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How much does a custom LMS cost?

How much does a custom LMS cost?

In the LMS world, there is no one-size-fits-all solution, as in any other software. That’s why there are so many solutions available: content creation platforms like Adobe Captivate and Articulate Storyline position themselves as “all-in-one”, there are tons of SaaS solutions, on-premise solutions, built-in solutions in ERPs, CRMs, HR management systems, and open source technologies. In our experience, there are a lot of cases when a project is very specific, so a custom LMS is the only way to go. Let's outline the cost of a custom LMS creation depending on where you are and which way you choose.

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Member of the Board, Raccoon Gang

Sergiy has 18 years of experience in eLearning and management. Creating educational programs, career paths, online and offline courses he is making the educational world better as a co-founder of RG.

How much does a custom LMS cost?

Approximate Custom LMS cost, $

Organizations start to consider a custom LMS creation when everything they have been offered doesn’t cover their needs. They are not satisfied with the design, UX/UI, mobile app, skill management abilities, integration possibilities, automation possibilities. They want to embed custom content, they want to customize certificates (partner badges, certificate language, custom autocomplete fields). They want to customize the learning journey with course sequences and prerequisites, and the way how the roadmap is visualized, they want some specific ways of monetization. They have some specific needs in course enrollment logic, in reporting, in gamification, in mobile apps, in access management. As we said in our promo video, “your business is unique, your customers are unique, so your LMS should be unique too”.

If someone has all the money in the world, the best choice for them would be a custom LMS. But it might cost a fortune, right? Definitely not always. You can have a highly customized learning management system for a reasonable cost. The cost will vary depending on your needs, budget, and your profile as a learning experience provider. Let’s start with defining the typical profiles as they are the key for defining what budget you should prepare for.

What’s your profile?

eLearning business profile dimensions

From our experience, you most probably belong to one of the following profiles. We’ll describe each profile briefly from the perspective of several key dimensions:

  • Userbase: how many users/learners a company expects to serve monthly in the next 12 months
  • User profile: who are the learners
  • Partnerships
  • Content: what types of content an organization plans to use on the platform
  • UX/UI/Design: how important it is for an organization to create a unique interface, dashboards, custom designs for roadmaps, course catalogs, etc.
  • Scheduling: level of sophistication of course enrollment, course pacing, course completions mechanics. As an example, simplified scheduling can be characterized by self-paced courses that are fully open after a learner enrolls in them. Sophisticated scheduling provides automated enrollments depending on skill assessments, recommendations, customized and personalized content delivery, skill-based sequences, online schedules synchronized with offline schedules, etc
  • Integrations: what is the expected level of complexity of integrations between the learning platform and other systems (marketing, CRM, ERP, etc.)
  • Monetization: level of complexity of monetization mechanics
  • Security: compliance, access, governance, policies and their reflection in software: automation, rules, scenarios

Depending on your profile, there is a different certainty level of whether you need a custom LMS or not.

Profile description Beginner VIP Club Growing Business Mature Business and Enterprise
Userbase <1K/month <1K/month 1K-20K/month 20K-100K users/month
Users Individual learners, self educators Executives, founders, investors, producers, etc Corporate sector/self educators combo Custom and individual
Partnerships Little to no partnerships
Partnerships with universities, business schools, etc.
Universities, business schools, content delivery services, etc. Custom and individual
Content Images, slides, PDF, video files (upload or link) Classic content + custom assessments + interactive group tasks + external publishers Often custom content and custom experiences are added to the equation Custom and individual
Design Simple branding and standard user interfaces are understandable by any user Unique, classy, and subject-specific; personalized dashboards, roadmaps, etc. Branding is very important: custom UX/UI is a must Custom and individual
Scheduling No interdependent sequences, or skill-based roadmaps; no prerequisites or enrollment automation Roadmaps, sequences, automation, and 1to1/group lessons need to be automated Sequences, skill-based learning, custom course enrollment mechanics, custom course pacing. Custom certification; custom recommendations Custom and individual
Integrations Social login, email plugins, etc. Content publishers, referral databases, CRM, etc.  Automation and API connections, deep integrations Custom and individual
Monetization Free courses; simple subscriptions/packages Partnerships, networks, subscription packages, statuses, etc. Subscription levels, partnerships, discounts, giveaways, packages, customer segments Custom and individual
Security Basic security: no multi-level hierarchy for approvals management High security standards; low level of bureaucracy High security standards; high level of bureaucracy on the customer’s side Custom and individual

Beginner

Profile description

Userbase: <1,000/month

Users: individual learners, self educators

Partnerships: no partners from a content or certification perspective

Content: images, slides, PDF, video files (uploaded directly to the server or YouTube)

Design: simple branding and standard user interfaces understandable by any user. No big ambitions from the design perspective

Scheduling: simple – individual courses with no interdependent sequences, or skill-based roadmaps. No prerequisites or enrollment automation

Integrations: simple integrations like social login, email plugins, etc.

