aLearning Blog

Online Learning for Trade Associations

LMS = Losing My Smile

Posted by Ellen on February 5, 2010

[Association LMS Vendors, Take Note!]

Every time I see a report that shows what an organization can expect to spend on an LMS (learning management system), I lose my smile. Worse, I want to hang my head and weep.

In her “Building the Business Case for e-Learning,” published by the eLearning Guild, Temple Smolen writes, “Most off-the-shelf LMS products require some customization. The costs can vary widely for a LMS with customization, but under $100,000 is a reasonable starting assumption for most organizations with less than 2,000 employees.”

Ikes! Those prices!

But wait — there’s more!!

Notice the word “employees”?

It’s fair to say that most LMS providers are still oriented to delivering learning modules via an LMS to employees — individuals within the same corporation. The corporate business rules often allow LMS costs to be leveraged across various departments in ways that associations cannot model.

For now, let’s ask the companies providing instructor-led options to stand aside (companies such as Blackboard, CommPartners, etc.) and focus on LMS systems that facilitate asynchronous, online access to uploaded courses and tutorials.

As colleagues of mine know, I’ve been advocating for an association-specific alternative for a long time. We need something that reaches past our staff offices so our statewide, national, and international members can easily and affordably access.

Doesn’t have to be fancy, but it does have to work.

Did I mention the need for affordability, too?

It’s funny how what seems like a few dollars to many LMS providers adds up a lot faster on our side of the table.

Let’s take the data Jeff Cobb and Celisa Steele at Tagoras uncovered in their Association Learning Management Systems report (October 2009), which showed that for small associations, the average start-up cost for an LMS was:

 $50/user/year (at the low end)

Sounds reasonable.

Until you do the math:

$50 x 1000 members (we assume 1/2 our members might access?) = $50,000/year!!

Double Ikes!!

And don’t tell me to add that $50 onto the registration fee.

Because that $50 will be on top of marketing costs… and any revision costs we’ve set aside in case there’s a boo-boo we need to fix or an update we need to add… or any other items we need to include in our overhead (pay extra for e-mail service? how about registration processing fees through an outsource agency?)…

It’s not like we can charge that much money for an online course in the first place (though some organizations do — you know who you are; that’s why I haven’t signed up for your online courses).

Ready? Let’s walk through a one-year budget for one online course (after development).

Cost of doing online business (marketing, updates, etc.) = $1200/year
Hosting fee/LMS fee = $50,000

Total = $51,200

Now let’s say I think my members would pay — AT MOST — $200 for a course. That means I need 256 learners EACH YEAR just to BREAK EVEN.

But that’s not all!!

According to the Tagoras report, the average cost per learner goes down only slightly over a three-year average, so you can’t expect much savings over time.

This is too bad, as associations are generally known as loyal clients and willing references to other associations seeking services and products.

Something that will bring my smile back is a business model for LMSs that suits small associations and non-profits, not just large organizations.

One company is listening — and is willing to work with associations to forge a partnership that will help alleviate costs while providing quality LMS service.

More about this company and its program for associations and non-profits in the next entry.

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22 Responses to “LMS = Losing My Smile”

  1. Rodolpho said

    That’s not all yet. Looking from an IT perspective alone you will find it cost even more per year. If you take the concept of TCO (Total Cost of Ownership) that includes cost related to the datacenter, network, IT staff, yearly licence renewal (can be up to 20% of acquisition amount) and so on, this can be a very expensive monster to feed.

    -RA

  2. So much of the cost is wrapped up in features that you don’t actually need. A typical LMS is just _way_ too much, particularly outside large corporations. You’ve definitely hit the nail on the head there. I’m fascinated by how few good options there are for scaled-down services. Eager to hear what you’ve found!

    (Full disclosure: We have a new product coming down the pipe in a few weeks that sounds like what you’re saying associations need. I’ve been thinking in terms of small businesses, but interested in seeing how it might be a good match here as well. Thanks for starting this conversation!)

