So what happens when you cut prices....

[GordonH]

Hello

I decided to half the retail price of some of our domain names. This meant we were taking a loss on some of them.
The result was no increase in sales at all.
It seems that the only way to increase domain sales using price would be to charge $5 or less.
As some of you may know I tried giving away domain names for free last year and only managed to give away 150 in a month (there were no strings of any sort and I had budgeted to give away a few thousand).

People seem to respond best to an unfeasibly low price (i.e. sub Godaddy).

It has been an interesting exercise but not worth the effort.
I wonder what woul dhappen if we charged $50 for a domain name.
Sales would be lower but maybe we would make more profit?
i.e. reassuringly expensive. Auto renew them all and send out paper invoices in the post.

[Trigger]

No matter what price you sell at someone will always try to underbid you. look at what you can get for $1 in the hosting market.

Better to price things reasonably and stay in business.

If it costs you $5 and you sell 100 at $4.99 then you are out of pocket $1 plus your time and effort doing all the accounting.

If you sell at $10 sure you may only sell 10 units but thats $50 profit and you have only spent 10% of the time doing the accounting for it.

Take into account all the incidentals 3PP fees (cost per sale), your time what thats worth.

You may gain 100 new customers and it only cost you a dollar on the face of it but if price was the only thing that keeps them then come renewal they will look elsewhere. For those customers who purchased for $10 even if you only keep 10% of them you still make more.

For domains some people are still willing to pay more than $29.95, here in Australia you can purchase .com.au for $55AUD (2 years) but some people are still happy paying $70AUD/Year for a .com and $140AUD (2 years) for .com.au go figure :banghead:

[GordonH]

Yes, but the idea was to bring in more customers to sell other things to so a reasonable immediate loss was not a bad idea, plus this is the last month of my company financial year so every $1 we lose this month saves us $0.24 (crazy I know).

ANyway it was interesting to see that lowering domain price did not encourage people to buy.
If I had gone to $5 I think it would have been more successful as there have been other companies done that and done well from it (sign up wise).

[wisehosting]

Yes, but the idea was to bring in more customers to sell other things to so a reasonable immediate loss was not a bad idea, plus this is the last month of my company financial year so every $1 we lose this month saves us $0.24 (crazy I know).

ANyway it was interesting to see that lowering domain price did not encourage people to buy.
If I had gone to $5 I think it would have been more successful as there have been other companies done that and done well from it (sign up wise).
I think what you were trying to do was what supermarkets are great at doing - ie creating a loss leader product but knowing that customers will purchase other items at the same time.

Perhaps domain names are not the product you should look at. You need an item that is wanted - but not being offered at stupid prices elsewhere, that you can promote. Or an added extra that people dont mind shelling out an extra $ for.

It's not easy - we go over this every month!

[GordonH]

Well I AM going to introuduse a web building tool at no extra charge in the next few months.
The idea of that is to help us justigy the prices we charge which are seen by many customers as being extortionate.
Actually, I went through this a few years ago and doubled the plan sizes and things took off again so its going to be a combination of various things plus beefing up the cheap brand so it can compete with Hostsave etc and with the same reliability.

Its actually been fun working on the cheap brand again as historically it made a lot of money and it is still growing but I know we can do more with it as the demand at the bottom end is increasing all the time and we are not getting our fair share.

I amalysed all the customers using the cheap brand.
The average disk usage was 250MB and the average bandwidth was 2.5GB per month.
The limits are currently 1000MB disk space and 40GB per month bandwidth.

[ldcdc]

I love the kind of info you share Gordon! :clap:

I still don't see why you'd go for the silly (IMO) Hostsave pricing and open yourself to a never ending appeal to the "too many server resources" policy. But then again, I'm not a host, so I don't see things like a host does. :)

[GordonH]

The reason is that sales are dropping.
Potential customers compare and see better value elsewhere.
Therefore I have no choice but to go down a similar route.
We were one of the first hosts to start offering very large plans.
I used to do a 500MB when Hostsave was still on 20MB and it was the same price.
We used to draw in large numbers of customers from other hosts and made lots of money from it.