Monetization: free courses; simple subscriptions/packages

Security: basic security is enough, no multi-level hierarchy for approvals management, or strict compliance rules that provide for complex access management and approval processes

Need for a custom LMS

For such a profile, there are a lot of options in the SaaS world, and some customizations here and there can be implemented using the native admin settings. There is no particular need to develop a custom LMS

VIP Club

Profile description

Userbase: <1,000/month

Users: executives, founders, investors, producers, etc

Partnerships: numerous partnerships with universities, business schools from both content and certification perspectives

Content: can be mostly classic types of content like videos and slides, with specific custom assessments/exams and interactive group tasks; integrations for connecting content from external publishers might be needed

Design: design in most cases needs to be unique, classy, and subject-specific; personalized dashboards, roadmaps, and other elements are needed to engage the audience

Scheduling: roadmaps, sequences, automation, and 1to1/group lessons need to be automated and perfectly arranged

Integrations: integrations with content publishers, referral databases, CRM, and other systems are mostly needed

Monetization: usually complex monetization via partnerships, networks, subscription packages, statuses, etc

Security: high security standards, but often not a lot of bureaucracy

Need for a custom LMS

In this case, custom LMS is vital as there is a need to deliver a unique learning experience, support branding with unique platform design: basic customization options provided by a packaged solution are definitely not enough. Plus, integrations with CRM and partner network systems, organization of seamless logins, numerous automation to make the service seamless and user-friendly will definitely require custom development.

Growing Business

Profile description

Userbase: 1,000-20,000/month

Users: often a combination of the corporate sector and self educators

Partnerships: selling knowledge to organizations requires partnerships; sometimes partnerships with learning content providers as well

Content: can be simple or sophisticated from project to project. Often custom content and custom experiences are added to the equation

Design: custom design is almost always a must: basic customizations like changing the logo, color theme, sequence of info blocks are not enough. Branding is too important for this segment

Scheduling: sequences, usage of paywalls, skill-based learning, custom course enrollment mechanics, different course pacing for different types of clients. Need for custom certificates, automated certificate templates is often needed. Advanced and customizable course recommendations are also “top sellers”

Integrations: for this segment, integration with clients’ systems and software is often needed;  in many cases, numerous automation and API connections are needed to automate business processes, save time and money on routine and build seamless client experiences.

Monetization: subscriptions of different levels, partnership programs, discounts, giveaways, packages, differentiation by customer segment – all the modern mechanics are necessary for this segment to grow further.

Security: high security standards and a growing level of bureaucracy along with the high level of bureaucracy on the customer’s side require sophisticated security mechanics to be in place.

Need for a custom LMS

Growing businesses definitely need a custom LMS. It’s one of their main growth drivers, customer retention factors, and ROI optimization levers.

Mature Business and Enterprise

Mature business: 20,000-100,000 users/month

Enterprise: 100,000+ users/month

It’s obvious that mature businesses need a custom LMS and even more – they mostly become mature businesses due to custom LMS introduction in their earlier development stages. In our experience, 95%+ of mature businesses already have a  legacy custom LMS and look for modernizations, innovations, migrations, and so on. And of course 99%+ of enterprises have their own custom learning management systems. The issues they are resolving and innovations they are looking for are connected with AI/ML, Blockchain, Cloud Computing, and so on. Many of them are struggling because of non-future-proof technology choices. Their legacy technologies are blocking them from moving forward quickly. Why are we talking about it in this article? You’ll get to know why soon.

Custom LMS cost

If you are a VIP club, growing business, mature business, and especially enterprise, you’ll need a custom LMS. Now, what are the ways to create your unique custom LMS that your competitors’ sales reps will start to use as an excuse for their sales decrease? Let’s outline different ways and the costs connected to them. We’ll start with the Beginner segment so you can see how the costs build up.

We will consider the following ways to build a custom LMS:

  • Proprietary/on-premise LMS. Those are packaged solutions that are proposed in a SaaS or hosted form that offers APIs, simple customizations that are managed using built-in tools. A majority of popular brands allow customization options via their network of certified software development partners
  • Building LMS from scratch. There are a lot of software development providers that offer their custom LMS development services. They offer the services of creation of any learning management system with an unlimited feature set
  • Using open-source technology. Open source technology gives you some set of basic and sometimes even advanced features for free and you can customize it into almost anything that you want by choosing development companies that specialize in that technology. We’ll use the Open edX technology as an example as we have a lot of experience with it and we believe that it is a truly disruptive and forward-thinking technology. We’ll explain further why.

We’ll stick to estimating the costs that will be accumulated in the first 3 years so the hosting and licensing payments are taken into account.

