The costs of running a hosting company...

[Chicken]

I ran across a recent ad where the following plans and prices were posted...
50 MB Space/2 GB Transfer/$2.45/m or $22.05/y
100 MB Space/4 GB Transfer/$3.95/m or $35.55/y
200 MB Space/6 GB Transfer/$5.95/m or $56.55/y
400 MB Space/8 GB Transfer/$9.95/m or $89.55/y

Features Common to All Plans:
Unlimited Subdomains
Unlimited Mysql
Unlimited Pop Email Accounts
Multiple Domain Hosting
Instant Activation

The person who posted this also stated that they're a fairly new company, have a total of 73 clients (on one box), and are purchasing a new server shortly so they can sell Reseller plans (resellers will be put on a separate server). They also stated, "Typically a server can easily support 200 clients."

So there's the background information you need to know to reply to this thread. You don't need to know the names, as it isn't really important. The objective is to educate and inform, share ideas, etc., not to bash. Now, what sparked this thread were these statements...
Originally posted by <snip>:

Most Hosts are enjoying a pretty comfortable profit margin. If I run through the cost involved in running a hosting company you would probably be quite suprised just how little it costs to run and maintain a Hosting company.

Its my experience that generally Hosting Companies (our competitors) want prices to be on the higher side to simply make life easier for them and get more profit for less work. <snip> ...our business plan is comprehensive and we are churning over a profit quite easily with the prices we are charging. Oue clients are all happy with our support responses.
Now, the point of this thread is not to argue any of the points above. I thought it might be interesting for more established hosts to comment on some of the possible misconceptions above, and maybe someone would be willing to list just some of the expenses their business faces. There was a post (by Deb I believe) which contradicted: "...you would probably be quite suprised just how little it costs to run and maintain a Hosting company." If I can fid it I will repost it, but until that time, any thoughts on your costs?

[jbiz718]

Well Sir Chicken from my previous expierence in running a hosting company and working for one, I felt that the costs are higher in the dedicated and colo market.

Im going to use a coloing of a shared box in this example.

In regards to shared hosting, knowing that if you bought a dual xeon server, raid1, 80gb drives, 4gb of ram your looking at $3500 on up depending on hardware and company.

Lets say space for colo in this example, is $50 per U, and $200 per MB.

Lets say you use Cpanel, so that retails at $99

So to start basic upfront costs are:

$3500 for server
Monthly Fixed costs are
$149 (Cpanel retail license, and 1u)
variable cost is bandwidth to start
200 (1mbps)

Lets say said company has
500 customers paying about $10 per month for easy round numbers.

Revenue = 5k monthly
Costs - Lets say monthly about $500
Server costs spread over 12 months, about $300
Profit not including support reps etc, 4200 per month

In reality if one company would just focus on shared hosting, the profit margins are about 60+% based on my example. Obviously other scenerios may have higher or lower margins.

BTW, excuse the grammer its midterms this week.

[frattay22]

As stated before you host around 73 accounts? So that is close to Four gigs of space take some give some. Depends on the avg size of accounts. You offer Unlmited of everything except for Bandwidth and Space. Which is totally respectable but not acceptable. For example on the acceptable ie. I get a 50meg account with you and I decided to have just forums running. I could have about @ 20 forums running all with Mysql processes running as well. Which might not be alot but if your users wanted to do that they could? You could not boot them off your servers (your could) cause there is no TOS/AUP up to enforce it unless you have to agree to it when you sign up. First part :)

Second: What kind of server are you currently running? Spec wise.

Thirdly: Thirdly I am going to sign up for a month to test it out :) I own my own hosting but why not test it out :)

Fourthly: I will give updates as well

[jbiz718]

I dont think chicken hosts this. I think this is reference to something he saw.

[frattay22]

Originally posted by jbiz718:

I dont think chicken hosts this. I think this is reference to something he saw. +

Yes I know :) and the party who I am asking knows it as well. It was from another post we had and she/he chicken moved it over here thanks chicken!

Thanks,
Frank

[bjdea1]

I am replying to frattay22 in this post.