I think I can pull off the same trick again and the procesor usage issue may not be as severe as I imagine because I am going to use dual processor servers for the new service.
AT the moment we get about one in 200 customers who uses a bit too much but as long as they are not affecting other users i don't normally enforce the limit.
Its possible I can get away with the same policy with dual processor servers.

[ldcdc]

Its possible I can get away with the same policy with dual processor servers.Let's hope so! Only real life experience will tell. :)

[GordonH]

Well to play safe I am starting with one new server and will add accounts gradually.
I will not put existing customers onto the new accounts until I have one full new server running and I can always stop adding accounts if problems arise.

[asp-hosting.ca]

Gordon,

What is your main source of visitors?

[GordonH]

60% existing business or word of mouth.
40% from PPC

[ldcdc]

No free traffic from the search engines? :)

[asp-hosting.ca]

I don't have any experince with budget hosting, so I can't really give you advice. Our plans start at $7.99 for a single domain, 100MB of space and 4GB data transfer. We still get customers with these plans :)

[Aussie Bob]

I love the kind of info you share Gordon! :clap:
Yeah, me too. It's honestly refreshing and unpretentious. (sp?) :)

[asp-hosting.ca]

Aussie Bob,

How is it going with your new venture?



Peter

[GordonH]

I thought I would update this.

Offering the very large plan for $5.95 has not increased sales.
(3GB disk space, 100GB BW)
If anything they have decreased.
The reason seems to be that people are looking at a target price of $3.95 or less per month at that end of the market now so our $5.95 price rules itself out for many potential buyers.

(In the Uk it is worse with the ideal price being around £15 per year. I could do hosting for £10 per year but it would have to be on a no support basis and customers won;t accept that so i am a bit stuck).

I have quite good market research as we survey people who have left.
30% leave because they don;t want to have aweb site any more.
Most of the rest are leaving due to price and we ask them what price they are leaving for. Its always sub $4/mo.
In one case we had someone going to an unlimited reseller acount for $6.95

[ldcdc]

Very interesting data Gordon (as always I can add).

I'm curious though, what kind of websites do these people looking for $4/mo have? Hobby sites or business/business related?

Offering the very large plan for $5.95 has not increased sales.
(3GB disk space, 100GB BW)
If anything they have decreased.
The reason seems to be that people are looking at a target price of $3.95 or less per month at that end of the market now so our $5.95 price rules itself out for many potential buyers.Could also be that the 500GB+ offers seem to slowly become standard in the budget hosting area, so the customer's expectations are modifying? 100Gb might easily seem to be only worth under $4/month these days.

[GordonH]

Yes, it took me so long to organise the change over the goalposts had moved again!

Its mainly hobby sites, notable gaming clans with huge bandwidth requirements.
However, so far no one has gone over the 100GB limit and the average usage is surprisingly only 1.8 GB per month. Higheest user last month was 80GB, one at 47GB and the rest were all less than 10GB, most very small usages.

The average disk usage so far is 143MB per account which is similar to the old 1GB disk space service.

Some of the accounts were exisiting ones moved to the server so its not like they are all less than three months old.

From a technical point of view it has worked very well. The quad processor server is able to take the ocasional spike sin load that would crash most normal boxes, so its been a good learning experience from that point of view.
It also makes money, but to be honest not enough to make it worthwhile given the customer churn.

The interesting thing has been existing customers demanding to be upgraded as they desperately need the extra disk space. Invariably they are using less than 100MB of their existing 1GB account when you check them but I don;t mind moving them as I need to do that eventually.

Plus, its 300 accounts per server compared to 100 on the old boxes, so there will be fewer servers to keep updated and secured.
I have now decided to do the same with our more expensive hosting services and go to quad processor machines as it will be fewer servers to manage and more resilience to load spikes.
To avoid disruption I am just going to move one machine when I need more capacity, as the new server wil be able to handle more accounts, then do agradual move over that way.

