Just like any other type of business, really, eLearning companies must generate profit to survive. To achieve that, it’s not enough to know how to start an online school. It’s vital to pick the right business model that will generate revenue and attract students.
To help make this journey a bit easier, we’ve gathered the 3 most popular business models and will explain the difference between them.
Subscription
The subscription-based business (aka the Academy model) is extremely popular in the eLearning world. It is a simple concept to grasp: the students pay a regular fee to access the platform. Besides, this approach offers multiple tempting advantages both for the service users and the business owners.
Here are some of them:
- Stable cashflow. The subscription fees are regular, which leads to regular proceeds for the owner. The users, on the other hand, don’t have to spend a significant amount of money at once, investing smaller sums on a regular basis.
- Diversity. It’s up to you which kind of subscription to choose: weekly, monthly, quarterly, yearly. The options are nearly endless. And you don’t even have to stick with the only plan! Offer your customers as many subscription options as you’d like! They will appreciate the diversity.
- Higher retention. If the user regularly pays some money to have the access to an eLearning platform, they will stay with this platform longer. Consequently, the retention rate will grow. And if the service is good eventually brand loyalty will appear, which is always a great asset for any business.
- Larger audience. By offering affordable plans (even along with the more expensive ones) you’ll manage to attract more users that simply can’t pay a large amount of money for an extensive course that requires a one-time payment.
Still, the perfect business model that has no flaws hasn’t been invented yet. So be prepared to face some obstacles when opting for a subscription-based solution.
- Scalability. Constant adding of fresh educational content is a must for an Academy business model. As well as the necessity to work on the technical resilience of the platform as more users mean higher system load.
- Lower cashflow. Yes, a subscription helps to make the income stable. However, the affordability this approach offers the users makes the amount of money a business owner gets smaller compared to other models. E.g. one entrepreneur has sold a course worth $10K and received all the money instantly. The owner of a subscription-based platform has also sold the same course but they will get that money over a longer period of time.
Freemium
Probably, the king of all business models in the eLearning business. Duolingo, Coursera, and other market moguls have chosen this one and won. The whole point of a freemium model is to offer the basic/limited functionality to everyone for free, and then charge for access to more advanced/robust services.
Why freemium eLearning is a commercially successful strategy? Look at the perks!
- The largest audience. By offering services for free (even limited ones) an entrepreneur doesn’t have to cut off a huge audience that doesn’t want to spend money on education or simply doesn’t have the means.
- Maximum retention. If the educational platform is done right and is user-friendly, the students will stay invested in the learning process for a long time as most of them don’t have to pay for the experience.
- All the users help the platform earn money. Some may think that freemium can’t really be profitable as no one will ever pay for something they are able to get for free. That’s not the case! The platform still earns money even on those students who have chosen to stick with the free version. By far the most popular way to do that is through ads. Especially knowing that the modern audience understands that “a free version means ads”.
- Lower budget for marketing. Paid-only eLearning services really need to invest in marketing to win the market. The global eLearning market will reach $167.5 billion by 2026 and there’s some fierce competition out there. Freemium solutions have a shortcut there as the word of mouth will do the work. People will know and try the service that is free as they don’t lose anything. However, to retain the newcomers, the service has to actually be good.
Now let’s put the “dark side” of a freemium model under the light.
- Low conversion. Yes, free users will upgrade and become paid. But in order for that to happen the business owner must put a lot of work into the product. Don’t expect the conversion rate to skyrocket. Especially at first.
- Higher operational costs. As there’s no entry barrier, the platform should be ready to service a large number of students at once. It is mandatory to invest in IT infrastructure to make the solution fail-safe. Otherwise, the students won’t come back.
Course fee
The course fee (aka Night School) model is appreciated by businesses and users. It’s exactly what the name would suggest: the student pays a one-time fee and gets access to a full course. One of the brightest examples is Udemy where the users are offered thousands of different learning courses for different prices.
The number of businesses choosing the Night School model is growing each year. And one of the reasons for that is a great number of benefits.
- Simplicity. Many people don’t want to be sucked in the mundanity that often comes with subscription-based eLearning services. They want to pay once and get the product they’ve paid for instantly. The course fee model allows that.
- Higher profitability and agility. Once the student pays for the course the owner receives all the money. No paying/receiving money by installments. There’s also an option to change the course price if the market situation has changed. E.g. if the course is in demand, you may increase the price.
- Stability. If the course has once been put on the platform it stays there and generates profits for years.
- Low-maintenance. Compared to other models mentioned previously the Night School approach is pretty low maintenance. The materials can be available in cheap/free and light formats, the system load is also not that intense.
Yet, the course fee model also has some disadvantages that can’t be ignored by a businessperson.
- Cashflow is not recurring. To keep the money coming you’ll have to either be able to sell different courses to one student or constantly increase the number of students (if the number of available materials is limited.
- Higher marketing expenses. Promotion is something you can’t skip if your eLearning business is based on a Night School model. You always have to make sure people know about your service and see its value. Without aggressive marketing activities, it’s almost impossible.
As you can see, no eLearning business model. All have some pros and cons to them. Take your time and choose wisely. And if the choice is right, your business will eventually make it to the top!