A lot of people think about starting a web hosting business. It
might seem like an easy way to get rich, but as those who have tried
it found out, it's not that easy. It should be clear to you that
a web hosting business is not a get rich quick scheme.
And it's not an easy business to run. If you came to this page
thinking that, then it's time to change your mind about it. It takes
a lot of patience, computer and technical knowledge (Computer Science)
to start and run a successful and solid web hosting business. If
you think about starting a web hosting business, keep this thing
in mind: don't jump in the water without learning to swim in the
baby pool first... (Just quoting the owner of a web hosting business...)
1. Common misconceptions
Perhaps you heard about the innovation of Control Panels and that
they make it easy for anyone to start a web hosting business. Indeed,
they make a very complicated job simpler than it used to be, but
the reality is that things don't get very simple - control panels
still have their limitations.
Most people who contemplate about starting a web hosting business
think that a server with let's say 80GB hard disk space that can
cost as low as 100$ per month (2003 prices), can be can resold in
pieces of 25MB at $5 each or even more. That would mean more than
$16,000 in profits (1GB=1024MB !!!). Such a profit is something
of a miracle, right?
And yet, even more bewildering is the fact that many of those who
tried starting a web hosting business, and even old web hosting
companies, go away BANKRUPT. But, you'll say, if I plan and provide
live customer support, sincere efforts, money back guarantee, and
try not to rip others off by charging excessively, I can succeed
in successfully starting a web hosting business!
Well, it turns out that if you can see beyond the type of math
presented above, you might be able to do it. But if you feel the
above math is even close to reality, you'd better try starting a
company in another field.
Like many other people, you might look at the cost of the hardware
and figure that the rest is profit... But, if you plan to offer
true support and guarantees etc. you'll find that profit margin
isn't quite as big you thought it to be. This isn't to say you
couldn't make a profit... but don't expect to be able to put 3200+
websites on a $100 server.
Also, you might think it's easy money. However, most people
with a business of their own, whether they run a web hosting
business or not, work twice as hard than they did when they worked
for someone else. But, true, most of them have twice as much
fun and some of them twice as much money (and some even more).
When you're just starting a web hosting business, it's just normal
to try run it all by yourself in order to keep the costs low. That
will put you in the position to work sometimes more than 14 hours
per day. As you can imagine, you must have a certain "drive"
to put yourself to that kind of work, especially when you're just
starting the web hosting business and the cash flow is low. You
have to find a way to motivate yourself in order to keep on working
with little rewards.
Most people starting a web hosting business don't put enough time
into assessing the real costs involved with running a web hosting
business. Most people thinking about starting a web hosting business,
as we've seen, are looking only at the positive side... There are
negatives however: hiring help so you have 24/7 support, credit
card processing fees, advertising budget, etc., etc...
I'd suggest writing a solid business plan. A business plan is really
the only way to start a business. It's not a bad idea to try to
find a job or apprentice with a web hosting business first. As an
employee, without the risks of being the employer, you will see
some of the requirements of running such a business.
Those who think about starting a web hosting business forget (or
prefer to forget) that there are other companies out there who
offer the same stuff that they want to offer. Don't make the
same mistake. Keep in mind that the web hosting market is already
saturated and highly competitive. There are so many new web hosting
companies launched each week, if not each day, the majority of them
trying to offer the cheapest packages, that it's very hard even
for already established web hosting companies to face this competition.
What's even more dangerous is the fact that those new web hosting
companies are in fact running straight into bankruptcy, but with
so many of them still popping up like the mushrooms after the rain,
the offer of very cheap web hosting solutions seems to never
end. The well established web hosting companies face this unfair
competition, but can't fight against it. There's no way to convince
those new businesses to raise their prices.
All there is to do is wait. They'll go out of business soon enough.
Unfortunately, new ones will take their place and there's no sign
that this will stop in the near future! In fact things might get
even worse, because the barrier to entry is very low, especially
now with the depressed cost of dedicated servers. Also, the use
of control panels allows almost anyone who is willing to master
the skill to get into the business and start a web hosting company.