  3. Ellen said

    Rodolpho — Thanks for contributing the full cost of ownership angle on this topic. And the 20% continuing cost level is something I hadn’t heard, so I’m glad to see a number on what most organizations have to keep investing. I appreciate your input!

    Susan — Would be happy to hear from you offline about what you’re working on. I’m happy to provide input about options that are workable for associations. I’ll be interested to hear if the model you’ll see described in my next post is something you’ve considered as well.

    And to everyone — this subject has far from cooled for me! I’m seeing more and more free and low-cost options (systems and pricing models) that I hope to be able to discuss here in future posts. Stay tuned!

  4. Ellen,

    You’re absolutely right! Time to shop around.

    At Educadium, we support many nonprofit associations in the United States and have designed an attractive, simple-to-use hosted learning platform (built on open source) that’s tailor-made for small- and mid-size organizations.

    The market has changed, and there is no reason to spend $100,000 a year on an LMS.

    With some good planning, you can create a professional looking virtual school or training program with several self-paced courses for under $10,000. $1/user/year for hosting is not unreasonable.

    An LMS shouldn’t cause budget heartache–it should lead to more savings and free up your staff to create better online coursework.

    Todd

  5. Ellen said

    Todd — Thanks for the comment and adding info about your option. Is your “$1/user/year” pricing for “under $10,000″ based on 10,000 users? Just curious… :)

  6. Peter Whitlock said

    Ellen:

    Your assumption implies that every member would be actively using the LMS. I just did a survey of my membership that found only 40% are “active learners”. So the other 60% will not be thrilled to be paying 50$ for something they do not use. So, do you ask the active 40% to pay the whole cost? It is a quandary that we are wrestling with.

    Susan & Todd: I would be very interested in your LMS.

    Peter

  7. Ellen said

    Peter — You’re right! I did use the upper end of the participant range as an example, while in reality most members aren’t actively registering for online events.

    The good news is that some (many? still trying to figure that out) vendors can bill based on the actual number of users in the LMS, rather than on a range.

    For those who are developing an RFP, this should be one of the questions you ask: “Is your billing model based on a range of users (i.e, 1-200, 201-500, etc.) or is it based on the actual number of users per month, quarter, or year?”

    You shouldn’t have to pay for that extra 40% who are not using the system. If a vendor says they’re just not set up to bill that way, ask why, especially if your LMS is in place to house online certification/licensure courses and/or testing. If a system can pass information back and forth from your AMS to your LMS, then somewhere in it there’s data that can be mined that will tell them how many users are accessing at any given time.

    If there are vendors out there who disagree — I’m all ears about why getting a precise number of users isn’t possible.

    Thanks, Peter!

    • Peter Whitlock said

      The simple answer is that it is too risky to run a business on a “per usage” basis (banks & accountants do not like it). One puts up a significant amount of capital plus ongoing operational costs for hardware, infrastructure, building, hydro, salaries, training, etc. These costs must be recuperated regardless of whether there is zero or 5000 users. It is easier to invoice a ‘fixed rate’ as opposed to a ‘variable rate” (which could be zero) to ensure that the bills can be paid.

      Peter

      • Ellen said

        Peter — Ah! Yes, of course. Companies in the for-profit realm have stockholders and people like that to answer to, and the answers they like to hear have to do with dollars in the coffers. But with all due respect, an association investing in online learning is taking a risk as well. Sometimes, unfortunately, they serve as the LMS crash test dummies — taking the hits while the LMS vendors figure out how to make the systems work with the AMS and event planning systems and others…

        There’s a risk in every business partnership, to be sure — each party takes a risk and each believes it’s a larger one than the risk the other is taking.

        But let’s face it, Peter — LMSes have been around a long time. Long enough for the risk to have been mitigated to a large degree. And with long-term contracts in play, every provider should have a certain number of “return” clients over time that they can rely on as a basis for calculating a reasonable per-user fee.

