How to Select an LMS for External Training: Pricing, Negotiation and Contract

Alyssa Azevedo
Oct 28, 2019 1:11:06 PM


The is the final act, the last stop on your journey to selecting a new or replacement LMS for external training. Let’s take a look in the rearview mirror to see how far we’ve come. Here are the posts, each providing perspective and proven insights to help you succeed:

  1. Selecting an LMS for External Training: How to Develop a List of Requirements
  2. How Do You Find The Right LMS for External Training?: Evaluate LMS choices to narrow your field to the LMS with the best fit
  3. External LMS Selection: How to Use Deep-Dive Demos to Find the Perfect Fit
You’re now pretty clear on the strengths and weaknesses of each of the contending learning management systems, and you’ve either got a winner or a tie. In either case, pricing, negotiation and the contract are the last waypoints along the journey. We’ll walk you through finalizing the deal.

What does an LMS for external training cost and what does it include?

That’s the question you have to answer. Likely, here’s where you find yourself at this moment regarding price:
  • Unless your needs are modest, it’s likely that the LMS platforms you are considering do not publish rates or pricing on their website (although there are websites that purport to reveal this pricing)
  • In your work with their sales team they introduced and began to sensitize you to pricing. (If they don’t bring it up, you must.)
  • Each response to your RFP will have included a section on pricing.

All of these are preambles to the proposed financial relationship. John Leh, a respected LMS selection consultant writes in his Talented Learning blog, LMS License Models: What in the World is Going On?:

"Every LMS provider has a unique pricing or license model based on a secret recipe of guesswork, functionality, industry, definition of user or usage, number of users, bandwidth consumption and overall service level agreement."

To be a strong negotiator you need more information about pricing. You need to know:

  1. The pricing models for an LMS for external training
  2. The variables that will affect the pricing model and fit your LMS budget
  3. Guidelines and insights for negotiating the LMS price.


The pricing models for an LMS for professional training

The most common LMS pricing model is usage-based. It is fair to both parties, predictable and profitable. Sometimes this is called the SaaS license or active user model because it is based on learner consumption – delivering the course(s) to the individual.

Mr. Leh adds:

“Usage can be counted based on users logging in, registering for an event, buying a course or launching a course and can be measured and paid for monthly, quarterly or annually. Typically, vendors will provide discounts for a contractual commitment to a certain minimum threshold of usage and cost.”

If you have a smaller audience of external users, you may find that pricing is in tiers, giving a range of usage for a set price. Larger organizations may negotiate for estimates of actual usage as a baseline.

Your negotiations may further define the combinations of usage licensing that are particular to your business. For instance, you may opt for per location usage instead of per individual. However, a price based on the consumption of courses is difficult for an LMS to track, so this might not be a viable option.

An unlimited usage agreement may seem attractive but be careful, unless you have the leverage of high-volume active learners, this can be expensive. Additionally, this model is not scalable as you grow your training business. The fixed cost leaves no room for the ups and downs of business cycles.

The variables that will affect the LMS pricing model

These variables directly affect pricing:

  • Data Migration: If you are negotiating for a replacement LMS. the single greatest variable will be the migration of your courses and history to the new LMS. It is likely to require clean-up and formatting, and you’re likely to find errors in what exists (you don’t want to transfer problems to the new LMS).
  • Implementation and Training: It can run an additional $5k - $30k. Basic onboarding and online training/eLearning is usually included, but if you want onsite training the cost will increase.
  • Integrations: Some may be external, such as integrating Salesforce, other CRMs or a conferencing resource that covers your extended enterprise. If you need to integrate your LMS with internal systems, such as your general ledger, you’ll need the involvement of your IT department in making sure these specifications, and the associated costs are in line.
  • Translation and Localization: If you require course translation or support non-standard languages (as defined by the vendor) there are likely to be additional costs.
  • Bandwidth and Storage: It’s likely that the vendor’s pricing is based on an estimate of bandwidth requirements. If your courses incorporate a high-degree of video, for instance, you may exceed these estimates and incur cost. Similarly, it is likely that prices are based on an estimate of the size of your content library. Exceeding that estimate will also trigger cost.
  • Administrators: Your LMS vendor will base their pricing on estimates of the number of instructors, admins and course authors using the system. Understand what the limits are and how they compare to your reality.
  • Support: A level of service and support is likely included in the proposed structure. Make sure what they are offering fits your needs, understanding that a premium level of support comes with a price.
  • Portals: An additional cost that you may embrace is the customization required to offer individual portals to strategic customers. Next-generation LMS platforms for external learning may include this.
  • Learner Engagement Tools: The inclusion of specific learning engagement tools, which may include, Learning Paths, Certification, In-app widgets, Gamification and more. By the way, you will find an in depth discussion of these tools in the post: 5 Tools to Improve Online Learner Engagement.

