When businesses decide to adopt learning management systems (LMSs), they quickly face a huge array of choices, with one factor capturing much of their attention: pricing. Subscription-based models with varying costs compete alongside free open-source options with no upfront costs or monthly ownership expenses.

It’s easy to understand why free options are tempting, as an LMS can quickly become a big expense for any organization. But free options aren’t always more cost-effective.

Most free LMS platforms are open-source, which means the LMS’s code is readily available for anyone to work with. When a business adopts an open-source solution, it needs to customize the code to fit its needs — and the business is on the hook for fixing any bugs encountered in the LMS. As a result, the maintenance costs of open-source solutions can be quite high, especially when you factor in monthly upkeep, software upgrades, or even the need to hire a systems engineer to maintain the LMS, whose salary and benefits alone may clock in around $90,000 annually.

Because open-source options can end up incurring more costs than licensed or software-as-a-service (SaaS) LMS options, industry trends currently reflect a noticeable shift toward subscription and cloud-based LMS solutions. In fact, 55 percent of LMS users employ web-based solutions, citing remote access and faster implementation as major drivers behind their decisions.

The LMS market as a whole is expected to be worth $15.72 billion by 2021, thanks in part to the surge in businesses opting for subscription services. This growth isn’t surprising. Subscription models allow for unparalleled flexibility and easy scaling, qualities that appeal to companies that know their LMS needs might change down the road.

5 Common LMS Pricing Models

Plenty of other LMS features can play a role in a company’s final decision, but cost-effectiveness is often the make-or-break factor. With that in mind, here’s a comparison of the five most common LMS pricing models:

1. One-Time License

In a one-time license model, a one-time fee purchases the software outright. While these models might remove the expenses associated with renewals and regular upkeep, vendors might charge for software updates and upgrades over time. These solutions might be good options for businesses that can afford to pay the upfront costs, factoring into their budgets the prices of periodic maintenance and software add-ons — provided the LMS in question already has most of the features the business is looking for.

2. Periodic License

A periodic license is perfect for an organization that doesn’t want to commit to a single solution due to changing business requirements, like a growing or shrinking employee base. This licensing model requires organizations to renew their licenses periodically, typically on an annual or biannual basis, to retain ownership rights. Periodic license fees vary depending on the vendor, so it’s vital to verify whether the LMS requires only a one-time fee or also requires license renewal fees.

This model is an ideal choice for organizations that aren’t sure whether the LMS under consideration will meet their needs in the not-too-distant future, possibly because they need to train larger workforces or their employee numbers fluctuate regularly.

3. Subscription Models (SaaS)

SaaS LMS solutions almost always involve cloud-based hosting, which means teams can access the software from anywhere at any time. LMSs offered under this model generally use one of two methods to determine monthly fees: by the number of users who have access to the software or via a flat monthly licensing fee.

A. Pay per User

This pricing model requires payment based on the number of program users. Each learner who signs up for a course and logs into the LMS will result in an additional fee for the business. Occasionally, vendors will charge for only the users who are active during a particular payment period. For small teams or organizations that hire seasonal or temporary workers, this might be the ideal option.

B. Monthly Licensing Fee

For organizations with large pools of employees that don’t want to be charged per user, paying per month is a good idea. Companies that have at least 500 employees or anticipate a future hiring spree should consider opting for a flat fee.

4. Open-Source Systems

The codes for open-source LMS options are available to the public for free, but these solutions require lots of technical legwork to customize in house. On the plus side, they can be built to provide exactly what a company wants in an LMS — no more, no less. For an organization with the personnel and the resources to make it work, an open-source LMS system might be a legitimate choice.

5. Freemium

Like open-source solutions, freemium LMS software comes with no upfront costs, licensing fees, or monthly subscriptions. Instead, freemium LMSs require payment for specific features and add-ons that help organizations maximize the functionality of their learning management system modules.

Finding the right LMS can be a lengthy process. An organization in the market for an LMS should start by identifying the features it needs. From there, some number-crunching and careful investigation of hidden fees will reveal how to get the most benefit at the lowest cost. Resist the urge to take shortcuts. In the long run, the most tempting solution isn’t always the right one.

Christopher Pappas is the founder of eLearning Industry. Connect with him on Twitter.

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