#3: Calculate eLearning Development Costs

eLearning development costs are calculated by multiplying the development time (in hours) by the hourly rate. So:

eLearning Development Cost = Development Hours X Cost Per Hour

We previously calculated development hours, in the first and second steps, by multiplying course length by a development ratio based on the level of interactivity.

Development Hours = Course Length X Development Ratio

Now it’s time to figure out the remaining variable, Cost Per Hour.

There are the two types of hourly costs you may consider for this calculation, depending on whether you contract with an outside freelancer or agency to complete your project or have an internal employee who can do the work. Let’s take a look at both of these here.

External Costs for Freelancers and Agencies

One nice thing about the rates charged by a freelancer or by a custom development or staffing services company (or “agency”) is that they’re easy to apply to our equation. The freelancer or agency bears the cost of overhead, meaning that we can take their hourly rate as our cost with no additional cost to apply to it. For example, if they charge $50 per hour, our hourly cost is $50 per hour. Easy peasy!

Outsourced rates will be different depending on if you’re outsourcing to a custom elearning development company or hiring a contractor through a staffing service. Rates will differ greatly between U.S. based or offshore. Let’s take a closer look.

Freelance Rates for Instructional Designers and eLearning Developers

A good base-level average rate for freelance elearning developers and instructional designers is $50 per hour, but rates vary widely by experience and geography, from $30 or less per hour upwards of $100 per hour.

In our calculator, we’ve set the hourly rate at $50 per hour. You can adjust this in your own calculation.

If you need a very accurate cost projection and are planning to work with a freelancer, you’ll want to do some research about freelance rates in your area. (Which is another way of saying “Shop around!” You’ll learn a lot about capabilities and rates by doing so.)

If you’re just looking for a ballpark estimate, here are a few data points and articles you can use to adjust your numbers:

• Upwork, the freelancing site, uses the following freelance rate ranges in 2022 for instructional designers:
  • Beginner: $30 per hour
  • Intermediate: $59 per hour
  • Advanced: $125 per hour
• Christy Tucker does a nice job summarizing instructional design freelance rates in the article and mentions (a now hidden) range from ID Lance of:
  • Newbie: $35-45 per hour
  • 1-3 years of experience: $45-60 per hour
  • 4+ years of experience: $60-75 per hour (although Christy notes this should be higher)
• According to Richard Watson, author of How to Become an e-Learning Freelancer, in the United States, the typical range he sees eLearning freelancing charge is between $50-$130 depending on 4 factors: experience level, complexity of the material, client turn-around time, and the value the contractor can bring to the project.

Rates for Custom eLearning Development Companies

Expect to pay around $100 per hour for projects completed by an agency offering custom elearning development services, but know that this ranges widely.

It’s not surprising that agency rates are higher, right? A project services agency is typically structured as a business, with employees on payroll, overhead costs, and non-billable time to cover. As such, agency rates charged to clients reflect the business imperative of covering costs while still making a profit. On the plus side, an agency also can also bring a lot of expertise and management to your project.

Custom elearning development is often quoted based on total project cost, without reference to the hours required to complete the project. If you already have a project quote, simple division using the estimated hours generated by the calculator will give you an hourly rate.

As always, agency rates vary widely on factors such as geography and experience. In the U.S., you may be able to find an agency that will complete your project for around $100 per hour, but the per hour rate could be as high as $400 or more. An offshore option could be as low as $20-50, but per hour rates will also vary widely. In short, this is another “shop around” opportunity!

Employee Costs for Instructional Design and eLearning Development

You may have an internal associate available to complete your project, or be considering hiring one. If so, you can calculate the per hour cost to include in the development calculator by using the information below. The goal is to land on the associate’s per hour rate then add overhead (or “load’) to get to the true per hour cost of employee work to the company.

Here’s how to calculate that. We’ll start by looking at what the internal associate earns.

Hourly Associate

If you’re paying someone hourly, great! You already know their hourly base rate. 🙂 Note that and jump to the “load factor” section below.

Salaried Associate

If you’re working with a full time salaried employee, it’s pretty standard to use 2,080 work hours in a year. We get to that by taking 52 weeks per year and multiplying it by 40 hours per week.

Hourly employee base rate = Annual salary / 2,080 hours

If you’re unsure of the salary paid to an internal instructional designer/elearning developer, you can use these data points for U.S. averages:

• $85,466 average salary U.S. Devlin Peck 2021 report
• $84,421 average salary U.S. eLearning Guild 2018 Salary Report
• $63,740 average salary U.S. O*Net OnLine (US Department of Labor)

(Note that average salaries vary widely in the U.S. depending on state and city where a position is seated. At the O*Net OnLine site, you can drill down on average reported salaries for your state and local area and adjust your own calculation as needed.)

So, let’s take an average of the three numbers listed above (that is, $77,876, rounded up to $78,000) to use in calculating the average per hour rate for a salaried instructional designer:

$78,000 per year divided by 2080 hours per year = $37.50 per hour (average, before loading)

We use this number in our calculator.

Load factor for true cost of employee for the business

Of course, the true cost of an employee to their employer is greater than just the cost of the wages they are paid. From the employer’s perspective, there are additional costs incurred for each employee, including, for example, the following:

• Benefits
• Overhead (think office space, etc)
• Payroll taxes

To get a true sense of the per hour cost of your internal instructional designer/elearning developer, these costs must also be considered. A simple calculation gives you the “loaded” rate, and this, in turn,better reflects the actual cost of an employee to the company.

According to the Small Business Association (based on research from MIT), a good rule of thumb is 25%-40% on top of the employee’s salary. We’ve used the rounded average of 33% in our calculator.

So our $37.50 per hour instructional designer/elearning developer actually costs the company about $50 per hour loaded. That’s:

$37.50 per hour + ($37.50 per hour X 33%) = $49.88 per hour loaded, rounding to $50 per hour.

Total Cost

Whether you are planning to use an external (freelancer or agency) or internal (employee) instructional designer to build your program you now know your cost per hour. With that information you can complete the equation with which we began this section and see your total cost:

eLearning Development Cost = Development Hours X Cost Per Hour

For example, let’s assume that we’re asking an internal instructional designer to develop a 20-minute elearning program with a medium level of interactivity. (For this calculation, we’ll use the averages shown above; your situation may require different numbers.)

A typical 20-minute eLearning course will cost $3,275.45 for an employee to develop.

We got to this using our calculator default example of:

20 minutes (A course with 20 minutes of runtime) X 197 development ratio (level 2 interactivity, average) = 65.67 hours.

65.67 hours X $49.88 (loaded hourly cost of a $50,000 salaried employee) =$3,275.45.

So, a typical 1-hour eLearning course will cost $9,826.36 for an employee to develop.

And, BOOM!!

That’s a great starting point. Now adjust any of the numbers in the calculator and you’ll get a number that’s more accurate for the project you have in mind. Enjoy!