How do you know if the LMS you’re about to buy is going to cost you an arm and a leg in professional service (mostly implementation and customization) fees?
Here’s one proxy measure. It’s not perfect but it will give you a sense of likely costs. Ask to see the vendor’s audited financial statements with a segmental analysis by revenue stream (companies that do IFRS (international GAAP) reporting will already have these numbers on hand — companies that use country-specific GAAP reporting standards may have to do the math for you).
If the vendor you’re considering gets more than half of its revenue from professional services, you’re likely to end up spending a lot of money on the implementation.
If the vendor gets, for example, 60 percent of its revenue from professional services and only 30 percent from licenses, whatever the vendor tells you the license will cost, double that figure and add it back to the license fee to get the real cost of doing business with that vendor. So if the license costs $100,000 you’re likely to end up spending $300,000 all in with that vendor.
This is not a perfect indicator, but it’s a good start for having the hard conversation before you sign because armed with the vendor’s real revenue breakdowns, you’re in position to force that vendor to justify his service fees to you.
Note: This test works equally well with SaaS vendors. If the hosting contract is X and professional service charges for the vendor generally equal 2X, then assume 3X in your year-one costs.