1) Its highly unlikely a client would run so many forums under one account, size and bandwidth limitations restrict this. The number of MySQL databases is unlimited in that you can have as many as you want - but your total disk space limits the amount of disk space all Mysql Databases can use. Eg - you could have 1000 MySQL databases but your accounts diskpace would limit each database then to being no more than 50 Kb each 1000 x 50Kb = 50 MB's. - not taking into account webpages etc. So space restrictions limit MySQL databases indirectly. We call this unlimited because many Hosts actually restrict the number of databases you can have - we don't.

2)Server Spec's : Intel Pentium 2.4 GHz, 1GB Ram.

3) Can I ask you a question? When you say you own your own hosting do you mean "hosting business" or that you already have an existing account (website) ?

Thanks,
Brett Deason
www.deasoft.com

P.s. you account has been updated as you requested

[Chicken]

And just to clarify, I think his pricing is low. That's a given. I also think it's a mistake to offer unlimited anything in terms of hosting features. But that wasn't my intent for this thread, not even the cost of a servers really.

My intent was for others to detail their costs in running their hosting business. I'll have to find that post...

EDIT:
I can't find what I was thinking of, but this should give you the basic idea...

"Clients see Disk Space, Bandwidth, and some key features. They rarely consider the cost of human resources, phone bills, taxes, power, redundancy, hardware, replacement hardware, marketing etc..."

[frattay22]

Originally posted by bjdea1:

I am replying to frattay22 in this post.

1) Its highly unlikely a client would run so many forums under one account, size and bandwidth limitations restrict this. The number of MySQL databases is unlimited in that you can have as many as you want - but your total disk space limits the amount of disk space all Mysql Databases can use. Eg - you could have 1000 MySQL databases but your accounts diskpace would limit each database then to being no more than 50 Kb each 1000 x 50Kb = 50 MB's. - not taking into account webpages etc. So space restrictions limit MySQL databases indirectly. We call this unlimited because many Hosts actually restrict the number of databases you can have - we don't.

2)Server Spec's : Intel Pentium 2.4 GHz, 1GB Ram.

3) Can I ask you a question? When you say you own your own hosting do you mean "hosting business" or that you already have an existing account (website) ?

Thanks,
Brett Deason
www.deasoft.com

P.s. you account has been updated as you requested

Very understandable :) Yes I run my own servers. Plus thanks for the instant access.

[James]

ok i guess ill be the bold one to stick my neck out and post what my costs are when i get a server of my own.
server cost 175 a month
admin costs at an avg of 10 hours a week(im hoping) 200X4 weeks=800 a month
advertising 200 a month.
misc stuff 75.
so my total estamated costs are going to be $1,250 a month.
this is what my costs are going to be im just hoping i dont need an admin for that long of a time :D
so i would ahve to have 253 clients on one server (OUCH) to brake even at 4.95 a month I do not see how this guy can be profitable only charging 22 bucks a year.

[bjdea1]

Because I am a System Administrator :-).

Also if you include Reseller Plans in the picture, Software and even Dedicated Servers, profits start emerging more readily. You also need to have a good Business Plan in place after doing your own research.

Also if you Automate things and Manage your servers well, you find people don't need to ask for support much at all.

[Chet]

James, you are sinking in too much per server for that plan. Why not raise your prices if that is your expected costs? We ran numbers and planned for 2 months before starting. I wouldn't bother if we ran the same numbers are yours.

I will just say, we are profitable per RS server and only put at most, 80 people on each server. The way it works out, there is some slight BW overselling, but very low and all of our boxes use less than 20% of the BW and never have they used more than 50%.

We retain customers because we do not oversell. Our servers are more stable because we do not oversell. Our servers are more consistent in response because we do not oversell. Heavy overselling will kill you in multiple ways, slight oversell is fine.

I think reseller plans are the biggest loss a host can take on, people never break them down.

1. A reseller is more likely to use the resources available than a normal client because he has this idea to fill that space for profit, where other people make profit not by filling space, but by running their site.

2. Reseller accounts typically earn you much less per unit of resources, extremely much less.

I would prefer to sell more small plans than large plans just because the way pricing works for almost every host i see and we are no exception, bw/storage are discounted the more you give.

