Build vs Buy - Making the Right Choice: The Pros and Cons of Building vs Buying Online School Software

Photo by Randy Fath & Brittney In Beta on Unsplash 

Making the Right Choice: The Pros and Cons of Building vs Buying Language Software

In a world where technology is racing ahead at a breakneck pace, language companies may find their existing virtual classroom and online school platform, increasingly becoming a bottleneck for their team and business. This raises a large strategic question...

Should we invest in building a bespoke online language school software from the ground up, or pay for an existing solution?  

This article should not be just a source of insights and information; it should provide a catalyst for the conversation you need to have with your leadership team to find the best decision for your organisation.

The article will help you answer the 7 most important questions:

• What Are the Primary Goals and Objectives of a Language School Software?
• What Are the “Jobs to be Done” by the Solution You Choose (or Build)?
• What Are the Development Capabilities and Availability of Your Team?
• How will the Decision Affect Time to Market?
• What Are the Cost Implications of Building vs. Buying?
• What are the Implications for Support, Maintenance, and Continued Innovation?
• What is the Return on Investment (ROI) and How is it Measured?

What Are the Primary Goals and Objectives of a Language School Software?

For leaders seeking to elevate their institutions, the goals when considering building your own software or opting for an expert solution provider are multifaceted.

The most common goals for a language schools software to consider building their own software or switching to an expert solution provider are:

1. Streamline all systems into one coherent, highly scalable system;
2. Make it easy for students, teachers and other users to get the information, tools and capabilities they need to succeed with your organisation;
3. Enhance and improve the overall experience of your users. 

When evaluating these objectives, it helps to also think about the key stakeholders in your organisation and what they need to do on a regular basis:

• Are your learners learning and enjoying the experience?
• Are your teachers high quality and providing the best experience possible to your learners?
• Are your administrators able to manage your learners and teachers in an efficient, effective way?
• Do you as a manager or leader, have the tools, information and oversight to monitor and improve your service and progress?

Reflection on these four areas leads us to the heart of operational efficiency and the 'jobs to be done” by your new solution.

What Are the “Jobs to be Done” by the Solution You Choose or Build?

Managing professional online language classes at scale requires good processes and a sophisticated system. Each stakeholder in your organisation has distinct needs that your chosen solution needs to address efficiently i.e. jobs they need done.

For your learners, you need to make it easy to:

• Choose your service in the first place
• See their upcoming classes and courses
• Get into their first virtual classroom
• View future classes and schedule online classes 
• Track and display their progress in a meaningful and motivating way.
• Pay for their classes or and track their balance of class credits.
  
  

For your teachers, you need to make it easy to:

• Update the information your organisation and learners needs
• Allow teachers to indicate their availability on their calendars for online classes and manage class schedules
• See upcoming classes and courses
• Prepare and set up their classes using professional lesson materials
• Teach their classes online with a professional virtual classroom
• Review the outcome of previous classes with students and/or provide interactive homework
• Communicate safely with students inside and outside of class
• Get paid on time
   

For your administrators and managers, you need to make it easy to:

• See information, and manage, learners
• See information, and manage, classes and courses
• Manage teacher and staff access and accounts
• Find the right teachers for the right students
• Manage lesson materials for teachers
• Monitor feedback and improve the quality of your teaching and learning
• Help students to troubleshoot technical issues should they arise
• Understand the performance of your online language business
• Ensure the business is paid accurately and on time by students/customers.

What Are the Development Capabilities and Availability of Your Team?

When considering whether to build or buy language school software, one of the fastest ways to arrive at the right decision is to work out the skills, capabilities, and availability of your team.

Building from scratch in-house

If you have a development team the main questions to ensure you have the right answers:

• Does my team have sufficient experience building sophisticated, safe, compliant, software applications?
• What are the current development priorities for my team?
• If it can take 2000 - 4000+ hours of development to build a moderately sophisticated online language school, does my team have this capacity? 
• If my team were doing this project, what is the project I would otherwise have to give up or wait for (i.e. the opportunity cost)?

Assuming that you are happy with the answers to these key questions of your development team, you can then weigh the upsides of having full control and responsibility for the new build exactly what you want vs the costs and risks of development (time, money, energy, focus).

Some language companies are tempted to outsource the project to a development agency.

