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As a CTO or L&D professional, it’s crucial to consider the return on investment (ROI) when improving or developing a Learning Management System (LMS). By calculating the ROI, you can demonstrate the value of your online training program to management and gain their support. Our comprehensive guide will walk you through the process of calculating LMS ROI and uncover the hidden advantages that can help you get the most out of your system. With this knowledge, you can unleash the full potential of your LMS and take your training program to the next level.
What is ROI in LMS?
LMS ROI refers to the financial and non-financial benefits that an organization gains from investing in a Learning Management System. While LMSs can be used for various purposes, such as online course selling, partner and employee training, companies are typically more interested in the financial aspect of LMS ROI. However, In addition to financial benefits, non-financial or nontangible gains such as reduction of human error (through automation) should also be considered when evaluating the ROI of an LMS investment. These benefits can have a significant impact on employee retention, productivity, and overall satisfaction.
To calculate ROI, organisations must consider various factors, such as the LMS development cost, its impact on revenue generation, reduced refund requests or support tickets. By understanding what could impact the ROI of your future LMS, you can make informed decisions about when it’s time to develop or switch to a new provider to meet your needs and improve the ROI.
How do you calculate ROI on LMS?
Calculating the ROI of an LMS requires a systematic approach, [taking] This approach should consider various aspects of the LMS design, development, and impact on all stakeholders. It involves evaluating not only the upfront costs but also the ongoing expenses associated with maintaining and using the system. In addition, the benefits of the LMS, such as increased productivity and improved learning outcomes, should be measured. Considering the viewpoints of all stakeholders, including learners, trainers, and administrators, is also critical in determining the ROI of an LMS. Overall, a systematic approach will ensure that all relevant factors are taken into account to accurately calculate the ROI of an LMS.
LMS ROI Formula
To calculate the ROI of developing or improving your LMS, you can use a basic formula that involves dividing the net benefits by the total investment and multiplying the result by 100. To determine the net benefits, you can subtract the costs that you have calculated in the previous step from the total benefits that you anticipate receiving from the change.
ROI (%) = (Net Benefits / Total Investment) * 100
We’ll look at a real-world example later, but for now, let’s measure investments and benefits.
Calculate the total investment required
For Total Investment, calculate the total cost of the LMS project, including:
- Development costs (software, hardware, and human resources)
- Implementation costs (integration, data migration)
- Maintenance costs (ongoing technical support, software updates, and system upgrades)
- Customisation expenses (plugins or development)
- Staff training and onboarding costs
- Administration costs (e.g. Man hour required to liaise with LMS Vendor, developers and QC tests)
- New content development expenses (if applicable)
Measure the net benefits
Tangible benefits are the quantifiable improvements your organisation experiences as a result of implementing an LMS. These benefits can have a direct impact on revenue generation and cost reduction. To calculate the net benefits, subtract the total value gained from costs associated with the LMS.
Some of the expected benefits include:
- Time savings: Reduction in time spent on manual processes like content creation, enrollment, and reporting.
- Increased Revenue: A new UX design and better user onboarding could reduce churn and increase revenue
- Increased productivity: A task that might take your employee 3 hours to complete could be fully automated! (Make sure to check out our LMS Automation blog for this)
- Better decision-making: Most LMSs suffer from a lack of proper data and reporting tools. Improvement in this area could reveal opportunities that were previously unknown to you.
- Less time & resources spent on putting out fires: If you are currently using a host of workarounds and 3rd party solutions to make everything ‘work’, then there is an opportunity for saving on all that unnecessary tasks.
Intangible benefits for internal training teams
If you are choosing an LMS for employee training, customer training or sales enablement, you may want to also include intangible benefits in your calculations (through a process called weighted estimation). Intangible benefits are the less quantifiable improvements that result from using an LMS, but they still contribute to the overall value of your training programme. These may include:
Improved employee satisfaction and decreased attrition/churn:
Employees with access to engaging and pertinent training tend to feel appreciated and backed, resulting in increased job satisfaction and reduced turnover rates. The same can be said for users as well. Especially in B2B partner training use cases where the main LMS users are employees of other companies and thus keeping them happy will help you with contract renewal negotiations.