James, figure your costs. Figure how many of x or y plan can get on each server. That is your cost of the plans. It is not magic, if the cost of your plans doesn't cover what x and y can cover, you will lose money.

We are lucky and have never directly spent 1 penny on advertising, and have been filling up a server a month for the past few months.

And you don't see us advertising here, wht or other forums. We are also not greedy, we give a fair product for a fair price. You would be surprised how far that will get you.

Chet

[Chet]

I will also add, when starting out to cut your support costs - get a good warning system for when a ticket is submited or a server is having problems.

When you first start out you can go days without a TT, but appearing to always be there and on guard will make your customers feel comfortable, and in essence you are there.

Once you grow enough, the TT will be consistent enough to payoff using a more dedicated support approach.

Chet

[bjdea1]

I don't fully agree on all points.

I think Resellers are good clients to have for the following reasons:

1) They are usually far more serious about their purchase and are a more reliable client.

2) They cost you less for 2 reasons:

They are usually more tech savy and can solve a lot of their own problems.
Having fewer clients on a box usually means less support requests. So filling up a server with 10 - 20 Resellers doesn't require as much support resources as say 100 or 200 shared hosting clients. Rem biggest cost is hiring support staff.

[Chet]

While I will give you they are more reliable in the sense of less likely to leave, I think they are also more likely to introduce problems. Meaning, not checking out potential customers as thorougly etc.

Chet

[LiftNw8]

I will also stick my neck out here, my costs currently are as follows:

$113 a month for server
$12 per month for toll free number
$50 - $100 a month on advertising, though I do as much of this for free as possible.
$50 - $75 per month on miscellaneous items.

I do my best to keep my costs very low, as I am trying to actually make some money.

[jbiz718]

Do you guys factor in tech support.

[LiftNw8]

Currently I do all my own tech support, so no I don't factor that in. In the future I hope to either employ people to help handle it or outsource it to continue to save on costs.

[peddler]

Hi all,

Just though I would chime in with my hosting experience as to costs, etc. I am a very small company with just under 100 clients. This is not my main source of income, but one of my passions, in terms of personal enjoyment. My lowest priced package is 9.99 per month and offers 150 megs of storage and 3 GB of traffic and also includes Cpanel (clients don’t use have of what they purchase). I have 2 additional packages, with the top one being 15.99. At the onset, I refused to get into the pricing war with cheap hosting simply because, in my opinion, it’s a road to economic disaster. I would much rather have 1 client at $10 than 4 at $2.95 for obvious reasons, the amount of support time being one of them.

"My" priorities in terms of offering hosting are:

1. Pay a little more and get a server(s) from an established company that has a proven track record for good network uptime, support, etc. Priority here is that the server is up and running.

2. Ensure that the server is as secure as it can possibly be. Hire an admin by the hour if necessary, to ensure. You can learn more as you go along.

3. Have a good support system. I use a toll-free number, ticket system, FAQ's on the site and tutorials (from Vito at Demo-Demo). The tutorials are a very good investment! Toll-free numbers are very reasonably priced, easy to get and can be re-directed to your cell phone, which allows you the freedom to have some sort of life!

If I'm lucky, I get about 10 support calls/tickets a month, and these are usually regarding simple things like setting up email accounts. I usually do these by phone, as it's quick and gives the customer the personal attention that clients like. It's also nice to get to know a client. Quality service and personal attention amounts to referrals. Whether customers ever use the 1-800 number or not, they look upon it as their "personal" contact number for the person running things and feel more secure having access to it. I also have my address on the site as opposed to some hosts that "hide" everything. Being forthright is mandatory in order for clients to feel comfortable with doing business with you.

4. Billing systems can be a nightmare, as some of you probably know. I have my own merchant account (bank) and only bill yearly, so I do this manually by phone. Takes less than 1 minute and I know there will be no problems such as recurring billing, double billing, etc. Customers do not like "funny" things happening with their CC’s, I know I don't.

