Pricing Online Learning

From Balancing Act: The Newsletter (No. 94: June 2007):

There are only a few really vital aspects of pricing: The perceived value of your offering, the price point, the margin of profit, and the volume of sales. You can materially affect all of them unilaterally.

I get asked very often about how to market and sell online learning initiatives, and particularly about e-learning pricing strategy. Indeed, it was on my short list of things to write about this week when I ran across the above passage from Alan Weiss, author of Million Dollar Consulting: The Professional’s Guide to Growing a Practice. It struck me as a good framework for a posting. Here is a quick analysis of the four vital aspects in the context of selling online learning and generating e-learning revenue:

The Perceived Value of your Offerings:
I am sometimes amazed at the assumptions organizations are capable of making about the perceived value of their e-learning offerings. Many feel that whatever they offer to their stakeholder base has high value and that the stakeholders will agree. Very few test this in a truly scientific manner—i.e., through valid surveys, focus groups, etc. If you want to get top dollar for your online learning courses and other offerings, you need to find out what is truly of value to your audience and why (through surveys, focus groups, etc.)—and then create online learning products, messaging, and pricing that align.

Related to the issue of perceived value, I encounter many organizations that feel their content is highly unique and therefore put a lot of effort into protecting their intellectual property. This is increasingly a losing—and expensive—battle. What is unique today will be on the streets of China tomorrow. Content is important - it has to be targeted and timely - but your organization’s brand and the credentials offered through its online learning are at least as important. Continuing education credit (CE, CME, CEU) towards some form of valued certification, licensing, or other credentials tends to represent a dividing line between whether an e-learning offering is perceived as a nice-to-have or a have-to-have. Setting and maintaining a strong price for your online learning offering without these will be an uphill battle.

The Price Point:
Assuming you have a reasonable understanding of perceived value, you still have to set a price. Even organizations with a high opinion of the value of their content often become squeamish when it comes to setting a price commensurate with that value. Many organizations that already charge for classroom-based training, for instance, tend to assume that the price point for online learning should be lower. The message to the buyer, of course, is that the value of the e-learning experience is lower. As I’ve noted in an earlier posting, Selling E-learning to Members: Basic Success Factors:

If the online learning and classroom content are substantially the same, the price charged for them should also be the same. If it really makes sense to charge less for the online learning, be absolutely certain that the difference in value propositions for the online and offline options is crystal clear to the potential purchaser.

The major exception to the above is if the cost structure for the online learning is significantly lower than cost structure for place-based learning. In these cases, nonprofit organizations in particular may have a valid reason for pricing the online learning lower, even if the educational value is identical. Be sure that the costs truly are lower, though - often they are not - and make it clear to your customers that the lower cost structure is the reason for the lower price.

The Margin of Profit:
Whether you are offering e-learning products as a for-profit or a nonprofit entity, you will almost certainly want to know that there is a positive amount of revenue that lies between what it cost you to produce the products and your sales receipts from them (gross margin). Most likely you are also going to want to know that this figure remains positive when you take into account all of the operating expenses associated with your e-learning offerings (net margins). In for-profit situation, I have typically aimed for a 40% net margin; in nonprofit situations, 40% gross margin may be more appropriate. Naturally, actual margin requirements will vary greatly from one organization to another.

The Volume of Sales:
This is an area in which organizations consistently overestimate their potential. Mostly, they don’t realize how long it will take to penetrate the prospective customer base and build sales numbers for their online learning offerings. Many, however, do not realize that the customer base they are targeting is too small in the first place.

In my experience, if you are selling e-learning (as opposed to mandating it in a corporate setting, for instance), you will be doing well to achieve a five percent adoption rate in your first year or two of business, and ten percent is exceptional. (Note: More recent research I conducted for Association E-learning 2009: State of the Sector suggests my numbers here may be somewhat. Average penetration reported by participants in that study suggested an 18% average and 10% median penetration rate.)  So, if you are dealing with a prospective audience of 10,000 people, you might expect 500 to 1000 purchases in the first year. If you assume that some percentage of the buyers will by more than one product, you might estimate 1200 total product purchases (just a ballpark, not a scientific calculation).

Let’s assume that, after surveying you prospective audience of online learners, you feel that the price point cannot be greater than $100 per product. So, your potential is roughly $120,000 in gross revenues. For a band new initiative, I generally recommend a conservative approach that assumes the actual number will be half of that for purposes of budgeting your expenses and cost of goods sold—meaning you need to spend less than $60,000 to feel relatively certain about operating in the black. That may or may not be possible, depending on how much you feel you need to spend on production to meet the expectations of your audience for online learning and on marketing and sales to reach that audience.

I always caution organizations not to place too much emphasis, particularly in the initial stages of selling e-learning, on selling to individuals. If you are already selling a large number of other training products to individuals, you may be able to make a go of it, but in general, it takes a great deal of time and effort to build up a large base of individual buyers, and most organizations are not offering products of wide enough appeal to ever draw in a large enough base of individual sales to make for a sustainable e-learning business. If at all possible, it’s better to look to other organizations that are in a position to purchase in large quantities and distribute the products to their user base.

With careful attention to the four areas above, I have seen organization price online learning offerings from as low as $15 per offering to as high as $320 and operate sustainable (with the per-credit-hour rate, where relevant, averaging around $22), positive net revenue e-learning businesses in both scenarios. I welcome any information readers may be able to share with respect to their experiences in pricing e-learning offerings.

Jeff Cobb

Need help with developing or marketing your online learning program? Contact me.

Related posts:

1. A Slightly Worse Version
2. 3 Keys to Selling More E-learning (Key 3)
3. 3 Keys to Selling More E-learning (Key 1)
4. 3 Keys to Selling More E-learning (Key 2)
5. The 7 Measures and Online Learning

Tagged as: associations, e-learning, pricing