How does Udemy work, exactly? - Six Figure Instructor

Success on Udemy

You want to create online courses but you’re not sure how to start? You probably have heard of Udemy before.

Udemy is an online course marketplace founded in 2010. The platform has over 150,000 online courses, more than 50,000 online instructors, and 40 million learners.

Udemy pays out millions of dollars a year to their instructors, with some instructors making over $2,000,000 a year. Even in smaller course categories, instructors routinely get paid over $100,000 a year (including yours truly).

With Udemy, the offering is simple. You make the content, and they cover the course hosting & promotion.

In return, you have to play the game by their rules. Specifically, you need to make course content their students want and you how to optimize that content for how their system works.

If you do decide Udemy is the right route for you to go to, you need to understand their mindset and how they operate their platform. You would beg amazed at how many new instructors pour hundreds of hours of effort into growing an audience on their platform without understanding the basics of how that platform works.

Before we get into Udemy’s specific nuts & bolts, let’s first establish what exactly Udemy IS.

What is an online course “marketplace”, exactly?

An online course marketplace is an online company that sells several online courses. Crystal clear, I know.

Basically, marketplaces sell LOTS of online courses, instead of just one, and they typically run marketing efforts to attract both instructors AND students to their site (hence the term “marketplace”).

How they acquire their content can vary significantly:

Companies like Udemy and Skillshare accept content from anyone, as long as the material meets some basic quality standards.
Companies like as Pluralsight and LinkedIn Learning have a more rigorous vetting process for instructors and require you film your material in their in-house film studios.
Companies like Treehouse only produce courses internally taught by company employees

Pricing models as well as topic coverage can vary wildly as well. Some companies only offer monthly subscriptions for their courses, whereas others charge $200+ per “a-la-carte” enrollment. Some companies host courses on any topic imaginable, whereas others focus exclusively on a single niche.

When you make your first course, you might be confused as to what platform you should focus your efforts on. Between the 46 courses Symon and I have made, and the 100s of online instructors we’ve coached I can tell you easily where to focus your time.

In 90% of circumstances, we see an income distribution that looks like this:

Udemy is by far the largest marketplace online, and they have the best model for new instructors. Udemy’s ability to drive enrollments to your course absolutely dwarfs other platforms.

With that being said, you’ll most likely see 80%+ of your course income come from Udemy, so focus your content there. After you’ve made your course, optimized it for Udemy, you can do what we call “syndication” and re-license it out to other platforms (where you’ll make the other 20% of your income).

Does that mean you can't focus on other platforms?

If you have a specific reason to believe a different platform will be better for you, go for it. Don’t think that Udemy is the ONLY way for an independent course creator to make money. There are plenty of examples of instructors who focused exclusively on smaller platforms, like LinkedIn Learning, and were successful. We just generally think those examples are exceptions, and not the rule. When we say “Udemy has the best model for new instructors”, we mean your odds of finding success as a complete newbie are the highest. Anyone can upload a course there, and if the content meets the needs of their students you should see enrollments start to come in. If it doesn’t, you can edit your course or alternatively move it off the platform to sell it elsewhere

Compare that to LinkedIn Learning, on the other hand. LinkedIn Learning (formerly Lynda.com) only accepts instructors they actively recruit. If they DO recruit you, you have to spend months negotiating a contract with them (with limited to no negotiating leverage), and making a course outline that meets their requirements (see: short, bland, & soul sucking). In most cases, they’ll offer you a “royalty agreement” where you get paid a small percentage of revenue attributed to the “number of minutes watched” on your course (since they only have a subscription system, they divide total revenue by minutes watched per course to calculate royalties). If they decide to not promote your course, there’s largely nothing you can do about it. In most cases, you’ll have signed an exclusivity agreement or signed away part of the IP of your course to LinkedIn, which means you can’t sell the course elsewhere if this happens.

How does Udemy work?

Think of Udemy as the Amazon for online learning. You can learn virtually almost any topic on their platform, and they sell themselves as a “one-stop-shop”.

The way they make revenue is by providing their users a huge catalog of courses, catering to different levels and interests.

Here’s the thing you always have to keep in mind:

Acquiring a new student is very expensive

Given this reality, marketplaces have 3 options to choose from in order to offset this cost:

They can sell courses for a higher price than it cost to acquire the student,
They can lock a student into a monthly subscription fee and hope they don’t cancel after the first month
They can focus on offering the new student MORE courses, so they buy multiple

Udemy chose to go with Option 3, and as of December 2020, they had more than 150,000 different courses. If you buy one course from them, chances are they have another course you might also like.

What is a Fixed Price Promotion?

If you visit the Udemy website, you’ll notice that most of the time courses are on sale. On almost any day of the week, you can buy a $200 course for $10 to $20.

In fact, it’s been a pretty well known “secret” that if you open Udemy’s website with a private browser (ie, Chrome’s Incognito mode), you’ll always see a new discount applied.

What Udemy is doing here is what they call a “fixed price promotion“.

As in, they’re running a promotion where every course on the platform is discounted down to the same rough price ($10-20).