Costs:

- Server: $165 and includes a second HD. Backups done nightly
- Avg. outsourced admin costs: $30-$40 per month. This is dropping
- Cert from Rackshack: $25 per year
- Phone: avg. to about $35-$45 per month
- Billing software: none. I use an Excel database
- Advertising: none. Rely on word of mouth and local businesses
- Ticket software: free on the net
- Website: none. Built my own
- Office supplies: averages to about $20 per month

My situation is probably not suitable for folks that want to make hosting their sole income for obvious reasons, however, it may work for some that like the "business" and some extra income. I could advertise and take clients off the street, but the inherent problems (spammers, etc) that come with this is not worth the risk or headaches (my opinion).

I have predicted growth by the current numbers and it may come to a point whereby I will need to alter my plan somewhat, but I can easily handle double the clients I have by myself.

Lastly, speak to your accountant re taxes and write offs. If done correctly, you can write off many things…legally. I would advise everyone to explore this in detail as there are “many” purchases that can fall under the umbrella of “running your hosting business.”

Good luck to all.

[Andrew]

Hmmmm - I dont know if I would even take a run at it based on Chickens example. The returns just aren't high enough.

Costs include server, bandwith charges, daily backups, support, IP's, lisence costs, phone, fax, etc....

Even at "normal" hosting rates, I think the numbers are tight.

[frattay22]

Wow, got alot of smart people that are hosting and some that are not. All very good views in general. I will throw my foot in the door.

Server(s) @200ish +VDS +Weekly Backup in a Different state + monthly backup in a Different State

Managment of the server(s) around 30.00USD/month due to the fact they are linux servers and I am a Windows admin don't go to well but learning as we go.

Cert at 25USD/year

Domain name 5.41/year

Billing Clientexec at 11.95USD/month gone down, and I dont' know why

Advertising None WOM Free :)

Ticket software Clientexec, 2 800 numbers, AIM, since they are WOM clients they already know who I am and how to contact me cause I love to get the feel of them before they sign up and always offer them a little special.

Website Donated to me :)

Office supplies 70USD/month

Can't remember what else I was going to state but when I think of it I will reply.

I mainly deal with clients I am currently working with/for in my Consulting Business which is my main source of income and subcontracts that I currently hold. I do this mainly out of pleasure to see me grow as a Person and as a Business. I am not trying to be a millionare doing web hosting "Just love what I do"

Thanks,
Frank J. Rattay

[bjdea1]

As far as support goes, I am quite surprised how quiet it is..... we average less than 1 support request a day, prob 1 every second or third day, even fourth. We have only 74 clients currently.
In fact at times the business basically runs itself with everything automated. Based on this I can't see our costs ever really being as severe as some seem to think.

At this rate I will be able to allocate mulitple servers to one System Admin. See how it goes.

Based on that, we're still fairly profitable. Once we get up to the 1000 clients figure I estimate a personal salary of some AU$40,000, I'm satisfied with that in the first 24 months. I guess other just want more money. I'm using Hosting as a business base, once the income and profit level has reached a certain point our business will be undertaking other ventures in different areas. Hosting is mainly our core income in the beginning years, which will continue on always as a core revenue base.

One thing I forgot to mention, we a backed up by the Australian Federal Government, that helps. As a New Enterprise they offer financial Assistance for the first 12 months to help kickstart new businesses. Its also nice to know they have confidence in our business plan.

Finally our pricing will change over time. We will always charge clients the same price they originally signed up for, but force new clients to pay more in the future. But we won't increase (where possible) prices like IP charges etc (which we are trying to bring down) , just the Plan prices.

Also one other cost I really dislike is Fraud. We've only encounted one case so far - but its very annoying paying a $29.00 chargeback fee for a $2.95 monthly payment because someone stole a Credit Card.

[frattay22]

On your last comment on Fraud that is one thing I really dont' like about instant activation. It is a VERY nice feature for clients that are legit but then you get the scums that cost you more money then the damn account itself is for the FULL year. I think you use 2co which is a VERY nice company and VERY friendly. What are you using for Billing? To setup the accounts instant? I wouldn't mind an instant plan but then I would have to think twice about it.