        I see your point, but remain unconvinced that a per-user fee based on actuals isn’t feasible. I can see how it wouldn’t be *desirable* (by banks, accountants, CEOs, boards of directors… etc… ) but who’s the real customer? And shouldn’t that be the voice that’s listened to over all others?

  8. [...] LMSes (Learning Management Systems), I pulled out my opener anyway and yanked off the lid (see LMS = Losing My Smile and LMS Business Model for [...]

  9. Ed Garabedian said

    What if the associations formed a consortium and shared the cost of an outsourced LMS installation like Moodle (http://moodle.com/)? The IT cost goes away except for the initial data setup and the overall cost per user should be very competitive.

  10. Jeff Cobb said

    Hey Ellen – Thanks for starting this conversation. I have a feeling I may be coming back to it to comment again! One clarification re: the Tagoras report – perhaps obvious: these are averages. Some of the companies we cover in the report come in well below them, and some did not report pricing at all because they offer such a variety of models – including pure revenue share. As I think you note a couple of posts after this (I’m playing catch up!), there is really quite a range of options out there, and I’ve seen enough at this point to feel that pretty much any organization these days can find an approach to learning management that fits its needs and its budget. In my experience, a lot of orgs (and not just associations) get focused on costs and feature sets first rather than business goals and ROI/revenue potential. Working backwards from the latter – rather than forward from the former to hone in on the right technology solution can be very clarifying, at least in my experience with clients. – Jeff

  11. [...] Rodolpho and others who added to the conversation!) and offline dialogues — resulting from my “LMS = Losing My Smile” post really got me thinking about what would be the ideal LMS for associations. And after I jotted [...]

  12. Ellen said

    Ed — Is a consortium option something you’ve had experience with? We’d love to hear how the huge minutia (!) of sorting out the relationship got worked out.

    Jeff — Thanks for the clarification! Yes, averages are just that, and I apologize for stretching them into a baseline of sorts. Still and all, good idea for folks to know when they’re looking at something that’s above, below, or right on the average. I completely agree that decisions are too often based on factors that aren’t ideal and have no doubt led many organizations into frustration and disappointment. We appreciate your good work in helping them to avoid that!

  13. Patrick said

    Ellen,
    We share your conecrn about the costs of traditional Learning management systems.
    Most association simply cannot spend the resources, but financial, and manpower that many LMSs require.

    As well, it would definitely be a challenge to try to introduce an LMS to a consortium of associations, and have it properly meet the needs of each and every member association.

    We’ve created a solution for this.

    Our company has created TOPYX and TOPYX Lite, a very affordable fully hosted Learning Management offering that allows an organisation have a fully branded, e-commerce enabled, with no user or course limits, for as little as $500 for TOPYX Lite, $999 for TOPYX, plus monthly plus minor hosting fees.

    An association can present and track courses, integrate member and course communities, and even integrate to a number of social networking sites, like LinkedIn, Facebook, or Twitter.

    There’s a lot more included with a subscription, but I don’t want to turn this into a blatant sales pitch. I just want to make you aware of some highly capable alternatives to either the high priced LMSs or the high manpower expenses associated with implementing and customizing the various open source alternatives.

    For more information, feel free to have a look at: http://www.interactyx.com/

    Regards,
    Patrick

  14. Jennifer said

    We are brand new to the US with ShareKnowledge LMS, a Microsoft SharePoint-based e-learning system for corporations. Right now we are preparing to release version 3.1 in June with major design enhancements to be compatible with SharePoint 2010. But you can download it now for free – our special is for one year 100/users. All future upgrades are complimentary and includes an Author tool and is fully SCORM compliant.

