e-Learning Management 101

I responded to a newsgroup post today that asked, “Is there a rate or range of rates that freelance e-Learning contractors typically charge?” It occurred to me that my “e-Learning Management 101 – Estimating, Pricing, and Running Your Business” presentation that I used to give at our e-Learning Authoring Conference could be helpful. So I put it at the URL below and thought I would do a blog post as well.

http://www.plattecanyon.com/documents/e-Learning Management 101 – Estimating, Pricing, and Running Your Business.pdf”

Here is the list of slides:

e-Learning Management 101 – Estimating, Pricing, and Running Your Business
  • Jeffrey M. Rhodes
  • Platte Canyon Multimedia Software Corporation
  • General “Wisdom”
  • Figuring out a “billable” rate
  • Estimating projects
  • Pricing strategies for products
  • Joel on Software
  • Running a small business: Q&A/collaboration
Track Employee Time per Project
  • Critical to knowing where the time/money went
    • Compare revenue to costs (including support) at any time
    • Absolutely critical when a consultant
    • Can be unpopular with employees
  • Examples
    • Learning & Mastering ToolBook
    • TBCON itself
      • Program
      • CD/Archives
Manage Risk
  • Use Ben & Jerry’s or Dave Ramsey Strategy
    • No debt
    • No venture capitalists breathing down your neck
    • Grow Through Profits
  • Avoid Fixed-Price Contracts Like the Plague
  • Don’t “Tinker” Products to Death
  • Focus on Consulting that Either Improves your Products and/or Improves your Skills
Use “Responsive Sales”
  • Concept from Eric Sink
  • Customer initiates contact rather than being “sold”
    • Make sure customers know about your product
    • Make sure product is something customers want
    • Make sure they can afford your product
    • Offer a full-featured demo download
    • Answer customer questions
    • Provide a place for community
    • Make it easy to buy over the web
The Question is “How Much Do We Charge?”
  • For services, we build up from costs, incorporate risk, and try (depending on the market) to achieve our profit margin
    • acme multimedia training.xls
    • sampleWorksheet.xls
    • sampleBigJob.xls
    • RecentBid.xls
  • For products, the answer depends on the demand
How Much to Charge as a Consultant?
  • Start with expected salary
    • $60,000 per year equates to about $30/hour
    • Adjust for marketing/lack of work: Take into account that you won’t be able to bill out 2000 hours/year. Figure out a reasonable amount of off time (proposal-writing, marketing, research, vacation, etc.). 500 off hours for our example. Adjust the base hourly rate to account for this: $60,000/1500 = $40
  • Add in:
    • Employer Taxes (Social Security (6.2%) and Medicare (1.5%)): 7.7% or $3.08/hour
    • Benefits (health coverage, retirement, etc.): 15% – 40%. Use 30% or $12/hour for this example
    • Other overhead (rent, utilities, computers, software, etc.): 30% or $12/hour
How Much to Charge as a Consultant?
  • Add a company profit: 10% = $4/hour
  • Add it all together:
    • $40 + $3 + $12 + $12 + $4 = $72
  • Obviously lots of variation and factors here, but this is the general idea.
Estimating and Pricing Services 1
  • acme multimedia training.xls
    • A “coverage” approach that focuses on the cost of resources and estimates a project based on the percentage of time by person over a particular time frame.
  • sampleWorksheet.xls
    • A “screens” approach that breaks down a CBT or WBT into the number of screens of varying complexity.
Estimating and Pricing Services 2
  • sampleBigJob.xls
    • Another screens approach where the price came out so high that we didn’t even bid. Instead, we sent a letter suggesting a “prototype.”
  • RecentBid.xls
    • Relatively simple estimate to come up with the numbers to bid on a fixed-price, sole source contract based on requirements
Pricing for Products
  • The key is demand
    • Supply is basically infinite for software products
Pricing for Products (Continued)
  • We set the price and get the corresponding demand
What We Need To Know
  • The level of demand
    • How far the demand curve is to the right
    • Reflects the size of the market
  • The price elasticity of demand
    • How much will quantity demanded go up when we drop the price?
    • Shown by the slope of the demand curve
The Level of Demand
  • Besides price, what affects the demand for our product?
    • Tastes/Preferences
      • Advertise to boost this
    • Population of buyers
      • ToolBook Companion vs. Programming for e-Learning Developers
    • Buyer’s income/wealth
    • Prices of substitutes and complements
      • Commoditize Complements and Differentiate Yourself
    • Expectations of future price changes
  • Tastes is the only one that you can normally do anything about.
Level of Demand: L&M ToolBook
  • Look at each one of these for the Learning & Mastering ToolBook… series
    • Tastes/Preferences
      • Postcards, newsletters, web site, flyers in each box of ToolBook (killed by electronic downloadJ)
    • Population of buyers
      • Greatly dependent on the number of ToolBook developers
    • Buyer’s income/wealth
      • Follows the state of the economy, since the buyers are mainly businesses
Level of Demand: L&M ToolBook (Continued)
    • Prices of competitor products
      • Classroom training courses (expensive)
      • Books (inexpensive)
    • Expectations of future price changes
      • If customers expect a sale, they will wait
      • If they expect prices to rise, they will buy now
What Affects Elasticity?
  • Availability of Substitutes
    • If customers can buy a similar product, then they will go for the lower price.
  • Time
    • Customers can eventually move to other solutions if price is too high (buy a more fuel-efficient car if gas prices go up). So more elastic with time.
  • Proportion of Income
    • More elastic if product takes a big “chunk of change.”
How To Determine Elasticity?
  • Pricing of Existing Competitor Products
    • Most Platte Canyon products have had no existing competitor product on the market.
  • Surveys
    • Ask potential customers what they might be interested in paying. We did this with beta testers for L&M Instructor 6.5.
  • Put products on sale and look at the response.
  • Try a “Lite” and “Pro” version.
Elasticity of Development Tools
  • ToolBook and our ToolBook products have inelastic demand over a “reasonable” price range
    • Moving to substitutes difficult in the short-run (so more elastic over time)
    • Proportion of e-Learning development costs spent on tools is very low
  • Examples
    • ToolBook 1.5 was $495, ToolBook 10 is $2,795
    • Demise of Plug-In LE
    • Subject Matter Experts versus Programmers
      • Exam Engine versus Question control
      • Training Studio
Elasticity of e-Learning
  • The key is the availability of substitutes
    • If the market is big (as for training on Microsoft Office), then there are likely numerous competitors. This will constrain the price you will be able to charge.
    • Need to research this thoroughly before setting pricing.
  • Proportion of income
    • If you are training on an expensive product (sophisticated machinery or software), then easier to command a premium for the e-Learning.
Tips from Joel on Software
Running a small business: Q&A/collaboration