Thanks,
Frank J. Rattay

[Andrew]

Hi Frank

Very good question - I'll let bjdea1 (boy...just doesnt seem right to type that name) answer how they do it.

But for us - we use the hsphere control panel with a PSIgate merchant account.

Chose PSIgate because of their fraud filter. Nothing has gotten through yet. Will put a suspect transaction on hold, without processing and notify you. You can then manually process the order and perform any fraud checks you deem necessary.

Hsphere is a nice control panel for instant activation and customer management.

Hope this helps

[frattay22]

Hsphere is 99$up front and 4$ per account? How do you like it compared to Cpanel?

[bjdea1]

I've written a Script that automates our WHM account setup.
Actually I am going to make it commercially available (once completeled) prob December or early next year.

One thing about this particular case of Fraud, it was from a purchase made about 2 months ago. It took 2 months for the real Card owner to realise. Manual processing or Automated I couldn't have prevented this one either way.

[Andrew]

We test drove CPanel - Im not a CPanel pro, but Hsphere is easier to set up, back up, recover from and is a more complete package (not to mention the support from psoft is great)

When we signed up, we payed for 100 lisences upfront (works out less). $4 per additional lisence is a 1 time charge, not too bad.

To be fair, CPanel has some nice features hsphere doesnt (will automatically configure many apps and many versions, hsphere only does 1 app and 1 version)

Im sure some cpanel users can give you more benefits...

For the record, I wouldnt change from hsphere...

Hope this helps

[Andrew]

Originally posted by bjdea1:
One thing about this particular case of Fraud, it was from a purchase made about 2 months ago. It took 2 months for the real Card owner to realise. Manual processing or Automated I couldn't have prevented this one either way.

It can almost always be avoided if you catch it before its processed. In this case, IF your fraud filter had caught it, you can do a manual verification with the bank and the customer. This is done by confiming with the bank (over the phone) that the billing address and phone number match the information you have. You then call the customer at the number the bank has on file and confirm the purchase.

You cant do this with every transaction, but depending on how you set your fraud filter and your follow up policies, you can greatly reduce your fraud incidents.

Anyone else follow this type of approach?

[bjdea1]

2CO does provide fraud warnings about orders and this is our first incident of real fraud. To be honest a lot of our legitimate orders often get categorised as possibly fraudulent, when they are not. After a while you can start to disregard fraudulent warnings a little.

But yes your procedure sounds like the right way to go about it. I am just starting to take the view that perhaps I should just simply take fraudulence as an expense and just leave it at that. I mean if its just 1 every 6 months, I think we can handle it. If it esculates we will start doing more checks as you've described. By the way thats good advice - thanks.

[frattay22]

Just to add on that one. When they sign up I know that you recive the IP from the order and you get the clients info ie. name, address, phone etc... so what I do is get the IP address and do a dns on it to see where it is coming from. If the client is in China and the Card comes from Texas you konw something is up :) always safe than sorry.

Thanks

Frank J. Rattay

[Andrew]

Originally posted by frattay22:

Just to add on that one. When they sign up I know that you recive the IP from the order and you get the clients info ie. name, address, phone etc... so what I do is get the IP address and do a dns on it to see where it is coming from. If the client is in China and the Card comes from Texas you konw something is up :) always safe than sorry.

Thanks

Frank J. Rattay

OH so simple, yet I never thought of it.

Thanks for the tip

[Chicken]

Originally posted by Liftin.com:

Currently I do all my own tech support, so no I don't factor that in.
You really should, even if it's just you. Of course you wouldn't actually pay yourself, and will likely sink your entire 'salary' back into the business. Figure in the cost to pay to replace yourself, if you ever need to (put another way, the cost to pay someone to do your job).

[frattay22]

Originally posted by Chicken:

You really should, even if it's just you. Of course you wouldn't actually pay yourself, and will likely sink your entire 'salary' back into the business. Figure in the cost to pay to replace yourself, if you ever need to (put another way, the cost to pay someone to do your job).