LMS costs for a Beginner

Beginners will need a basic set of features from all perspectives as we discussed. The list of features is described in a lot of blogs eLearning related publications and they are fairly straightforward:

  • Learner portal, where users can find courses and enroll 
  • Learner’s space where one can consume courses, join online lessons, be engaged in discussions, pass assessments and exams and get certificates; sometimes there are even basic badging features; often mobile apps are considered essential 
  • Basic admin panel where platform managers can create courses, manage enrollments, have access to generic reporting

LMS costs for a Beginner: proprietary/on-premise

You won’t need to pay for hosting and any development because all the features described above are available in most SaaS or On-Premise LMS providers. You’ll just need to pay for a license per registered (important: NOT active) user. So when there are around 1,000 active users, there are usually at least 1,500 registered users. The average price per registered user for such a scale is around $2/month. So, in 36 months the total bill is going to be $108,000. The hosting and the support are usually included in the package

LMS costs for a Beginner: proprietary/on-premise

LMS costs for a Beginner: develop from scratch

Of course, the majority of eLearning businesses/organizations that are in the Beginner stage would not start to develop LMS from scratch because they don’t start with something around 1,000 monthly users, they start small (SaaS, self-hosted open-source LMS) and build-up while they grow. However, it’s important for us to estimate a basic LMS developed from scratch because it will help us to build up the custom LMS cost for other levels.

As a lot of software development companies already created their blog posts on the LMS development cost, we can use that information as they describe the cost exactly for something fairly basic.

The price for a basic LMS that would fit our Beginner segment varies from $25,000 to $90,000. Let’s take the average: $57,000. This average sum resonates with our experience and sounds like a meaningful one. We’ll also need to add mobile applications which are essential nowadays. Those would add around $25,000

We also need to include hosting expenses. Monthly hosting fees for the considered number of users (NOT registered) would be around $100 per month which is 3 years makes up around $3,600.

Support also might be needed and it would make up around $1,000 per month -> $36,000 in 3 years

LMS costs for a Beginner: develop from scratch

❗️Another important note here: the choice of technology for development is a dilemma. If you want to save money at the start, you’ll go for some “low cost” technology, where developers have lower rates and the development itself is done faster. But that would turn out to be a problem in the future when you start to grow. Because when you grow, you’ll start to need scalability, you’ll need to keep the system up and running for thousands of active users each second. You’ll need to start leveraging big data, and those technologies might not be a good fit anymore. You’ll be in a position where you need refactoring, migrations, etc. Which means a lot of money. Let’s keep that in mind when we move to the next option of which we are the evangelists. 

LMS cost for a Beginner: open source

Open source gives you much more functionality than a Beginner would need right out of the box. Take a look at our blog post of what Open edX, the most prominent open-source LMS technology that was developed by Harvard and MIT, can do with no additional customization.

The cost of Open edX implementation, along with the mobile application, reporting tool, and even advanced gamification tool is going to be about $15,000. The functionality that you are about to get is much closer to what a Growing Business would need, at a significantly lower cost compared to other options.

❗️Why? Where’s the catch? There is no catch. This is possible because the edX platform, the result of huge work done by developers led by Harvard University and MIT, one of the biggest online course platforms in the world (acquired by 2U and now part of the biggest player), has been partly shared with the whole world in a form of open sourced platform that has been called Open edX. You can compare it to Tesla who shared their electro vehicle technologies with the whole world which has changed the automotive market. Now electric vehicles cost much lower than they did 10 years ago. The same is happening with custom learning management systems thanks to Harvard and MIT and their Open edX technology.

To the basic implementation mentioned above, you’d need to add the support package and hosting which is similar to the “develop from scratch” option: $1,000/month and $100/month respectively.

LMS costs for a Beginner: open source

LMS costs for a Growing Business

Growing Businesses, as mentioned above, will need a lot of customizations to become Mature Businesses or Enterprises. They’ll need to rethink the UX/UI and all the interfaces, add more dashboards and more features, implement advanced reporting, automation, enhance mobile applications, introduce more platforms in the infrastructure (CRM, HRM, ERP, various marketing platforms, content delivery platforms, etc) and seamlessly integrate them with the LMS, build workflows and reports related to them, introduce custom content and custom enrollment workflows… in other words, build up the infrastructure.

❗️Additionally, the question of scalability starts to arise. It is a very important question because not all technologies and platforms will be able to guarantee decent uptime and stability with 1,000+ consecutive user loads.

From the perspective of costs, here is where the real difference is revealed. Let’s consider that we are a Growing Business and we need to build an appropriate LMS with the whole infrastructure without being a Beginner before. So, the first 3 years, again. And, we are aiming at 20,000 active users per month

LMS costs for a Growing Business: proprietary/on-premise

You would still need to pay per registered (NOT active) user, so if there are 20,000 active users, there are usually at least 30,000 registered ones. With such a scale, providers would charge around $1.5 per user per month. So the whole cost for the base software for 3 years would be around $1,620,000. Now, let’s add customizations.