Efficient processes would mean lowering the margin of error and risk. This could be a life-saver when dealing with sensitive customer data. In addition, a well-designed system could reduce your reliance on 3rd party tools and workarounds. That means less time spent on learning and onboarding for your employees and an easier and simpler way of doing business-critical tasks. We could provide many examples but just imagine how much time and effort you could save if you were to reduce the number of technical issues and tickets you deal with on a monthly basis. Some might say you can’t put a price on being more relaxed!
Better infrastructure for training and development:
An LMS provides a more robust infrastructure for training, making it easier to track learner progress, measure success, and continually improve your eLearning programme. All of these could help to make business decisions with more confidence and with the support of data (i.e measuring learner engagement and reporting infrastructure)
Enhanced customer satisfaction:
WOM is said to be the most powerful marketing tool there is. Social proof, reviews and even discussion on social media and comment section of your course review on a 3rd party does impact your bottom line. A well-designed and distinguished Learning management suite gives you the power of differentiation. In a sea of online courses, you could have a system that not only delivers eLearning but does so in an efficient and innovative way to make sure it maximises the learner’s outcome.
Weighted Estimation for LMS ROI
The Weighted Estimation method is a commonly used technique to assess the intangible benefits and costs associated with developing or improving an LMS. In this method, each intangible item is listed, and an estimated saving/cost in currency (£) is assigned to each item, representing what it is estimated to be if it were to happen. A percentage likelihood of the intangible occurring is then assigned to each item. Finally, the estimated saving/cost is multiplied by the % likelihood of giving a monetary value to the intangible item.
For example, if a company were to improve their LMS workflows and automation, it could estimate the intangible benefits it may receive. These benefits could include employee productivity gained through easier and streamlined processes. Or increased sales through easier Demo and onboarding processes. Each of these intangible benefits would be assigned a monetary value and a percentage likelihood of happening.
Alternatively, the company could also estimate the intangible risks or costs if they didn’t improve. For instance, if they were not to invest in automating more of their LMS workflows. In that scenario, you lose on a potential opportunity to save more time and reduce human errors.
Other examples of opportunity costs in the context of B2C LMSs could include paying more in user fees when gaining more customers, more system crashes due to heavy load and hidden costs of scaling. Each of these intangible costs would also be assigned a monetary value and a percentage likelihood of happening.
The Weighted Estimation method allows companies to weigh the potential intangible benefits and risks of developing or improving their LMS, providing a more comprehensive view of the estimated return on investment.
Practical Ways to Maximise Your LMS ROI
Now that you know how to calculate your LMS ROI, let’s explore 7 practical ways to help you maximise the ROI of your learning management system.
1-Avoid LMS Hopping
LMS hopping—switching between different LMS platforms every year or two—might seem like an opportunity to find the best fit for your organisation. However, it can actually have negative consequences and hidden costs in the long run. Continuously assessing and switching your LMS can lead to disruptions in your business, as well as increased costs and resources spent on migrating content, retraining staff, and re-establishing integrations with other systems.
Frequent LMS hopping can also impact learners’ experience, as learners may struggle to adapt to new platforms and interfaces, causing confusion and frustration. This may lead to a decline in learner engagement, reduced training effectiveness, and, ultimately, a lower ROI for your LMS investment. Instead of continually searching for the next best LMS, it is often more prudent to invest time in thoroughly evaluating potential platforms from the outset and then focus on optimising your chosen LMS to meet your organisation’s specific needs. This approach can provide a more stable foundation for your training programme, improve learner experience, and help you achieve a higher ROI in the long run.
3-Scalability for uncapped growth potential
A scalable LMS can grow with your organisation, allowing you to add new users, courses, and features as needed. This scalability ensures that your investment in the LMS remains valuable as your organisation expands, serves more learners without increasing staff costs, and it also allows you to continuously improve your training programme to meet the evolving needs of your employees, customers, and members.
4-Adopt Automation to enable true scalability
By automating various aspects of your eLearning platform, you can save time and resources for both administrators and learners. For instance, automated enrolment, progress tracking, and reporting can streamline the learning process, allowing your employees to focus on other tasks, while allowing you to serve more users without increasing workloadsAdditionally, automation can lead to more accurate data collection and analysis, enabling you to make more informed decisions about your eLearning business.
