means adding and removing features, and changing user IX and design. Customising 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, organisations with open-source LMS’s 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 e-Learning developer as well.

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 LMS. Time to implement new processes. Time to train staff or hire somebody to train them for you. Time to find new staff to manage the LMS, or in-house developers who can create new LMS content.

But this isn’t just true for open-source LMSs – 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 LMSs 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 customisation 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 organisations looking to change LMS should pick one that has high hard costs. Often, LMSs with lower up-front costs are still the best option. The point, however, is this – all LMSs cost you in some shape or form: through money, time, or other resources. Too many businesses only consider the hard costs when evaluating the cost of an LMS. It’s time to start considering hidden costs in the LMS equation.