LMS Pricing Models: How Much Does an LMS Really Cost?

So, you've identified the LMS features you need, narrowed down your options, and it's time to compare costs. Nothing simpler! Option 1 is $430,000 for a perpetual license, while Option 2 is $10.00 per user logon and Option 3 is $8,000 per course, so clearly?

Clearly, nothing about LMS pricing is simple. Fortunately, most pricing strategies fall into one of several models. A good understanding of LMS pricing models will let you compare costs across models and decide which model, and which price point, works best for you.

Cloud vs Self-Hosted

Before we look at the various models, let's start by reviewing two categories of LMS. Should your LMS be cloud-based or self-hosted?

Self-hosting encompasses several expenditures that must be factored into the cost of an LMS. These include:

Infrastructure - the servers and other equipment you'll need to host the software

Remember that this is an ongoing rather than a one-time cost. Your equipment must be maintained and will eventually need to be replaced. Technology changes quickly, and software updates or your own changing needs may require you to update your infrastructure. Can your servers cope with increases in the number of training programs or learners you have?

IT Support - personnel and time needed to set up, update and maintain the system

Setup costs can be immense. An LMS has to be updated regularly to remain effective, and someone will have to implement the updates you receive.

LMS Updates

Updates may be included in the initial price of the LMS, or you may have to pay for them separately.

Self-Hosted LMS Pricing Models

1. Free

It might seem strange to ask how much a free LMS costs, but it does cost. Free LMSs are generally open-source and self-hosted. According to Wikipedia, "open-source software is software whose source code is published and made available to the public, enabling anyone to copy, modify and redistribute the source code without paying royalties or fees". They tend to provide minimal support, so the demands on your internal or contract IT will be higher.

Remember that even a free LMS has to make money somewhere. One strategy is to partner with other organizations who charge for:

Hosting
Implementation services
LMS support
LMS add-ons that provide or support key features
Learning content development

Before choosing a free LMS, make sure to ask:

How much is support worth to my organization?
How does this LMS support itself? Will we need to use any related fee-based services?

There are many open source learning management systems. To guide you, here is a list of them: The Ultimate list of Open Source Learning Management Systems by eLearning Industry.

According to Capterra, the top 3 open source LMS platforms are:

2. Perpetual License

Perpetual licensing can be a good option if you have a large and stable number of learners. Perpetual licenses have the highest up-front cost of any LMS pricing model, but can have the lowest long-term costs if the organization uses the LMS long enough. That does tend to mean that the organization is locked into one LMS for a lengthy period, a risky proposition in this era of rapid technological advancement. Will the LMS that's best for you now still meet your needs in a decade?

Obtaining licenses for additional users can also be expensive. The vendor knows that a perpetual license holder is unlikely to want to change LMSs, so they have the advantage in negotiations for additional licenses. If your learning audience is variable or likely to increase, a perpetual license may not be the best choice.

It's tempting to think of a perpetually-licensed LMS as having a one-time cost, after which usage is free. This is not the case. Ongoing costs may include:

Setup and hosting - Perpetual licenses are invariably self-hosted, although the vendor or a partner may offer hosting for an additional fee.
Configuration
Maintenance
Additional licenses
Support
Upgrades - Upgrades and bug fixes may or may not be included in the initial fee.

3. Periodic License

With a periodic license, you pay a flat fee each month or year to use the software. The fee covers as many users and courses as you like. The up-front cost is much lower than for a perpetual license, but the cost over a longer period tends to be higher.

In exchange, you get flexibility. If your needs change or a better LMS comes along it's much easier to make a business case to switch to a better LMS than it would be if you had invested in a perpetual license.

As with perpetual licensing, you must consider the expense of self-hosting and other additional ongoing costs. There may also be a setup fee.

Cloud-Based LMS Pricing Models

Cloud-based pricing models generally include a setup fee and a monthly, quarterly or annual consumption-based fee. As the LMS vendor is providing the hosting, the vendor's costs are affected by how much you use the software and usage is therefore reflected in the cost.

Cloud-based LMSs are the best choice if you are unable to or prefer not to host your LMS. They're also a good option if you:

Don't know how many learners you'll have
Do know that your learner numbers will fluctuate
Want to try an LMS without making a long-term commitment

1. Pay-Per-User

Pay-per-user pricing can mean many things depending on how a user is defined. Fees may be calculated per individual users or for ranges of users. For example:

$5.00 per user per month
$600 for between 100 and 200 users per month; $1000 for between 200 and 300 users per month

Users are generally defined as "registered users" or "active users". A "registered user" is any user with an account in the LMS. An "active user" may be:

A user who logs in
A user whose account is designated as active (in an LMS where inactivated accounts can be stored)
Anything else an LMS vendor comes up with

For example, SkillBuilder LMS defines active users as any account, regardless of role, that is enabled during the 30-day billing period.

If you need to maintain training records for legal or other reasons, it's important to find out whether users must remain "active" or "registered" for their data to be stored. If you have to keep accounts active for data preservation, you'll want to know that before you start comparing prices.

Some LMSs with this pricing model are, according to Capterra:

2. Pay-Per-Use

There are many different definitions of "use" depending on the LMS provider. So, you need to make sure you understand how they charge you, whether it is a fee per user per module, a fee per course per user, a fee per course enrollment etc...

The key to assessing the cost of a pay-per-use LMS is establishing just what a "use" is for that particular product.

3. License Fee

Cloud-based LMS providers, like with self-hosted LMS software providers, can either charge a one time, upfront fee to access the software or charge you a flat fee to access the software for a period of time. This can be the best option if you're using the same LMS for a long time.

Conclusion

In this article, we've reviewed some of the basic pricing models for both self-hosted and cloud-based LMSs. Comparing pricing can be difficult with such variable models in use, so a thorough understanding of the different models and their implications is valuable.

Of course, pricing isn't the only thing you'll need to know about your new LMS. For guidance in other aspects of selecting an LMS, see our LMS Vendor Comparison eBook.