5-Improve LMS Reporting
learning management systems reporting is a crucial component of maximising your ROI, as it provides valuable insights into the effectiveness of your training programme. By analysing data on learner engagement, course completion rates, and assessment scores, you can identify areas for improvement and refine your training content. These insights can lead to a more efficient and successful training programme, which in turn contributes to a higher ROI.
What’s more, with customer-facing reports, you can easily demonstrate value to your customers, whether they be individual users in a B2C setting or business leaders in a B2B setting. This continued communication of benefits/impact helps to retain paying customers for longer.
Read our full blog on LMS Reporting.
6-Enhanced collaboration and community for increased engagement
A Learning Management System, equipped with the right features, can promote cooperation and information exchange among stakeholders, nurturing a culture of ongoing learning and growth within your organization. Features such as discussion forums, social learning tools, and collaborative learning spaces can help students learn from one another and share their expertise. This enhanced collaboration can lead to improved learning performance and a reduction in refund requests.
7-Choose the right technology for the ROI expectations
When selecting an LMS, it’s crucial to understand how different LMS technologies can impact your bottom line. Let’s explore four common types of LMS solutions and their financial implications that can make or break the success of your LMS:
Open Source LMS
An open-source LMS offers flexibility, allowing organisations to customise and extend the platform to fit their specific needs. With a strong base, it can be enhanced through customisations and integrations. However, it can be difficult to make sense of the vast number of options available, and finding the right learning-focused LMS development agency to support your open-source LMS can be challenging. While you have the option to handle customisations in-house, this approach requires time, expertise, and can be risky if the final product doesn’t meet your expectations.
Fully Custom LMS
A fully custom LMS is tailor-made to your organisation’s specifications, with all designs, integrations and functionalities designed specifically for your needs. This approach is often the best in terms of alignment with your business goals and processes. Although it may be more expensive in the short term due to upfront development costs, a custom LMS can save you money in the medium to long term by providing a solution that precisely meets your needs without requiring constant adjustments or additional features.
Software-as-a-Service (SaaS) LMS solutions are typically inexpensive to start with, making them a popular choice for startups and businesses testing new ideas. However, these platforms may become costly as your organisation grows due to per-user fees and limited feature evolution. Additionally, SaaS LMS solutions often lack the customisation options necessary for businesses to tailor the platform to their unique needs, which often change over time. This means that a SaaS LMS can sometimes become a bottleneck, holding back your growth potential.
7-The Secret tool to make your ROI go Bananas!
Shapeshift LMS combines the best of both worlds – the benefits of a fully custom LMS without the fully custom price-tag -offering affordability in the medium and long term with monthly payments and no per-user fees. Furthermore, it provides a source-available solution, which means that you can take over future development in-house if desired which means you’re always in control. This innovative LMS model strikes a balance between customisation, scalability, and cost-effectiveness, making it an attractive option for businesses seeking a flexible and future-proof LMS solution.
In conclusion, understanding the financial implications of different LMS technologies is crucial when selecting the right platform for your organisation. By carefully weighing the costs and benefits of open-source, fully custom, SaaS, and hybrid solutions like Shapeshift LMS, you can choose the LMS that best aligns with your business goals and delivers the highest ROI for your investment.
If you’d like to learn more, you can book a call with our sales team for more information!
Calculating and maximising the ROI of your LMS is essential for ensuring that your eLearning company invest in the right platform. By understanding the costs and benefits of your LMS, leveraging its hidden advantages, and tailoring the platform to the unique needs of your organisation and employees, you can create a more effective and efficient training programme that supports the ongoing success of your business.
Let’s recap How you can maximise your LMS ROI
1-Avoid LMS Hopping
2-Scalability for uncapped growth potential
3-Adopt Automation to enable true scalability
4-Improve LMS Reporting
5-Enhanced collaboration and community for increased engagement
6-Choose the right technology for the ROI expectations
7-Upgrade to Shapeshift LMS 🚀
In addition to understanding how a new LMS can benefit your specific industry, it’s crucial to leverage new features and continually evaluate the effectiveness of the current provider. Embrace the power of advanced LMS reporting, automation, and collaboration to unlock the full potential of your online training and support the growth and development of your organisation. Remember, a well-implemented LMS tailored to your unique needs can drive a high ROI and contribute to the long-term success of your business.