    Even more, ShareKnowledge synchronizes and links with business and HR systems, such as SAP, PeopleSoft and corporate CRM tools. For LMS administrators, you’ll find these great enhancements invaluable:
    • Flexible role-based work flows for generating dynamic learning plans
    • Rich User Experience that supports Microsoft Office documents,
    multi-media content in addition to SCORM e-Learning standards
    • Multi-platform and multi-browser support for broad end-learner accessibility

    If you are interested in learning more, please contact us at 425-996-4201.

  15. Ellen said

    Patrick — Thanks for the note on Topyx, which is on my list to check out.

    Jennifer — I actually considered Sharepoint for our association but we eventually passed on it (I’ll do a post on that to explain why we’d pass on something “free”). Perhaps the association has picked up on it since I left, but likely the reasons we opted against it haven’t changed.

    I’ll add here that if you’re interested in the association community as potential customers and clients, you should read a few of my previous posts on how this culture differs from the corporate world. For example, there might be associations using SAP and PeopleSoft, but you’d be better served to find out how your system would integrate with the various membership management systems that are widely used — these, more than HR-oriented systems — are where the LMS will need to integrate. Feel free to contact me off-line if you’d like at ellenbehr@aol.com.

    Thank you both for stopping by aLearning!

  16. I’m looking to build a wp lms plugin, but first I’m defining exactly what is needed and wanted. See if you have any information you can contribute.

    http://wordpress.org/support/topic/420863?replies=0#post-1588265

  17. cosborn said

    Thanks for the post. I have to confess, the prices Ellen quotes would shock me, too. What makes me nutty about these types of conversation is the failure of the vendors make sure prospective client associates ask the right questions and get the right answers right up front. Obviously, you’re speaking from some really bad past experiences, and that’s too bad. An effective LMS can be a terrific tool and resource for associations and their members. But it’s hugely important to ask the right questions, otherwsie you won’t get the right answers.

    I’ve been lucky enough over the course of my career to have been involved in a few buying decisions for multiple LMS, and I have to say, once we got down to getting informarion in hand that we could really use, the process went pretty well, and we never paid anything close to the fees you mention.

    So – for whatever it’s worth, make sure you are carefully and completely explaining your goals and objectives for the LMS and how you intend to market the resource to your members. A good consultant ought to be able to move from there to good questions and ultimately to a good outcome.

    Chris

  18. Ellen said

    Chris — Thanks for stopping by and sharing your experiences. Of all the topics covered here at aLearning, LMS posts consistently attract the most traffic, a true indication that association leaders are hungry for information on them.

    We agree deciding whether an LMS is needed and if so, which one best suits those needs, must be done very carefully.

    My beef continues to be that too many LMS providers fail to realize how many associations with a real need (and desire) for an LMS don’t have the same deep pockets that corporations and large associations have.

    I’ll keep advocating for a workable financial model until every organization that needs and LMS can afford one.

    With all due respect to some of the LMS providers who’ve added their comments above, something like $1000/mo is still mighty pricey.

    Let’s do the math: $12,000/year, right?

    Let’s say we have just one offering to post (because we have to start modestly and build from there) and we are anticipating just 200 learners in our first year.

    $12,000/200 = $60 per learner we’ll have to add onto the cost of the course offering in order to earn that hosting fee back.

    Let’s keep going with this.

    So we were planning to offer a basic course at $50 because we didn’t want to price it too high but needed to price it so we could cover our marketing fees and try to earn back at least some of our development costs (let’s not even get into those — you can see a full estimated plan and budget in the aLearning: A Trail Guide to Association eLearning book)…

    So that means we’re now looking at $110 dollars to also cover the cost of the LMS… that’s more than double what we were planning to charge in the first place.

    And if we get fewer than 200 people registering, we’re screwed.

    No, I don’t expect LMS companies to operate without a financial net, but I know (believe me I know) how — after R&D — cheaply an LMS costs for an LMS provider to make available.

    Hosting fees cover their Web expenses, but cover R&D too (the next iteration, the newest “solution” etc etc). There’s nothing wrong with that — by why do that on the backs of the non-profits?

    I’m just sayin’….

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