Agreed, what happens if you have to head out of town for a few days and no internet access? Then you come home to find out that all your clients are a little ticked. I think you figured in misc into your account so you should be fine then. Always have backup contacts just incase cause you never know when you will need them. Plus it keeps the respect going around.

Thanks,
Frank J. Rattay

[frattay22]

Originally posted by bjdea1:

I've written a Script that automates our WHM account setup.
Actually I am going to make it commercially available (once completeled) prob December or early next year.

One thing about this particular case of Fraud, it was from a purchase made about 2 months ago. It took 2 months for the real Card owner to realise. Manual processing or Automated I couldn't have prevented this one either way.

Bjdea1, you need any testers :)

[bjdea1]

Get back to me in a month or 2 about that, I'm happy to give you a free pre-release version. The script I'm using right now is very customised to my own site. It would take a lot of fiddling to set it up for another site, a lot of the html is hard coded into the actual script. The programming I'm doing now is to make it easy to setup and customise for any website, I'll be finished in a month or 2.

[soapsud]

hmmm, a lot of these costs don't really seem legitimate, as chicken said, if you're not paying yourself (and counting that as a cost) you're not counting all your costs correctly.

[James]

chet,
yes i ahve crunched the numbers and im counting on a few of the new clients going for the y plan insted of the X plan (i offer 4 differnt plans right now) as from the clients I have now 1/2 are onm Y plan wich dubbles my income:)
i just figure on the frist plan i offer so i am able to get a number and for evey Y plan i selll thats one less client i need to brake even. now i could be WAY off on the numbers but i tend to go a bit high so if it comes under what i was expecting to pay (manly the admin stuff and maby the server) im going to be running a bit easer then planed for.

also thanks for the tips man they will come in handy.

hrmmm just thougth of a new thread:)
laters

[t-com]

Well we @ t-hosting.biz seam to have ever increasing costs. Just have a look at what you have to send to stay above ground:

£250 for a decent server with dedicated 1Mbps connection per server
£1000 for staff wages
£250 per week in marketing

So that’s £1500 for just one server with a 80Gb hardrive!

We do have allot of overheads so I think this person who said they didn’t is a small reseller..!

That my 2c

[Andrew]

Originally posted by soapsud:

hmmm, a lot of these costs don't really seem legitimate, as chicken said, if you're not paying yourself (and counting that as a cost) you're not counting all your costs correctly.

Very well said.

If you dont count these costs, your business is not truely scalable. Once you outgrow your own time and hire people to take over functions (ie support), the dollars will not add up.

[LiftNw8]

Originally posted by Chicken:

You really should, even if it's just you. Of course you wouldn't actually pay yourself, and will likely sink your entire 'salary' back into the business. Figure in the cost to pay to replace yourself, if you ever need to (put another way, the cost to pay someone to do your job).


Once I have to many customers to handle it all by myself, I intend to outsource the support, so that I will continue to keep my costs down, most likely outsource it on a per ticket basis with one of the outsourcing companies.

As for going away anywhere, I have gone on several vacations while running this business, I don't go anywhere without my laptop and I find out ahead of time about internet connectivity, so I don't have to worry about that. And I notify all my customers that I will be on vacation and how to contact me when I am gone.

[Andrew]

Originally posted by Liftin.com:

As for going away anywhere, I have gone on several vacations while running this business, I don't go anywhere without my laptop and I find out ahead of time about internet connectivity, so I don't have to worry about that. And I notify all my customers that I will be on vacation and how to contact me when I am gone.

Doesnt sound like much of a vacation. Im assuming youre a young one (no offence at all meant by that). But, once youve worked for 10 or 15 years, you will NEED a true vacation...

Meaning no laptop and no work. Trust me, this day will come :)

[LiftNw8]

Originally posted by Andrew:

Doesnt sound like much of a vacation. Im assuming youre a young one (no offence at all meant by that). But, once youve worked for 10 or 15 years, you will NEED a true vacation...

Meaning no laptop and no work. Trust me, this day will come :)

My vacations have been fine, and enjoyable, I just check mail when we get back to the hotel in the evening, nothing more. As for assuming I am a young one, bad assumption but I take no offense, I am 34, and have been working for quite some time, and at times I have worked two jobs. I started the business to make extra money without leaving my home, so far its made a little.