[GordonH]

By the way, I have a phot in front of me of forced water cooling system for CPU's. Better than fans and just like broadcast radio valves.
I wonder who will be the first host to start pumping water round their CPU's ?

[ldcdc]

However, so far no one has gone over the 100GB limit and the average usage is surprisingly only 1.8 GB per month. Higheest user last month was 80GB, one at 47GB and the rest were all less than 10GB, most very small usages.

The average disk usage so far is 143MB per account which is similar to the old 1GB disk space service.Hmm.. this is probably the explanation why the allotments offered by certain hosts keep on rising like so fast. The allotment increase has little to no infuence on the actual usage.

Does that package of yours allow the hosting of multiple domains?

[GordonH]

multiple domains

No!

That would definitely be suicide.

[ALLiNET]

We are giving out free SSL certificates from COMODO with shared and dedicated plans, so far we getting orders but not too many people requesting the SSL certificates I would say from 20 orders only one will request they SSL certificate. So far there is no loss.

[GordonH]

We are giving out free SSL certificates from COMODO with shared and dedicated plans, so far we getting orders but not too many people requesting the SSL certificates I would say from 20 orders only one will request they SSL certificate. So far there is no loss.

I considered doing that.
However, in the UK side of the market it would be 100% take up.

We tried giving a free domain with hosting once and customrs who already had domains insisted omn having another one free and for it to be set up with its own free hosting (because thats how we do domains).
I stopped that promotion after two days!

Actually here is a great customer comment from last week.
His amount had been suspended because he had not paid the renewal fee.
Then I get this in my inbox:

"Prove that I haven't paid the renewal or put my site on line".

Of course its very difficult to prove that someone hasn't done something.
What documentation would there be!

The world is full of chancers.

[ldcdc]

"Prove that I haven't paid the renewal or put my site on line".That's just hilarious. :D The nerve of some people!

[geo]

I know this is offtopic but maybe a new template/layout for your site.

[GordonH]

We changed our site designs last year....

[SynergyBlue]

We have considered restructuring pricing schemes and lost leaders last year and here are our results of the analysis (well an abridged one):

1) Reducing the pricing of the plans may bring you 10-20% additional sales revenue; however, you are canabalizing your current customers as they will wish to have the lower pricing. Does the 10-20% gain offset the reduction of your current income?

2) WebHosts are super markets, if you sell domains for a dollar, there aren't much where you can sell. What else can the user buy besides a hosting account?

3) Someone will over bid you and it has been a race to the bottom for awhile. Unlike retail businesses, the cost of entry to the webhosting industry is too low, you can start a host within 24 hours! Great thanks to the Ev1 bandwagon of low cost servers and now LayeredTech/Hivelocity/Etal.

What ever happened to the good ole $500 for a P4 and $99 for CPanel? It will make kids think twice or thrice before entering the market ;)

[GordonH]

1) Reducing the pricing of the plans may bring you 10-20% additional sales revenue; however, you are canabalizing your current customers as they will wish to have the lower pricing. Does the 10-20% gain offset the reduction of your current income?



That si the REAL problem with reducing general prices.

The only idea I have come up with is to sell off our spare capacity through a different brand at a knockdown price as its already paid for.
However, launching another brand costs serious money in advertising and I don't think it would work financially.
If it could sell by word of mouth then it would befine but these days there are too many hosts and you need to advertise.

Good news though, my Google PR on all my sites has gone up and our pages seem to be listed better in Google so we are getting more hits that way for free.

[HeadNucleon]

We have considered restructuring pricing schemes and lost leaders last year and here are our results of the analysis (well an abridged one):

1) Reducing the pricing of the plans may bring you 10-20% additional sales revenue; however, you are canabalizing your current customers as they will wish to have the lower pricing. Does the 10-20% gain offset the reduction of your current income?

