The Business of Learning

Posted by

Pick a number.  Any number.  Better yet, let me toss you with some numbers. You have a dollar, I give you ten cents back.  Now, you are thinking to yourself, “I’ve been ripped off, I only got ten cents for my dollar.”  The next day, you give me another dollar and I give you 90 cents back.  Your response, knowing that the day before I gave you 10 cents, is going to likely be that you received a good deal.  In reality though, I have kept 10 cents from you.

But in your mind, the 10 cents originally, now 90 cents, is a sweet heart of a return.  Welcome to the Business of Learning.

It’s in the numbers

Let’s face it the whole corporate and even education space is about numbers.  If you want to have a program not cut at a university, you need the numbers to support saving it.  Want to keep that Mass Communication department? Show me the numbers of students that are in the program and now show me the numbers that you will have if you add this other department to it. 

On the corporate side, anyone who has ever run a training program or L&D, has to prove that the numbers are there.  Want to keep that budget of yours?  Show me the numbers.  Wish to add an e-learning program and that LMS you keep talking about?  What are the numbers?  You need an additional headcount, no problem, but uh, show me the numbers that will support those resources.

We would be fools if we believed that it isn’t about the numbers.  If you are involved with creating your own budget (based on the dollars that whomever you report to, gave you), then you will need to allocate that money.  E-Learning is not free.  It requires a constant stream of funds, a series of line items in your budget.   First, you purchase a learning system.  Then you will need content, regardless if it is off-the shelf or someone you hired to create the custom content or even yourself or your team building the content via a 3rd party authoring tool.

Ok, so that is done in year one.   Now in year two, you need those funds for the second year of your purchase.  And you want more content so you need funds for that.  Maybe you want to add another type of learning system to your system, creating a hub.  Well, you need funds for that. Plan to continue to market the system to your employees or customers.  That involves funds.  At least with customer training, you can offset the costs of everything, thru fee-based content, with employees it is a lot different.

And the cycle continues.  And with that cycle you will need a new budget with new line items for whatever is needed, including tying it back to the system already purchased.

A Learner is a Number

How many learners are you expecting in your first year?  You say 10,000.  Well, that is a number.   If the learner projections fall flat, besides having to figure out why, you will have a new set of numbers.

Let’s say you want to purchase 3rd party content through the learning system’s marketplace.  There is no reason to purchase it for every learner if you know that only 1,000 of those initial learners (out of the 10,000) are going to use it, or have it available to them.  Yet, it is quite common for folks to forget that, and thus waste those funds.  It would make more sense to purchase a series of 3rd party content, and place a percentage (another number) into Learners X catalog,  Learners Y catalog and so forth.  Breaking it up for maximum usage. 

ROI? Yeah, right.

There is no such thing as ROI when it comes to learning.  Oh, you can find some data, err, numbers to support your initiatives and tell your boss, see – the numbers support this is successful, but in reality, you are pulling numbers out of thin air. 

This is why training and learning execs will often point to an increase in productivity, happier employees and customers as validation.  Yes it is true, that happy employees produce more and are more likely to stay (when they have personal and professional development), because of learning/training versus when this doesn’t happen and all you provide is compliance and regulatory.

When the sales training executive or training/learning person goes to their boss and says, “Look, our sales increased 84% and Jimmy’s sales numbers went up 92% because he took a variety of our sales content,” you are fully aware that that is just one variable in the whole thing.  There are other variables that do not involve training or learning, but if you want that bigger budget you need to back it with data to support that.  This is the small print in the training/learning world for employees. 

With customer training or some other type of B2B training, it is quite different.

Want to make a million dollars in your first year with customer training?

You may think to yourself that is impossible in customer training or some other type of B2B (I include associations in the B2B market).   I can tell you first hand and from experience it is not only possible but depending on how you go about it, very feasible without having to price gouge your customers to do it. 

Too many folks in the customer training/B2B type of training think they have to charge a large amount because well, that is how they can recoup their funds.  But here are a few secrets on how to pull it off, without charging someone $300 or more for a course or a piece of content.

  • Calculate the first year for that learning system.  Exclude the setup fee for now. 

EXAMPLE

You purchase a learning system for $50,000 based on the projection that you will have 5,000 learners.  You have just made your first mistake.  What you should be saying to yourself is that a)you have no idea on how many learners you will acquire, but you think with the content you are providing, it could get X number.

To generate real revenue to back the number you just dropped, you should be thinking $50,000 divided by 12 is $4,166.66, but let’s just round it up to $4,167.  This means that you need to generate that amount of money per month to break even.

You decide to charge $150 for one course.

To reach the $4,167 dollars you need for that month, you will need 28 customers to buy that one course at $150 (for the month) to break even (actually you would be profitable by 33 dollars).

To reach the $50,000 mark for the first year (the cost of the system), if you have only 400 customers purchase that one piece of content for the year, you are now $10,000 dollars on the profit side for your system.

Thus if you truly score 10,000 customers buying one course at $150, you will generate 1.5 million dollars. 

And we haven’t even talked about a fee-based webinar. If you are buying a web conferencing tool, it is very feasible to be profitable six months into your purchase, even at a low price point.