As for needing a true vacation, just getting away is enough, I am lucky enough to maybe have 2 - 4 support requests a month, but currently I only have about 30 or so clients, I am a very small outfit right now.

[Andrew]

Originally posted by Liftin.com:

My vacations have been fine, and enjoyable, I just check mail when we get back to the hotel in the evening, nothing more. As for assuming I am a young one, bad assumption but I take no offense, I am 34, and have been working for quite some time, and at times I have worked two jobs. I started the business to make extra money without leaving my home, so far its made a little.


:clap:

My compliments to you. Dont know how you do it. I would lose my mind if I had to answer an email on vacation.

[LiftNw8]

I can only do it because I have so few clients, I think if I had more I would have a harder time doing it. I am sure that at some point in the future I will tire of it, and then I will be looking for someone else to be handling it for me so that I can have peace and quiet totally on my vacations.

[Blind Freddy]

Wow.
I'm overwhelmed at the lack of expenses shown in this thread.

What about:

Office rental
Electricity
Telephone, fax, broadband connection
Insurance: Contents, public liability
Capital cost / Depreciation of computers, printers, other office equipment
Business registration fees
Accounting fees
Company return lodgement fees
Interest charges on loans or credit cards
Listings in phone directories
Postage charges
Costs of billing software and upgrades (ie Modernbill)
Bank Fees
Merchant account fees
General Software costs
SSL Cert
Proprietors time / Wages
Support costs
Server Admin


I could go on for much longer, but you probably get the point.

There's no way in the world that any sort of sustainable business can be run by offering the prices commonly seen at the lower end of the scale.

Don''t be lulled into a false sense of security that you don't have to account for your time and effort because you are small, or only have a few clients.

EVERY CLIENT TAKES TIME, and if it's not reflected in your costings, you're just kidding yourself.

We charge a setup fee. Because it takes time to set up an account. time to talk to prospects, time to set up systems, etc.

If you don't make allowances for this time when you are small, it will kill you as you try to grow.

Eric G.

[xerocity.com]

I too am going to go out on a line. I don't normally do stuff like this but I'll give you a quick breakdown.

Details removed, sorry, I regretted posting it.

I will probably regret posting this info later but oh well.

[Incognito]

From day one I approached it by looking at the future. I divided by $ into four categories, but I based everything on the time when I would be doing nothing but management. Therefore, I did all pricing and business planning as if I had to have someone else do all support, server administration, billing, collecting, bookkeeping, sales, and marketing.

I developed different formulas for shared hosting, reseller hosting, and dedicated servers.

Now, I looked at each plan individually as if the server was completely filled with that plan.

So, I might get (as always not divulging the real numbers) something as follows:

Analysis-Plan A, 100MB, 3 GB, Need pricing around $5.99
Now lets assume on a Dual Xeon w/120 GB HD, 1000 GB Transfer

So, assume 400 of those accounts will fit. Costs are as follows:
Server w/Control Panel $300
Tech Support - 400 accounts $200
Server Admin - $100
Advertising and Sales Commissions - $300
Billing and Bookkeeping - $200

Total Costs $1,100
Target on Shared 50% profit
Goal Selling price $2,200
Selling price at $5.99 (based on market analysis) is $2,396 less cc fees for $2164. Close enough.

Reseller Plan B, 5 GB, 50 GB
Assume 20 of those will fit on a server
Server $300
Tech Support - 20 accounts $50
Server Admin - $100
Advertising and Sales Commission - $150
Billing and Bookkeeping $50

Total Costs $650
Target on Reselling 40% profit
Goal Selling Price $1083
Selling price at $60 (based on market) is $1200 less cc fees for $1150

Another way I looked at it was to compartmentalize....i.e., 25% of selling price for server and support, 25% for sales, billing, advertising, bookkeeping, 50% for profit. And, reseller per server to provide 50% of the revenue of shared.

Now, once established, I could then exceed advertising and cut into profits during the building stage. However, the biggest thing I made sure of was never to price at such a rate that I couldn't be profitable in the long term with that price.

