There are two sets of costs to running online classes: the capital cost of buying the equipment and the variable cost of the labor. In this analysis, I am going to look at first year cash costs. The capital equipment can be amortized over multiple years in a true accounting analysis.
To be able to teach a single class online, you need a recording studio, the equipment for standing news reporter shots and the equipment to edit video. The total cost as configured for us was about $13k for this equipment. Here is how the cost broken down:
Note that the video editing station specified is good enough to edit more than one class. You could probably teach 5-6 new classes per year using this setup, sequentially.
We own three recording studio setups. We recorded two classes simultaneously and kept two in the office and one in my home (I live two hours from the office).
In addition, we employ a full time video editor. Our video editor estimates that it took him close to 15 hours to edit each hour of finished video. Our courses were about 14 hours of total edited lesson material, so that’s 210 hours per class. That’s 5.25 weeks of work at 40 hours per week. So each editor can probably edit about 7 classes per year.
I arrived in May of 2012 and we had our first classes completed by December. Our engineer arrived a bit later, but i would say approximately one man of labor year went into creating our first two classes. That cost dwarfs the capital equipment.
We also pay approximately $1700 per month to host the classes on Amazon Web Services ($20,400/year).
We also had all video captioned at 3play media. Putting all that together, and assuming that we it takes two full time people on the online ed effort to produce the first three classes, we get the following annual costs.
Note that I dropped in $100k for the fully burdened cost of a head. That is not our number at 10gen. I just put in as a placeholder to be concrete. On our team we have more than two heads, but some folks are working on more than just online education.
Although the startup costs are not insignificant at $250k, the incremental cost of adding one student or running the classes again is very low. Even considering the high startup costs, we will register at least 50,000 people in the first year, so the cost is under $5/student.
The economics of online education are amazingly good. There is at least an order of magnitude improvement over the costs of teaching in person.