Building from scratch with an agency

This is less costly than building it with your own team but is far more expensive than subscribing to an off-the-shelf solution and has its own risks including:

• The risk that the agency may not fully capture or understand your specific needs and vision, leading to a product that does not meet all your requirements including scalability as your business grows and needs change.
• The risk that you will be dependent on the agency for updates, modifications, bug fixes and troubleshooting.
• The risk of miscommunication or misunderstandings, particularly if requirements are not clearly defined and documented.
• The risk of the agency still owning all or having a free licence to the final codebase which may undermine the value of completing the project from scratch.
• The risk of receiving a product that does not meet expected standards for performance, user experience, or reliability. This risk may not be fully apparent until your organisation attempts to roll out the solution or scale up. It is much more difficult to switch agencies once you have committed to one compared to an online school platform provider because of the higher investment in going with an agency.
• The risk that your costs overrun due to unforeseen challenges or underappreciated complexity. This is possibly the most likely and serious risk. Agencies often charge by the hour so situations like this can lead to escalating costs if the project extends beyond the initial estimates. If you agree to a fixed-price contract, there is less flexibility and can lead to a situation where an agency is incentivised to cut corners to achieve the budget. It is extremely common for companies to underestimate the ongoing costs of maintenance and to not provide enough additional budget to innovate and improve on the first version.

Note also that an agency will never care about your project quite as much as you or your internal team will. You should expect “satisfactory” outcomes but it is rare that an agency will devote the time and attention needed to create an “extraordinary” outcome.

The biggest question for building any product from scratch, either with your internal team or with a development agency, is you will have to guess how long it will take to achieve and you will have to have someone in your team with 10 - 40 hours per week to ensure the project is scoped and does not drift off course. Unless you hire for a new position, this is 10 to 40 hours per week on top of their existing work for potentially 4 to 12 months.

How much time does it take to build an online language school from scratch? This question feels very close to, “how long is a piece of string”? The answer really depends on how sophisticated you would like the system to be and how clear you are on exactly the features you want to build and how you want them to interact. 

How will the Decision Affect Time to Market?

The decision between building a custom language school software or opting for a pre-existing solution has significant implications on your time to market, a critical factor in today's fast-paced educational sector. 

Building a bespoke system offers tailored functionalities but often comes with a lengthy development process. This extended timeline can delay your entry into the market, potentially causing you to miss out on immediate market needs and opportunities to establish or maintain a competitive edge. 

Building takes a long time because you need to decide on the concept, scope out the full project, build, test, learn, rebuild, innovate, repeat.  And as with all software development, you should expect “unexpected” delays and challenges. Experienced project managers will tell you to remember that building a solution from scratch more often than not, takes twice as long as you think it will. 

On the other hand, purchasing and implementing an off-the-shelf solution can dramatically accelerate your launch. This quicker deployment enables you to respond rapidly to market demands, capture emerging market trends, and potentially gain a strategic advantage over competitors who are slower to adapt. 

So the choice you make directly impacts not just when you can offer your services, but also how your organisation positions itself in the dynamic landscape of language education.

What Are the Cost Implications of Building vs. Buying?

It is expensive to build from scratch. Even if you have a big enough team and a fantastic project manager, there’s a chance you could get an MVP (minimum viable product) ready in 6 months and what you really want in 12 - 18 months.

Here’s an outline of the skeleton crew you’ll need:

1 x Product Director (or yourself), for the 16 to 100 days to scope and monitor the product

1 x Project Manager, or product director, full-time for 16 to 52 weeks

1 x Backend Developer full-time (building, bug-fixing, innovating)

1 x Frontend developer full-time 

1 x QA / Tester full-time

1 x Designer part-time

Let’s compare these needs using Payscale: 

• Product Director (or yourself) to lead the vision for the product half-time: $8000 to $60,000
• Project Manager to lead the product: ₹19L ($25,000) if hiring in India, $120,000 p.a. if hiring in the US.
• Frontend Developer to develop the product: ₹25L ($33,000) if hiring in India, $80,000 to $150,000 if hiring in the US.
• Backend Developer to develop the product: ₹25L ($33,000) if hiring in India, $80,000 to $150,000 if hiring in the US.
• Quality Assurance Specialist for testing: ₹12L ($16,000) if hiring in India, $60,000 to $75,000 if hiring in the US.
• Designer: ₹7L ($9,000) if hiring in India or $45,000 if hiring in USA

The total cost would be $157,000 to $600,000 to complete a mid-range online language school software, not including additional costs like office space, utilities, and software tools.