2) WebHosts are super markets, if you sell domains for a dollar, there aren't much where you can sell. What else can the user buy besides a hosting account?

3) Someone will over bid you and it has been a race to the bottom for awhile. Unlike retail businesses, the cost of entry to the webhosting industry is too low, you can start a host within 24 hours! Great thanks to the Ev1 bandwagon of low cost servers and now LayeredTech/Hivelocity/Etal.

What ever happened to the good ole $500 for a P4 and $99 for CPanel? It will make kids think twice or thrice before entering the market ;)



Gordon is right, the webhosting business is super-saturated. But remember, in super-saturated markets just as many people enter as they leave. Hence, the market sort of flattens. Econ 101 for you :)

[webmaster73]

thank you Gordon for this kind of very cool and helpful information

I am very happy to have been sent to this site by WHReviews.com and ultracheaphosting.com

[darren62]

I read this thread with interest because I am a non-technical website owner who just wanted to host multiple sites that I own. Although I have over 100 domains only 5 of them are live and a couple for friends. I have always had reseller accounts but moved about three times now and I am looking to move again and the market is saturated with people who have knocked up a website and then offered hosting services.

There are far too many people out there offering services that they themselves are just renting so you are in the hands of two maybe three service departments. not one. Personally if I can find out I would only use someone who has direct contact with their data centres. a point for all of you here.

I am at a loss who to use but a message here for Gordon. I used to be with your UK company but moved when your support didn't deliver. I am not technical but know enough to suss out when the replies to my tickets aren't genuine and true.

I am now looking at packages that allow unlimited domains with a decent bandwidth but just where do you go. There are too many out there and believe me it is a nightmare.

From an owners point of view this is what I think.

I want unlimited domains and although this sounds greedy my biggest domain is only 100mb, two between 50-100mb and the others under 20mb.

I want a decent bandwidth but not excessive. Now I am not technical and always try to over order in this department. Instead of giving large amounts I would much prefer hosts to say give me 20gb and then say that the account would be monitored if i go over, not instantly charged.

Now Gordon's comments on this are to be read becasue it is quite obvious that this could be done. Only a DDOS attack could seriously affect BW for websites so in a month or so you would know what the customer is using and inform them if they are close and need to upgrade.

Support is a must and the problem is here that everyone is offering 24/7 support and we owners have no idea how to differ between companies until it is to late. Once I know a company's support doesn't work I move.

Now I know that I am a difficult customer with my demands but believe me most out here are.

Finally, the most important point. DAILY BACK UP'S. I just had a problem and my hosts were supposed to do daily back up's. When they reinstalled my database it was over two days old which is why I am moving again.

Now I don't want to move but I have to.

Another false claim by hosts is money back guarantee. They hope that there are no problems with the service until after this then you hit problems. It is not wirth the type it is in and I never take any notice of it.

Pricing is not all that important to me but I won't pay over the odds. Don't falsely believe that cutting prices will bring extra sales because it won't. I do look at pricing but support wins it for me every time and I have yet to get great support from anyone.

I know it is a long post but it may help some of you from an owners point of view.

I missed another point off here.

Make your terms & conditions understandable in plain talk not jargon. If I don't understand anyone's T&C's then I immediately go elsewhere.

[darren62]

Look after your existing customers first by offering them any new deals that you bring out. They will leave if they see you giving a new customer better treatment.

Believe me this is a fact.

Getting new customers is great but not if you are losing just as many. You are spending false money because you already have the custom, you just forgot them.

[GordonH]

I want unlimited domains and although this sounds greedy my biggest domain is only 100mb, two between 50-100mb and the others under 20mb.

Then you don't need unlimited!

There is one host in the UK who started up offering unlimited plans.
I can see from their domain renewal and other publicly available stats that they took vast numbers of customers in year one but very few renewed so they dropped from being the fifth largest host to being smaller than us when it came round to renewal time.