As you are “vendor-locked”, to be sure about the quality, you need to hire vendor-certified developers, and their price is going to be significantly higher than the market average for a given technology. So, you’d need to pay an average of $175/hour.

The customizations that we’ve outlined as needed for a Growing Business would take from 800 to 2,000 hours of development time as such platforms are made to be customization-friendly (yet this is quite expensive). Let’s consider an average of 1400 hours, which translates to $245,000.

LMS costs for a Growing Business: proprietary/on-premise

LMS costs for a Growing Business: develop from scratch

If you develop everything from scratch (not upscaling from a Beginner phase), you would need to go through a huge phase of documentation creation, business analysis, and architecture planning to get a good result. However, you’ll be able to choose the appropriate technology and plan for scaling. Considering all the factors, a fair software development vendor would tell you that with the requirements that you have, you should aim for around 6,000 hours of development.

Qualified and experienced companies will charge you between $40 and $150 per hour depending on the location, so let’s consider a $60 rate (if someone tells you that you can find even a $20 rate – that’s true but in this case, our estimates should be multiplied by 4X and we should add a 40% risk of a bad result and need for expensive refactoring afterward). That means around $360,000 for the development. And we again should add around $36,000 for 3-years support and take into account around $500 per month for hosting considering 20K monthly active users.

LMS costs for a Growing Business: develop from scratch

LMS costs for a Growing Business: open source

❗️As it has been mentioned before, a lot of features suitable even for Enterprises, are already present in Open edX (some other open source LMS technologies are not exclusions) and implemented in the form of pluggable features: Programs, eCommerce, prerequisites, user access, gradable SCORM and LTI compatibility, video players, audio players, reporting tools and now even a gamification tool developed by us. And what’s also very important, Open edX is built on the Python programming language which is super scalable and AI/ML/Big Data friendly. So, from 60% to 80% of all the needed functionality is covered out of the box. Take a look at the project we delivered that is relevant to Growing Businesses: 70%+ of all the requirements have been covered out of the box.

Considering what’s said above, the average development effort needed to implement a custom LMS based on open source (Open edX in our case) technology for a Growing Business is around 800 hours, plus the packaged solutions that comprise $15,000 (we mentioned it when we were talking about the custom LMS costs for Beginners based on Open edX). The support also remains in place ($1,000/month), along with hosting ($500/month).

LMS costs for a Growing Business: open source

❗️Let us offer some references to a couple of our projects that comprised comparable budgets and had scopes even closer to Mature Businesses and Enterprises:

The difference between average expenses compared to other ways to get a custom LMS is surprisingly big, but that’s reality. Top organizations in the world choose open source and particularly Open edX for their eLearning projects “for a reason”. By the way, Tesla uses Open edX as their LMS technology of choice as well 😉

LMS Costs for a Mature Business and an Enterprise

We will not cover this part in detail as the costs of LMS for a relatively big company can vary significantly. Some enterprises “go simple” and their custom LMS can be evaluated around $300-400K, some Mature Businesses aim to be a “huge VIP Club” and their LMS may have cost them a couple of millions of dollars due to super advanced interfaces, thoughtful automation and workflows, usage of AI-based recommendations and so on. So, we can move to the conclusion.

Conclusion

Let’s sum everything up in a simple table.

Appx Custom LMS cost, $
(for the first 3 years)
Type of eLearning Business
Beginner Growing Business Mature Business/Enterprise
Developed from Scratch 121,500 414,000 600,000+
Proprietary/On-Premise LMS customization 108,000 1,865,000 (hard to estimate)
Open Source LMS customization 54,600 117,000 150,000+

We believe that our estimates are realistic for several reasons:

  • We have years of experience in eLearning technology
  • We are actively communicating with the LMS development community and participate in discussions with decision makers in organizations that are looking to implement, refactor or switch their custom learning management systems and we hear their pains and issues; sometimes they are measured in hours of development work
  • The number of projects delivered by us grew from tens to hundreds; the number of discovered and estimated ones is over a couple of thousands; we have experience with projects of different scale and complexity from around the world.

What we strongly believe in can be formulated as follows: if you are a Growing or a Mature eLearning Business, Open edX technology will make a significant difference in potential costs and results when it comes to a Killer Custom LMS development.

This can be proven by the project descriptions we shared above.

The reason for such difference is simple: when something sophisticated is already created by some fantastically smart people and has been shared with the world, you can use it in your favor if you partner with someone who knows how it works.

We know how Open edX works, we have huge experience in custom LMS development, and we have a great team behind us that delivers. So we can surely say that custom LMS is easy with us.

Schedule a demo with us to have a personal demonstration of what Open edX can do in our hands and how we can help you create your killer custom LMS.

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