Note: Your team would also be responsible for ensuring a secure and compliant software long-term. If you are providing corporate language training, this standard increases even further.

If you are somehow able to find an agency that already has experience in building a similar product and can leverage some pre-made code, this might cost $60,000 to $150,000 for a mid-range online language school software. 

Opting for an off-the-shelf solution, immediately available, less risky, is much more cost effective and the right partner may have already built everything you need. Annual subscription fees typically range from $10,000 for medium-sized operations to $50,000 for larger enterprises and largely pay for the costs of the virtual classroom. 

In summary:

The upfront costs each year might be:

• $157,000 to $600,000 for an in-house development team; or 
• $60,000 to $150,000 for an external development agency; or 
• $6,000 to $40,000 for a medium-to-large-sized online language school subscription

If you do decide to take the responsibility for the development of your online platform, either in-house or through an external agency, it is essential to budget for technical support, maintenance and continued innovation.

What are the Implications for Support, Maintenance, and Continued Innovation?

One common trap for non-technical people is to budget only for the initial development which misses the inevitable ongoing costs. There will be technical issues. There will be bugs. And as soon as the code is released, it becomes just as much of a liability (technical debt) as it does an asset for the company.

• What if the market changes?
• What if technology advances?
• What if a key team member leaves during the build process?

If you did not expect to improve the product at all once completed, the ongoing costs might be $150,000 for one developer to handle bug fixes and modest feature upgrades. If you wanted to keep the product up-to-date and realise the value of the investment, you might need to keep a team for $300,000 per year.

If you did not expect to improve the product at all once completed, the ongoing costs might be $25,000 - $50,000 to handle bug fixes and modest feature upgrades. If you wanted to keep the product up-to-date and realise the value of the investment, you might need to keep a team for $150,000 per year.

The ongoing costs each year might be:

• $50,000 to $300,000 for an in-house development team
• $25,000 to $50,000 for an external development agency
• $10,000 to $35,000 for a medium-to-large sized online language school subscription.
  
  

What is the Return on Investment (ROI) and How is it Measured?

The benefits in developing an online language school are that the team is more efficient and ideally student retention is improved by making a more streamlined experience than the alternative.

A rough rule of thumb would be that a subscription will cost one half (1:2) that of hiring an agency and one twentieth (1:20) the cost of building the software from scratch. And typically, you get what you pay for.

If you pay very little for your subscription, agency or internal staff, then you are less likely to enjoy an extraordinary experience or product. For more sophisticated features and capabilities, be prepared to invest accordingly. 

The total cost of ownership over 5 years might be:

• $900,000 to $2,000,000 for an in-house development team
  • $600,000 for setup+$50,000 for maintenance in year 2+$50,000 for year 3+$50,000for year 4+$50,000 for year 5+($20,000*5 years of video-conferencing) = $900,000
• $300,000 to $350,000 for an external development agency
  • $100,000+$25,000 for maintenance in year 2+$25,000+$25,000+$25,000+($20,000*5 years of video-conferencing) = $300,000
• $24,000 to $125,000 for a medium-to-large sized online language school subscription, including 5 years of access to a professional virtual classroom.

Are the perceived benefits for choosing the in-house development team greater than the alternative of paying for an off-the-shelf solution? How many ‘seats’ or ‘classes’ would you need to sell over the next 5 years to break even on your $900,000 investment?

Are the perceived benefits for choosing an external development agency greater than the alternative of paying for an off-the-shelf solution? How many ‘seats’ or ‘classes’ would you need to sell over the next 5 years to break even on your $300,000+ investment?

Estimating the profitability of an online language school

There are a couple of key metrics in teaching live online classes:

• Revenue per hour 
• Cost per hour (teacher)
• Cost of acquiring a customer (marketing)
• Cost of technology (e.g. LearnCube or your own)
• Lifetime value of student (i.e. # of student hours)

Let’s do some high-level cost-benefit analysis since it’s critical to ensure you have a viable business.