Even if your course is 30 hours long, taught by a PhD in the subject, and sells for $1,000 elsewhere… your course is going be listed at the same price as 30 minute course taught by a complete amateur.

Here’s the thing: 95% of your income will come from these “fixed price promotions”

Virtually no one ever buys for the listed price of a course ($50-200)

What that means is that regardless of your list price, you’ll get paid on average $4 per student that enrolls.

Wait... how do i only get $4 per student enrolled if they're sold for $10-20?

Glad you asked. Udemy keeps 63% of each sale, meaning your take-home on a $10 enrollment is $3.70

All marketplaces split the revenue from sales directly with their instructors, and Udemy is no different. They used to divide up your royalty based on WHERE the sale came from (ads vs email promotions vs affiliates, for example), but they’ve now streamlined the royalty to a uniform 37%. One exception to the 37% are “instructor driven sales”, where the course owner is allowed to keep 97% of the revenue.

IS GIVING UP 67% WORTH IT?

Some people get upset when they find out that Udemy keeps the majority of revenue from each sale. While I understand the initial emotional reaction to this, I don’t think it’s a particularly rational thing to be upset about. Udemy hosts your courses for you, they provide technical support to your students, and most importantly they sell the course for you. Every dollar they send your way is a dollar you would not have earned otherwise. If you were to partner with an individual to sell your course, you would also have to give that person a percentage of your sales revenue. Udemy isn’t any different in this regard. They’re a partner, and so it’s not abnormal to treat them as such.

Think of Udemy like a grocery store and you’re a milk company. The grocery store stores your product, refrigerates it, facilitates purchases, and brings in the customers that ultimately buy your milk. It wouldn’t be strange that the grocery store ask to share in some of the milky profits.

OK, BUT $4 A STUDENT SOUNDS SO LOW...

Admittedly, $4 doesn’t sound like a lot, especially if you have to answer questions from that student. While the average instructor take-home per student is rising slowly ($4 is just an average), you might not think it’s “worth it”. Let me clarify why we think it IS still worth it:

• What Udemy lacks in per student revenue, it makes up in volume. If they can potentially drive 10,000 students to your course each month, your total income is still going to be outstanding, regardless of the per student price.

• More students means more exposure. If you’re using your course to generate leads for your business, Udemy will drive millions of impressions and 10s of thousands of prospects to you. If you’re planning to use your course to grow an audience or get more lucrative opportunities (like speaking gigs), it’s much more impressive to say your course has 5,000+ low-price students vs a couple hundred high ticket students.

• If you want your course information to have the most impact on the world, a low price model is great at maximizing that. I have students from 179 countries in the world. I get recognized in airports. I’ve had hundreds of students from all walks of life write to me saying that my teaching has a direct impact on their life.

Udemy is ultimately a “mass market” model, and that doesn’t always appeal to everyone. If you prefer selling higher priced courses to smaller groups, consider self-hosting your course with a tool like Teachable.

The reason this approach works with Udemy is that they follow what’s called a “High-low model”. They price a course a few hundred dollars to give it the appearance of being premium, and then they put it on sale for people to feel they got a premium item for a bargain price.

Udemy isn’t the only company to use the “High-low model” for selling. Plenty of industries, like fashion or travel experiences, use this marketing model extensively.

So, to recap what we’ve covered thus far:

They focus on getting tons of courses to offer;
They spend a lot of money acquiring students;
They put a lot of effort into getting their users to buy as many courses as possible;
And they expect each student to buy an average of 2 to 5 courses to offset the acquisition cost.

How does this “high-low” model change our course content strategy?

Since Udemy relies on a large volume of courses to make their marketing efforts profitable, they cannot offer a large amount of “content curation” to their course catalog.

What do I mean by “content curation“? I mean that it’s physically impossible for them to manually check the quality of the 150,000 (and growing) courses they have on their platform.

How do they solve this problem? They solve it the same way other “big data” companies solve it (think of how Facebook polices content violations in their user generated posts). They use an algorithm that automatically scores and ranks courses based on their quality and their marketability.

While an algorithm can accomplish infinitely more than human squish-brains can, it does have some drawbacks. One of the major drawbacks is that it can’t subjectively judge the course quality on its merit alone. It has to use “proxy metrics” that it thinks are key indicators of quality to decide if a course is worth promoting.

Here are some of the “metrics” that the algorithm tracks and uses to tell if your course is good enough:

Ok, but how does know if say “18 minutes of average watch” time is a good number? It knows this by comparing your course to OTHER similar courses.

So, while your course might be great quality, if it doesn’t beat the metrics of your competing courses, the algorithm is going to assume the opposite.

What does this mean for us? It means we need to care about these things:

• Your production value (higher quality means more minutes watched)

• Your presentation skills (boring teachers get lower minutes watched, ratings)

• Your promo video and course landing page (better means a higher conversion rate)

• Your content has to deliver on what your promo & course description promise (if it doesn’t, you’ll get bad reviews and a higher refund rate)

Ultimately, if a student has a good experience with your course then they are more likely to buy another Udemy course. Udemy absolutely requires that their students buy more than 1 course to stay profitable, and bad courses make that impossible.