I see people saying...ok get a $200/month server, support myself, so need to make $400. Can get 150 clients on so fine to charge $3.00. I say don't even consider it. Again, look when you build the company and have to pay. It will cost you at lease $150 to get admin for the server and support the clients. So, now you are down to $50 more or less margin. No money for advertising, sales commission, billing, bookkeeping and in reality no profit.

One other thought I developed. Looking back up at plan A, it would provide about $2.75 profit/customer. I strongly advise setting a minimum profit/customer. Otherwise it just isn't worth the trouble. Volume will not make it up. So, I could put 800 $2.99 ($36/yr) customers on the same server as above. But that would push my per customer profit down to about $1.25-$1.50. This is below any threshold I would consider.

I, in fact, do everything I can to discourage people from any low end plans I offer. For instance, If I offer a $5.99 100MB/3GB account, I may also offer a $7.99 with 200MB and 6GB....so double for only $2 more. By pricing your plans appropriate you can increase the volume of your second lowest plan and decrease your least expensive-even with customers who don't necessarily need it. They just see a better deal.

[frattay22]

Originally posted by Incognito:

From day one I approached it by looking at the future. I divided by $ into four categories, but I based everything on the time when I would be doing nothing but management. Therefore, I did all pricing and business planning as if I had to have someone else do all support, server administration, billing, collecting, bookkeeping, sales, and marketing.

I developed different formulas for shared hosting, reseller hosting, and dedicated servers.

Now, I looked at each plan individually as if the server was completely filled with that plan.

So, I might get (as always not divulging the real numbers) something as follows:

Analysis-Plan A, 100MB, 3 GB, Need pricing around $5.99
Now lets assume on a Dual Xeon w/120 GB HD, 1000 GB Transfer

So, assume 400 of those accounts will fit. Costs are as follows:
Server w/Control Panel $300
Tech Support - 400 accounts $200
Server Admin - $100
Advertising and Sales Commissions - $300
Billing and Bookkeeping - $200

Total Costs $1,100
Target on Shared 50% profit
Goal Selling price $2,200
Selling price at $5.99 (based on market analysis) is $2,396 less cc fees for $2164. Close enough.

Reseller Plan B, 5 GB, 50 GB
Assume 20 of those will fit on a server
Server $300
Tech Support - 20 accounts $50
Server Admin - $100
Advertising and Sales Commission - $150
Billing and Bookkeeping $50

Total Costs $650
Target on Reselling 40% profit
Goal Selling Price $1083
Selling price at $60 (based on market) is $1200 less cc fees for $1150

Another way I looked at it was to compartmentalize....i.e., 25% of selling price for server and support, 25% for sales, billing, advertising, bookkeeping, 50% for profit. And, reseller per server to provide 50% of the revenue of shared.

Now, once established, I could then exceed advertising and cut into profits during the building stage. However, the biggest thing I made sure of was never to price at such a rate that I couldn't be profitable in the long term with that price.

I see people saying...ok get a $200/month server, support myself, so need to make $400. Can get 150 clients on so fine to charge $3.00. I say don't even consider it. Again, look when you build the company and have to pay. It will cost you at lease $150 to get admin for the server and support the clients. So, now you are down to $50 more or less margin. No money for advertising, sales commission, billing, bookkeeping and in reality no profit.

One other thought I developed. Looking back up at plan A, it would provide about $2.75 profit/customer. I strongly advise setting a minimum profit/customer. Otherwise it just isn't worth the trouble. Volume will not make it up. So, I could put 800 $2.99 ($36/yr) customers on the same server as above. But that would push my per customer profit down to about $1.25-$1.50. This is below any threshold I would consider.

I, in fact, do everything I can to discourage people from any low end plans I offer. For instance, If I offer a $5.99 100MB/3GB account, I may also offer a $7.99 with 200MB and 6GB....so double for only $2 more. By pricing your plans appropriate you can increase the volume of your second lowest plan and decrease your least expensive-even with customers who don't necessarily need it. They just see a better deal.

Very thought out like it!