Let’s jump back though to purchasing a piece of content.  You decide to charge $50 per course.  Even at that number, you will need only 1,000 learners (customers) to break even for the year.  And if you toss in a second course at $35 (which is the 2nd level after the base one they need to take which is $50), that is all pure profit, because you have reached the break-even at 1000 learners.

With these kind of numbers, any senior executive would green light additional funds for the next year budget.

My System bought your system, “na-na-na-na”

In 2019, acquisition numbers where the highest they have ever been (globally), in more than 10 years.  I’m not referring to the dollar amounts of the buys, rather the number of vendors acquiring other vendors, the number of PEs buying a vendor and/or the number of companies outside of the space jumping in by buying a learning system vendor.

This of course, and the amount of PE money flowing around to provide capital to vendors who either needed it to “compete” whether it is an infusion to R&D or marketing (often the case) to boost those, wait for it, numbers.

Already in 2020, we have seen Cornerstone acquire Saba, and a few other smaller buys (other vendors). 

When I walked around the LTUK trade show, I could count how many vendors were either privately on the market or had sent out letters of interest (to gauge if Vendor X wants to buy Vendor Y). I saw vendors who were barely staying afloat even though they had a big booth, implying that are generating large sums of money. 

I saw vendors whose numbers in yearly sales should be significantly higher, than what they actually have, indicating a serious issue within the company themselves, yet with a bigger size booth, implying that the number that is in your head (after all it is a big booth), must be quite high, otherwise, how could they afford the booth in the first place?

When a vendor buys another system, the numbers are often hidden because in the learning system industry, heck even in other e-learning product spaces, the vendors are private, thus having to show the amount to everyone is not a requirement. 

I”m not going to delve into ARR or other accounting principles that are necessities when buying other vendor or the capital for R&D, etc. 

What I am going to talk about are two numbers on top of sales that play a very important role, in you as the client of the system.

Vendors love to toss out their renewal rates to anyone who is listening, especially in those marvelous press releases.  The other number they love to present? The number of clients and the client growth i.e. number of clients they have added.

To be clear there are vendors who either have no understanding of how numbers work when it comes to renewal rates, and thus toss out numbers that to say the least are impossible.

A renewal rate is all about you the client of that system.  It is based on the number of current clients (not the ones they are about to sign), and the renewal of that client for their system.

Let’s say Vendor A has 50 current clients for 2018.  In 2019,  all 50 have renewed, which the vendor will say we have a 100% renewal rate and you think “wow, they must have a great system.” But what you fail to realize is that each of those 50 clients signed a three year deal with that vendor, so of course it is going to be 100%.  Again, I’m not referring to new clients who signed in 2019, rather for renewal rate in this example, the original 50 from 2018.

I know of one vendor who told me they renewal rate was 140%.  I told them that is impossible. If you have 50 original clients for 2018, and all 50 renewed that is 100%, you can’t go higher than that.  If you had 50 clients and now you have 65 clients for 2019, then only those original 50 who renewed in 2020, again, equal 100% (assuming they have all multi-year deals).  You wouldn’t count the other 15 who have signed up – those are new customers.

Every vendor wants clients, in fact, without them, they are not going to be around for long.  The more clients the assumption is the more revenue they are making, because sales are going through the roof, but there are plenty of vendors who will take a loss or a series of losses to land those customers, to give the impression they must be generating a large amount of $$$ because of the number of clients.

I know of plenty of vendors who are all about incurring debt (yes I can see why you think this is a bad thing).  They want more customers, so they undercut at a significant lower price point, because it is all about the numbers, of clients. 

Some vendors buy other vendors simply for the number of clients.  The system itself? Either is sunset within a year or two, or is running with a skeleton crew for those customers who will not move other to the system that has acquired their system.  If a customer has 1M users and does not want to go to the new system (i.e. the buyer), it would be foolish for the new buyer to sunset the system, because that would be a huge loss of yearly sales on that other system.   Eventually though, that customer will either need to switch over or exit out and go elsewhere.

I should note that I’ve yet to see a system when they buy another system – which may or may not be a competitor and most of the times they aren’t,  say publicly we are only interested in the clients and not the system itself.  That wouldn’t be good. 

One number that many folks forget about when someone buys someone else is the headcount at the vendor that just got acquired.  Many of those folks will not be joining the buyer, due to redundancy.  That is to say, Carolyn works in HR at the buyer, and Steve works in HR with the exact same role with the system that has been acquired. Steve is more than likely on the fast track for unemployment.  If Steve is a rock star, maybe he is kept but pushed into another role, assuming he has those skill sets, but for our scenario, Steve doesn’t and Steve is gone. 

You can bet that not all the sales people are coming over to the new company.  Only the best will go, the rest are cut.

Again, numbers.

Bottom Line

It would make a lot of sense if those folks who are being let go, are given access to the learning system that the used to work for, so they could hone up and learn new skills, yet I have yet to see that happen.

Thus the push of onboarding, upskilling that the vendor pushes (let’s say the new buyer, along with the one that just got bought) doesn’t apply to those who are cut do to redundancy. 

If anything those are folks who need it the most. 

But it comes down to numbers.

After all, I just gave you 90 cents for that dollar.

The other 10 cents?

Tax.

E-Learning 24/7

Sorry for the delay in writing the blog, due to being ill for the past week.  Going forward, the next blog will be published this upcoming weekend.

 

 

 

 

 

 

2 comments

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.