Guidelines and insights for negotiating LMS pricing 

If this is your first LMS solution, when you first saw the pricing you were at once shocked, dismayed and panicky. What can be cut? How can we get this price down?

If this is your second time around the block, you know that this is not the time to shift to the cheapest LMS. Focus on the capabilities you need to meet your business projections. Adding elements and capabilities later will be much more expensive in time, resources and money.

While we can’t provide specific financial advice, we do have some time-tested guidelines for LMS negotiation and how to get the best deal possible:

  • Honesty and integrity above all. Be thoughtful, meticulous and easy-to-do-business-with. Make sure both parties have a clear understanding of all elements and positions in the negotiation. No grey areas.
  • This is not Mortal Kombat. Both sides need to win. You will be relying on the LMS vendor for many years to come. Hardball tactics will absolutely come back to haunt (and hurt) you.
  • Don’t be shy. Always try.

Insights:

  • Before we start thinking about the actual negotiations, compare the pricing of the vendors under consideration. Is one way high? Ask them why. Is one way low? Ask them why before going any farther. In most cases, “low ball” pricing leads to additional costs over time. The opposite can be true for the highest price. However, sometimes they just make mistakes and price it too high or low.
  • Usually, there’s not a lot of room to negotiate the usage cost or licensing fee unless you have very high volume. Nevertheless, provide a rationale and ask.
  • Carefully go through the line items within the proposal. First, make absolutely sure that everything you need, especially your key requirements, are included. Understand the cost of everything the LMS vendor will be providing. Otherwise, it may come back to haunt you.
  • If there are lump sums or bundled services, get the detail. Implementation is one of the areas that can be presented as a lump sum. Get the detail, challenge the deliverables that seem to be unfairly priced, and explain why.
  • Another area to consider is the actual financial arrangement and how it can work best for your company. For instance, instead of a yearly sum, perhaps a payment every 6 months; the amortization of implementation over the course of the contract (usually 3 years), etc. If this is a big help, go for it, but usually financing comes at a cost.

The contract for a training company LMS

The contract is the last and final step in closing the deal. There are two things to bear in mind to make the most of this last step:

  1. It goes without saying that your lawyers must review and sign-off on the contract. However, in a worst-case scenario, this review can add months and bad will. To mitigate this, bring them in early. Let your lawyer(s) know about the search, what you’re looking for and why, and the approximately time frame. Find out their concerns and see if these can be addressed before there are massive delays.
  2. You must thoroughly review the contract. Your lawyers are experts on the law. You are the expert on finding the right LMS to fuel the future of your company’s professional training business. Call on your teammates as needed for subject matter expertise and cross the finish line.

Outsourcing to an LMS selection consultant

If you have hired an LMS selection consultant, they will be guiding you through negotiation to the completion of the contract. As we’ve said, unless you’ve gone through the LMS selection process before, hiring an LMS selection consultant is almost always a good call.

Thought Industries has your back

Selecting and evaluating a new or replacement LMS for external training is a difficult process. We know that the more informed you are, the more successful you’ll be in finding the best LMS solution for your company.

To get you started, and pointed in the right direction, our team has put together 59 Questions to Consider Before Selecting an LMS for External Training. It’s yours for free.

59 Questions to Consider Before Selection an LMS for External Training 

Download this free guide will help you identify and prioritize the software features you'll need to maximize the success of your online external training experience.

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