Of course, in reality, it is not that simple, but that doesn't stop
people who are basically unskilled and unprepared from trying. Although
the Control Panels provide most of the basic features, they don't
help you to do everything that needs to be done. Linux or Windows
skills are still important to secure, configure and troubleshoot
the servers.
Although there are many new entrants into the business, many of
which are disillusioned about the business thinking that it's easy
money and a huge pot of gold just waiting for them to take, it is
not so. A lot of people tried hard in the business and got just
a few new customers per week.
OK... Remember the 80GB example I gave you? There are several factors
which would prevent you from selling 3,200 accounts on that one
machine. Firstly, one has to consider server load. Putting too many
sites on a single machine is a big no-no because they will over-stress
it. That will lead in turn to increased level of downtime and support
tickets.
Also, I deliberately refrained from even using the word bandwidth
so far. Did it cross your mind? It's a very important aspect, because
the server comes with a limited amount of bandwidth. If it comes
with 400GB of bandwidth and you offer 1GB bandwidth per account,
that would, in theory, limit you to 300 to 350 accounts for that
particular machine. Of course, instead of using a 50-100 GB safe
margin, you could, like many others in the business, oversell. But
even then, you shouldn't go for 3200 websites. The risk would be
too high.
Don't even think about starting another cheap web hosting business.
There are too may such companies out there. Besides, although a
low price can be a powerful marketing tool, as I once heard, companies
concentrating all their efforts on offering the lowest price, in
any business, will end-up finding that there's always another business
ready to set the prices to even lower levels.
Also, most of the people who run a $5 per account web hosting business
will tell you that there are no money to be made there. Usually
it's the higher $10 and above accounts that really put the butter
on the bread. The cheap accounts are, in the best case, merely a
way to generate word of mouth.
Go to the topics list
2. The business plan - a maybe or a have
to?
Lets start with a little bit of math - hypothetical of course.
Let's say we setup 300 accounts on that server that we've been talking
about.
Revenues (300*$5 less credit card fees) = $1280
Cost of Server = $100
Added Control Panel = $100
Cost of Advertising to get those clients = $300
Cost of support = $350 or if you are going to provide it all, take
your current salary and put it here.
Total Costs = $850
Profit = $430
Profit per customer = $1.43
But! We have not taken into account the fact that when you're just
starting the web hosting business the server is empty - you host
no sites on it. That means in the beginning you'll have costs (server+control
panel) that you'll have to cover somehow. Guess how! From your own
pocket!
Can you spot another mistake in our assumptions? The advertising
cost! It cannot be estimated the way we did. It really depends on
a lot of factors (such as ad effectiveness, your ability to close
the sales). Usually you will not be able to estimate this cost with
accuracy before you actually start advertising your web hosting
business. On the bright side, the advertising costs are not recurring
every month like we assumed. Once you close those sales, you basically
have them secured as long as you provide a good service.
So, if you want to get into the business, do your market research
and do your business plan. Find out how much it costs you to
get a new customer. Probably the best thing is to start small.
Get a reseller account, something you can justify as a "waste"
in your budget, because, as we've seen, it's probably going to be
a long while before you turn a profit of any kind Don't jump right
in with a managed/unmanaged dedicated server as it's liable to ruin
you. Save all your income from the "business" and reinvest
it if you can.
And do some more research on the market before diving into this.
Read some books on server administration and hang around the forums
like webhostingtalk.com.
If you still have to ask a lot of basic questions, it only means
that you shouldn't be starting that web hosting business yet. Wait
until your questions get very specific. That's the moment
when you're ready for starting a web hosting business.
Go to the topics list
3. Advertising your web hosting business
Remember, a web hosting business website is like any other website.
The simple fact that you're a business is not enough to get you
traffic. A majority of the cost would be to advertise, advertise
and advertise. If you're just starting a web hosting business
you have to compete with the more established web hosting companies
and in order to be attractive, your offer and business plan need
to be 'better' than the rest.
Technical skills and the server are the foundation of your business,
but, as strange as it might sound, they're a minor part of the business.
It requires a lot of "people skills" to deal with sales
and support. And because it's going to be a 24/7 business, you would
probably need to have a technical team to provide support to your
clients as and when needed.