All of these notes are ultimately what will carry your course throughout the marketplace. If your course is lacking in any of these points, there is a big possibility it won’t be as easily seen or sought out.

Here are some tips on how to optimize your courses on Udemy:

Focus on making courses for beginner to intermediate students. For any topic you could teach, there are always going to be more prospective “beginner” students than “advanced” students. Such is the nature of the world. Since Udemy sells your courses for $10-20, you should make sure your target audience is at least large enough that you can make a reasonable amount of income. If there are only 1,000 people in the world that could use your course, then the maximum amount of money you could ever make from your course is about… $4,000 (of course only a fraction would ever hear about the course and buy). By teaching towards beginners, you can wider your market potential.

Try to broaden the appeal to as many groups as you can. Similar to the advice above, you can also improve your courses marketability by addressing multiple types of students or use cases. If 3 different types of students could use your information, then don’t exclude any of them. For example, I made a course called “Pre-Programming: Everything you need to know before you code”, because I wanted to teach people the basics of computer and web technology. I had noticed that during the mass push to get everyone to learn how to program, a lot of students were being left behind because they simply didn’t understand the basics of technology. Asking someone to learn an abstract programming concept is a bit of a stretch if that person doesn’t know how a web browser works, for example. Originally, I planned the content to cater to the “I’m going to switch to programming” crowd, but I figured out that the audience was actually a lot larger than that. People who just wanted to learn how to better communicate with developers on their team and entrepreneurs who wanted to build better products also found this information useful, so I included them in the language I used throughout the course.

Learn to be proficient at teaching (just knowing your subject is not enough). Sure your information is valuable, but a $10-20 student is a flighty, easily distracted creature. If you can’t keep their attention, then only the most dedicated of students will keep watching your videos. Luckily, you don’t have to a YouTube level entertainer to keep students attention – you just need to be OK at explaining your concepts and make sure you’re not wasting your students time unnecessarily. If you’re painfully awkward on camera, then you need to work on that before you launch. If your content isn’t well structured and packed with useful information, then you still have some work to do.

What is the tradeoff for using Udemy?

It’s simple – you don’t have to do any of the marketing for your courses. In exchange for trying harder on quality and production value, you don’t have to spend time and effort on finding your students.

This means that once you make the course and publish it to Udemy, you can focus on producing your next course. Udemy will market your content and find students. You will have to keep your courses up-to-date and answer any student questions, but you won’t have to worry about seeking out students on the platform.

Think of your courses as annuities. You put in a lot of work upfront, and Udemy will pay you back for the next four to seven years (according to how popular your course gets). Udemy teaches you how to play the long game – some courses are more than ten years old but still are considered highly popular, with new students trickling in every month.

The mindset of working with Udemy

If you decide to go down the Udemy route, you might have to adapt your mindset on creating courses.

Here are things you need to bear in mind when working with them:

You are now a content producer. Since you don’t have to spend time searching for your students, you have to focus on delivering the best content you can. Not having to focus on marketing means you’ll have a large chunk of free time after each course launch. I suggest you spend the time you otherwise would have spent on marketing towards improving your content standards going forward and streamlining your processes. More courses after all means more money.

You have to play by Udemy’s rules. Udemy built the playground and you’re just a visitor. You can’t go around licking the monkey bars and pushing kids off the slides. They have rules you’ll have to be familiar with and abide by. More importantly, you have to be aware that they can and WILL change their rules and expectations in the future. It’s up to you to stay within what they like and keep an eye on what changes.

Think of Udemy as a portfolio. Instructors that publish multiple courses are more often satisfied with their Udemy experience. Like I’ve said 100 times at this point, Udemy is a marketplace which means demand ebbs & flows naturally. Some months you’ll do great and others do poorly. Sometimes you’ll launch a course you never thought would be a best seller and it dramatically outperforms. Sometimes you make a course you think is guaranteed to be a winner, and it flops. The best way to protect yourself and to build a stable long term income is to have multiple courses. Multiple courses can buoy your income (if one course has a bad month, another might have a good month) and give you significant advantages over 1 time instructors (for example, you ca snowball your past students into each new course by sending them promotional emails).

Recap

Udemy is an online course marketplace that focuses on having a large portfolio of different courses. Hosting courses through Udemy means you don’t have to worry about advertising your product, but you have to put in an extra effort to make your course stand out from others.

• Udemy makes their money by heavily discounting courses down to $10-20

• $10-20 courses are not enough to make up for the cost of acquiring a new student, so the only way they can stay afloat is by only promoting courses that encourage students to buy MORE Udemy courses

• The best strategy for getting new students to buy multiple course is to have as many courses to offer as possible, which is why they have 150,000+ currently

• Because Udemy has so many courses, they have to rely on an algorithm to tell them which courses are good and worth promoting

• The algorithm they use is smart and dumb at the same time. It focuses primarily on metrics like average minutes watched to determine your course quality, and it always compares your course vs other courses on the same or similar topics

• If you want to make to rub the algorithms belly in the spot it likes and make it purr, focus on giving it the metrics it likes and a large enough audience to promote your course to.

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