• Revenue per class/hour: $27
• Cost per class/hour (teacher): ($17)
• Operating profit: $10 per class or 37% margin

So work this out over a year:

• Total number of classes per month: 4,000 (4 classes x 1,000 students)
• Revenue per month: $108,000 ($27 x 4,000)
• Costs of teachers per month: -$68,000 ($17 x 4,000)
• Operational profit per month: =$40,000
• Total number of classes per year: 48,000 (4 classes x 1,000 students)
• Revenue per month: $1,296,000 ($27 x 4,000)
• Costs of teachers per month: -$816,000 ($17 x 48,000)
• Operational profit per year: =$480,000 

That looks good but there are three incredibly important metrics of success in live online language teaching:

1. Lifetime value of a customer
2. Cost of acquiring a customer (marketing)
3. Cost of administration (over that lifetime)

Your development costs and product influence these three metrics significantly. 

Many of our customers sell packs of classes (5 - 20 classes) for between $20 - $35 per class.

Let’s say the average number of classes for a student was 8.  So the lifetime value (revenue) of a customer would be $240 with a profit margin of 30% = $72 per student.

It would seem realistic to invest a minimum of $1 for every $5 you make, so let’s say the cost of acquiring a customer in Google Ad, Facebook ads, partnerships is $6.60 per customer. Note: This is likely to be much higher but will differ from online school to online school.

• Operational profit per year: $480,000 
• Costs of customer acquisition: $40,000 (6000 new students x $6.6)
• Profit - customer acquisition: =$440,000

Now, this is the important part for this article...What is the cost of technology?

I’ll start with the cost of LearnCube since we’re the only online classroom software that is purpose-built for teaching languages live and online.

• Setup cost (standard): $947
• Monthly costs: 4000 classes = $1,979
• LearnCube for Year 1: $24,695

The costs of LearnCube are about 1.9% of your revenue

The alternative is you build your own:

• Setup cost: $157,000 to $600,000 (average $380,000)
• Monthly costs for live video: $1,666
• Costs of Building for Year 1: $402,800 ($380,000 setup + $20,000 video) 

The costs of creating your own software are about 21%+ of your revenue.

There is a huge difference between these decisions. Building from scratch means an investment of over $400,000 and likely, once you’ve paid for marketing, a large loss in the first year, possibly multiple years. This can make sense if this build will increase profit by an equivalent amount but it is rare.

Even with an agency, it is difficult to get a return on investment within 5 years because you will still have to pay for maintenance and technical support every month. In 3 years, your software will also likely be out of date.

Choosing an off-the-shelf solution typically makes much more sense and does not force you to become a software expert.

The Speed Benefits of a Plug-and-Play Solution

Aside from a much lower cost, one of the most significant benefits of a plug-and-play solution is that it is so much faster to employ. This is particularly important if you are needing this software to address a new opportunity.

Speed to market is becoming one of the most important ingredients to success in our hyper-speed global economy.  If you can get to an underserved market first, you can acquire customers much cheaper, capture much of the market and make it much more difficult for your competitors to displace you.  

The Risk Benefits of a Plug-and-Play Solution

If you choose to go for an online school software provider, you’re massively reducing your risk.

Not only do you avoid the extra $380,000 of sunk costs in the first year from developing your own software ($100,000 if with an experienced agency), but you’re faster to market, can learn quicker and have access to the experts in WebRTC technology.

Forget bug-fixing, fighting hackers, maintaining servers, learning a new technology stack, keeping up with changes in technology, supporting different browsers and devices (mobile and web), and adding new features to keep up/beat your competition.  

Saying that you’ve still got to choose the right technology provider and team.

This provider becomes an important partner. The platform and systems are shared so you do lose some ability to customise your user experience. It’s not always possible to experiment or try new features or ideas.  These are all tradeoffs you’ll need to consider.

Generally, it comes down to whether the benefits of customisation and ownership are greater than the benefits of significant cost-savings, speed-to-market, profitability and reliability?

In summary

It can make sense to own the technology if you have the right team of developers and if investors or acquirers would likely value the ownership of that problem. 

It can make sense to hire an external development agency if you are confident that the efficiency gains outweigh the costs of money, time, energy and focus.

However, more often than not, it makes far more sense for a language company to focus on growing their language teaching business as opposed to trying to reimagine itself as a technology company. 

Technology, especially in the form of generative AI, has just as much of a risk of increasing demands and costs of developing those capabilities, as it does reducing the cost of development itself. 

If you’d like to talk to the LearnCube team about how you can still achieve your product vision, without investing $300,000 to $900,000, please get in touch at support@learncube.com.