Learning-as-a-Service (LaaS): Considerations for Establishing Subscription-Based Pricing for Customer Education

A common question that TSIA receives is, “What should I charge for my learning subscription/learning-as-a-service offer?” This question is akin to asking an architect, “How much will it cost me to build a house?” Before an architect can answer, some basic follow-up questions must be asked: “What’s the square footage?” “Is it a two-story or single-story home?” “How many bedrooms and bathrooms?” Once this information is ascertained, the architect is in a better position to provide a price.

And so it goes with determining subscription pricing, which is impacted by the following:

• What’s included in the subscription
• The level of content provided
• Whether the offer is an individual or enterprise subscription 

So, how do you determine pricing for a successful learning subscription/learning-as-a-service (LaaS) offer?

While members of TSIA’s Education Services research practice have access to actual price point data, this blog provides some insight into pricing methodology, as well as foundational questions you can ask to determine the best pricing for your customer education subscription offer.

What is Learning-as-a-Service (LaaS)?

In an increasingly subscription-based world, more technology companies are offering their products and services on a subscription, or “as-a-service” basis, such as software-as-a-service (SaaS) or device-as-a-service (DaaS). Education Services organizations are following suit by providing learning-as-a-service (LaaS) as part of their offer portfolios. The definition of learning-as-a-service (LaaS) is any customer training or education product or service offered as a subscription or on a “pay-as-you-go” basis. Based on TSIA’s 2018 Education Services Pricing Survey, the most common learning subscription includes access to online content, a virtual, hands-on lab environment, and live, virtual instructor-led training.

Because the subscription business model is heavily dependent on customers staying on the platform, it’s up to education organizations to ensure their customers receive recurring value from their purchase, lest they cancel their contract. That is why having a consumption strategy, a compelling subscription offer and new/fresh content is crucial to a learning subscription’s success.

What’s Included in a Learning-as-a-Service Offer?

In TSIA’s Education Services Pricing Survey, we asked 16 questions that covered both subscription practices and pricing. The biggest takeaway from the results of this survey is that when it comes to subscription offer pricing, one size does not fit all. Pricing is highly variable and can depend on what’s included in the subscription offer, the level of the content being offered, and/or the pricing model used to set the subscription price. First, let’s start with what’s most commonly included in education subscriptions.

 

The different types of learning methods found in education subscription offers.

While Education Services organizations have been selling e-learning (training delivered remotely via internet) on a subscription basis for years, we’ve recently seen other forms of learning being included in subscriptions as well. For example, 92% of survey participants include a hands-on lab environment in their subscription offer, and almost half (46%) provide virtual instructor-led training (VILT), as compared to 25% who did so in 2016.

Additionally, 46% include certification, and the inclusion of public classroom training in subscription offers continues to rise. For clarity, VILT and public classroom training are defined as follows:

• Virtual Instructor-Led Training: While VILT is technically a form of online learning, what makes it distinct is that it is a synchronous event for which a student must register. A live, instructor-led session is facilitated via web-conferencing technology and a virtual lab environment. Typically, the instructor is in one location and students are located in different cities, states, and/or countries.
• Public Classroom Training: Public classroom training is delivered in a physical classroom that is typically owned or rented by the entity delivering the training, and for which a student must register. The student travels to the classroom site and the instructor and students are face-to-face for the training. 

Levels of Content to Include in Your Education Subscription Offer

For the purposes of the pricing survey, TSIA did not split hairs regarding all the various forms of e-learning that may or may not be included in a subscription. Instead, we asked survey participants to describe the level of content they offered in their subscription. We found that almost all survey participants provided both basic and intermediate-level content, with more than 50% also providing advanced-level content.

 

The varying levels of content found in education subscription offers.

It’s important to have content available for all user levels so that no matter where learners are in their education journey, they’ll have relevant content to consume. Based on a prior TSIA Education Services Offer Development Survey, we learned that a common content request education organizations receive from their customers is for advanced-level content.

The Difference Between Individual and Enterprise Subscription Plans

Now that we know what elements to include in a subscription offer and the levels of content to provide, let’s take a look at one more factor that can impact pricing: individual and enterprise subscription plans.

An individual subscription is just that: a subscription sold to an individual. While 100% of the survey respondents offer an individual subscription, we found that only 58% offer an enterprise subscription. An enterprise subscription serves any number of people in an account, over a certain threshold, such as 10, or more, and typically, the price-per-user decreases as the number of users in the subscription increases.

Variability in Learning-as-a-Service Pricing

One thing that the pricing survey revealed is that there is still a lot of variability in subscription pricing across the industry. For example, two survey respondents provide the exact same things in their subscription offers: e-learning, a virtual lab environment, and certification. However, we noticed that there was a 33% differential in their list prices.

Solving pricing inconsistency is just one of the many goals of TSIA’s Education Services research, which provides members with benchmark data and real-world examples of what their peers are charging for similar offers.

How to Price Education Subscription Offers: Subscription Pricing Framework

Using a subscription pricing framework is the starting point for establishing a price for any learning-as-a-service (LaaS) offer. There are a number of different pricing models that can be used to establish price, but the three we provided in the subscription pricing survey included:

• Cost-Plus Pricing: Direct material cost, direct labor cost, and overhead cost for a product are added together, and a markup percentage is added to the costs to derive the price of the product.
• Market-Based Pricing: Similar products offered in the marketplace are compared, and price is set higher or lower depending on how well your offer matches up to the market.
• Value-Based Pricing: Price is set according to the perceived or estimated value of a product or service, rather than determining price based on the cost of the product or on historical prices.

Based on survey responses, we found that the most common approach used, at 50%, is cost-plus pricing. Answers for the “Other” option tended to be some combination of two of the three models provided; however, one participant had an interesting approach and indicated that the subscription price is tiered, based on the software license fee.

Some of the fluctuations that are seen in subscription pricing, regardless of what’s included in the offer or the level of content provided, are attributable to the revenue, margin, and profit goals of the Customer Training organization and the extent to which the organization wants to recoup the costs for producing and maintaining content. So, in addition to identifying a pricing model, your education organization needs to answer the following questions to determine a pricing structure that’s right for you:

1. What is the first-year growth target for a new subscription offer? Growth can apply to revenue growth, increased volume in the number of subscription offers and/or users, or both.
2. What is the desired subscription growth in years two, three, and beyond?
3. What is the overall Education Services revenue growth target?
4. What is the margin goal for the Education Services organization?
5. What is the profit goal for the Education Services organization?
6. What percentage of the cost of producing and maintaining content does Education Services  want to recoup?
7. What will the subscription renewal price be? The same, more, or less than the original price?

Knowing the answers to these questions, in conjunction with the pricing model Education Services wants to use to establish price, ensures that your organization arrives at pricing that helps you to achieve your specific growth-related goals and objectives.

Get More Education Subscription Pricing Best Practices

In summary, the key to determining the price of a customer education subscription is not based on asking a single question: “What is everyone else charging?” It’s based on answering the seven questions posed in the subscription pricing framework, in conjunction with selecting the pricing model that best enables your organization to achieve its growth targets relative to the subscription offer itself, and more broadly, to the organization overall.

You can read more about the above methodologies in my abridged Education Services Pricing Survey report. As mentioned, current TSIA Education Services members have access to the full report that includes actual pricing recommendations, so I encourage you to reach out to TSIA today to learn more about becoming a member.