I am not sure what problem you had with support, but that would be an unusual occurrence. The times we have support related cancellations it tends to be because we are very strict about what we will and won't do. All I can say is sorry.

By the way, the out of date backups sounds like either they don't have room for a full daily so they are keeping a weekly or the backups have stopped running due to high load and never restarted. Both are common scenarios.
On our UK servers we RSYNCH to a SAN so we are only backing up changed data and it keeps the load down on the servers.

I hate backing up customers unread spam!

[GordonH]

Look after your existing customers first by offering them any new deals that you bring out. They will leave if they see you giving a new customer better treatment.

.

Customers expect prices to go down or stay the same.
Staff expect cost of living pay increases.
Suppliers generally increase their prices regularly.

These are not compatible objectives.

I would like to drop our domain registration prices. However, if we did this then our income from renewals would drop and we would have insufficient income to enable us to keep trading.
This is the same problem all subscription based businesses have (mobile phones, broadband providers, gyms to name but a few).

Costs are escalating all the time in all areas.

We are having to plan the move to 28 days annual holidays for staff (plus 11 public holidays with another one on its way soon).
The government says it will increase wage bills by 0.4% but they have not taken account of small businesses who may only have one or two people qualified for a particular job. Its now possible we could have several staff who rarely see each other because one of them will always be on holiday. We actually need to increase our staff by one which is much more than a 0.4% increase.

[GordonH]

By the way I looked at outsourcing our tech support to India, but the costs were going to be more than double what it costs us to do it in the UK (surprisingly).

[SergioC]

Hi Gordon,
very interesting chat here, thankyou.

I just have one doubt, why is so bad to have or offer unlimited domains or emails in an account?

If a customer installs a few domains on his account, the resources for what he has payed for will be finishing faster, so it is good because you could sell then next level account, that is my point of view (or am I wrong on this?)

Regards.

[GordonH]

The pronblem is that there is then no way of limiting the number of domain accounts on any particular server. This leads to instability due to processor load. Many hosts just look at bandwidth and disk space but processor load is the most important issue because it can not be fixed.

The only way you could offer unlimited plans would be if you had a fully SAN based system with racks of front end servers, or a strict polcy where you terminate processor abusers.

I can tell you that we have some servers with four dual core processors that can barely handle 150 domain accounts because of the poor coding and antisocial behaviour by some customers.

We used to do a plan that was 500MB of web space and you could host unlimited domains. The problem was that two customers decided to host 2000 single page sites each and the conf files got too big to be manipulated by the control panel system and everything went badly wrong.

There are a number of issues but processor usage and being able to plan are the biggest.

Its better to offer a limited number of domains per account at a lower price than some of the people selling unlimited plans.
I think people appreciate the increased reliability which it brings.

[asp-hosting.ca]

I would never offer unlimited domains. This is just asking for trouble.

[GordonH]

I would never offer unlimited domains. This is just asking for trouble.

Unless you have everything SAN attached with racks of front end servers doing the processing and you combine this with a strict termination policy for abusers.
Then its possible.
It might not make any money but its technically possible.

[john826]

I would think that even though there is no hidden catches with giving away the free domains, poeple may think different. They will wonder why you are giving them away for free. If you charge a little fee then they will more than likely feel a little more safer with the domain name.

[Slacker_au]

One direction that I have thought about on many occasions is moving into game server hosting.

After looking at the market for about 3 years now I have decided to move in that direction for a few months and see if it is a good or bad thing.

I guess that there are many people that think that there will be strings attached to any sort of special offer, we started offering 14 day free trials for game servers and the amount of emails about it was very high, people kept wanting to know what the catch was.

No matter how you tell people they will always have their own ideas.

Thanks

James D

A wise man once told me "you cant re-engineer the human race after conception."

[247-host]

Hello,

Very interesting chat.

We offer unlimited domains on our accounts - we have not run into problems on cpu use and have been doing it for years. Most Customers never use more then a few domains.

Vik