If you’re a first-time LMS buyer, chances are you tried understanding the pricing models offered by various vendors, and this left you either confused or created more questions than provided answers.
The truth is- the market for LMS systems is made up of many vendors, and each vendor has their own pricing model. The confusion for most parts is around terms like- Per Active User, Registered User, and Actual User. And truth be told, the definitions for these terms will vary from vendor to vendor as well.
However, one thing to remember is- LMS companies license their platform to corporates (who train their employees and extended enterprise) and training companies (who sell courses to the general public). Many LMS companies cater to both these audiences, and the pricing models they offer, are better suited to either one of them.
This article will try and decode the pricing models, and pricing terms, which you as a corporate- L&D, HR, or Top Management need to understand.
As a first-time buyer, it is essential to understand the following pricing model:
Pay for a fixed number of users (also called registered users) annually: Under this form of pricing, the vendor allows you to purchase a fixed number of user accounts, and you pay per user account purchased. Basically, if your organization has a strength of 500 employees and the vendor charges an amount of $1 per user per month, the total amount you pay is 500*1*12 = $6,000.
You only pay for the number of user accounts you need, based on the strength of your company.
If your organization is one where the number of employees stays the same, this pricing model should work very well. You know exactly how much the LMS is going to cost on a monthly or a yearly-basis. Ideally, if you are aiming for your learners to use the LMS to its fullest, and hopefully throughout the year, then this is the perfect model for a corporate. The number of users = number of employees with the ability to add users if required.
The downside to this, however, is the lack of flexibility. There may arise a point where not all your 500 employees use the LMS, and you end up paying $6,000 for just 100 employees using the system during the year. Hence, ensuring employee motivation, adequate content, and a slight nudge from the L&D department and their managers, will go a long way in extracting the most out of an LMS with this pricing model.
Pay based on the active number of users (monthly/annually): Different vendors have different definitions of what an active user is. For the sake of understanding, and what most if not all vendors define an active user as, is- an employee who interacts with the LMS in any form. This could be as simple as just logging in.
A vendor can also define active users on the following metrics:
- An employee who starts a new course.
- An employee who gets certified etc.
The intention here is for the user to interact with the LMS in order for the vendor to bill the buyer.
Most LMSes that offer active user pricing models allow for unlimited registered users (number of users who have access to the LMS). In this pricing model, the organization can register all its existing employees on the LMS, giving them the ability to use the system. The organization then proceeds to select a pricing plan based on the number of users (from within the registered group) they think will use the LMS during any given billing cycle. So, if an organization has 500 employees, and it is sure that not more than 100 employees will use the LMS at any given time, they can register all 500 employees on the LMS, and opt for a pricing plan where only 100 of those 500 registered users can become active users, as they start using the LMS. In this case, the organization is gambling or almost hoping that the LMS will not be used as effectively as it ideally should. Hence, they select a pricing slab within which they want to be charged.
The caveat with any LMS company that charges on the basis of an active user model is that- there is a higher cost/user for every additional user who interacts with the LMS beyond the original 100 active users limit.
To better understand this- once the organization registers all 500 of its employees on the LMS, and purchases a plan where 100 of those 500 registered users can become active users, charged at $1 per active user.
If the number of active users exceeds the original limit of 100, the vendor charges $2 for every extra active user, which is more than the original $1 per user. This model will vary in costs to the organization, depending on the number of users who choose to interact with the LMS within the billing cycle.
If you’re an L&D Head/Manager selecting an LMS and want to create a culture of continuous learning and development for all your employees. It is recommended to choose a plan, where every employee becomes an active user, and not worry about having to pay extra for additional users.
If you have chosen an expensive LMS counting on low usage, you may end up discouraging users from logging in. It sounds like a contradiction, but that is because- the active user license is also used by LMSes that sell to training companies, and this pricing model works wonders there. It may or may not be the best model for some corporate organizations that wish to embed a continuous learning culture.
Duration-based licensing (based on user slabs or unlimited): Under this form of pricing, you purchase a license to use the LMS for a specified duration (1–3 years), and on expiry, you renew it. This model does not consider the number of interactions an active user has with the system. Instead, it focusses on the commitment of the buyer to purchase the license for an extended period, or guarantee a minimum number of active users- sometimes both, in order for unlimited user access.
Once the buyer agrees to purchase the license for extended periods and crosses the minimum threshold of active learners using the LMS, the vendor allows unlimited usage of the LMS.
The only catch here is- the vendor may license the product only if you agree to use the LMS for an extended duration, which may last for up to 3 years, with or without a guarantee of a minimum number of users.
For an organization with a robust L&D budget and large employee size, this is a good option. Just watch out for the lock-in period, the cost to exit, and data migration, in case you choose to look for an alternative system.
Perpetual Licensing: All of the pricing models listed above revolve around cloud-based LMSes, while perpetual licensing is a model for on-premises systems. This form of pricing generally involves an initial one-time cost of licensing the LMS and implementing it in the organization’s internal servers or datacenter.
Post-implementation on site, the organization pays a maintenance fee to the LMS vendor annually or if they choose to upgrade and scale the system. The vendor may price this out for a specific version of their LMS, and automatic updates or upgrades may not be involved. They may also charge you a percentage price of their latest version, in order to update the older one.
Custom Pricing Model: This model is swiftly gaining traction with the small and medium-sized business who may not find any of the aforementioned pricing models viable. Vendors are increasingly working towards understanding the organization’s budget constraints and offer LMSes that may not be the complete version of their systems. Through limiting the functions of the LMS to the basic features required to train employees, the vendor charges less as compared to the cost of the complete LMS. This is just one of many ways in which vendors offer customized pricing models.
The key is in understanding your own usage patterns, and what you as the L&D Head/Manager want to instill in your learners. If a culture of continuous learning and development is what the organizations want to head towards. Selecting a plan based on an active number of users may not be the best option. As the need to train and develop human resources is ever-evolving, enabling each learner access to the LMS without extra costs to the organization, is the best option.