There are so many hosting companies out there that it's impossible
for all of them to make huge profits, but, generally, it all
comes down to how you market your web hosting business and how you
treat your customers.
Get a few ad campaigns running.
But
be warned, it works for some, but not for others. Also, do some
SEO (search engine optimization) on your web pages in order to rank
high in the search engines. Considering how many web hosting companies
are out there, I haven't seen that many optimizing their website's
pages to rank high in the search engines. Don't concentrate on optimizing
the homepage only. Try instead to write a few good articles, useful
to anyone who owns a website. Write each article around a certain
keyphrase(s). Use www.wordtracker.com
to find what people are searching for in the search engines.
And don't forget to get your site listed in DMOZ.
It shouldn't be very hard if you follow the submission guidelines
and it will do you a lot of good because it will greatly influence
the link popularity (especially PageRank) of your homepage and thus
of your other website pages.
Another way to increase link popularity and advertise your web
hosting business is to submit it to directories. There are lots
of web hosting directories out there. Try to get your website listed
in as many as you can.
The web hosting forums might seem like good places to advertise
your business for free, but there is a problem. The web hosting
companies advertising there tend to offer way to much and ask for
way to little. Try it if you want, but expect to find some outrageous
prices, prices at which you'd go broke in less than two days.
Offer from your website a free piece of software. Although
not offered from a web hosting business's website, the HostingEvaluator
program (www.hostevaluator.com) actually advertises www.boutiquehost.com.
With that piece of software they are not only sending traffic to
the hosting business, but they also prove that they offer good service.
Try it. It's free and very useful!
Another way to advertise your web hosting business is to host for
free a few (or many) hosting, business or webmaster related websites,
especially those offering valuable information, in exchange for
a "hosted by yourcompanyname" banner on every page of
that website. Don't expect them to accept a large banner at the
top of the pages. That's much too obtrusive for almost any webmaster
to accept. There's another place that usually gets a good amount
of attention from the visitors: the navigational zone of the page
(navigational links; e.g. the right part of every page on my website).
Try to secure position for your banner in a similar position on
their websites.
Many new hosters started by spreading the word locally to get the
word of mouth to start. It simply proved that satisfied customers
breed others customers. Word of mouth spreads like fire... when
the service is good, and when it's bad!
Treat all your customers as if they were your first and your
last customers. Build up a solid reputation of having quality
support and customer care. You build this well, and the rest should
follow. And remember... one disgruntled customer will shout a
hundred times louder than any happy customer (in most cases)
so make sure you don't put yourself in a bad position on purpose.
Getting customers is hard if you are expecting them to walk in
and make you rich simply by submitting to a few search engines.
It takes time, effort and money for most people in order to make
their business popular. There are hosts who have excellent reputations,
and word of mouth is their best advertising avenue.
You need to position your company differently. You need an idea
to be different from the rest. Think about it, why should a customer
come to you and not someone else? Yeah, I know, you'd like me to
give you such ideas, but I don't have any. Why? Because I'm not
thinking, like you are, about starting a web hosting business. I'm
simply trying to get some things straight with this article. Besides,
if I had a special idea, I would not simply give it away. I would
be starting a web hosting business... My own... :-)
Back to advertising: offer free trials. You can offer one
at your website, or you might want to go a place such as a restaurant
and speak with the manager. Make an offer to give away FREE web
hosting accounts to their customers. Of course not free for life.
Free for a few months. Print some business cards and leave them
by the register. Let the people test drive the web hosting. You
have plenty of time to recuperate those money after they're "hooked"!
As I explained earlier, try not to position your web hosting business
as yet another cheap hosting solution. Instead, prove people that
there really is a difference between your service and the service
provided elsewhere... I read on forums what a guy who owned a web
hosting business used to tell his customers when asked why he charged
more than they've seen in other places. He replied people with something
like this: Why do people pay more to buy Nike shoes when they can
pick up any cheap pair of shoes? Why would someone buy a Porsche,
when a Geo will get them from point A to B just as well? And he
kept on explaining until the customer was convinced. There will
always be a place for the really cheap hosts and a place for the
quality hosts. You just have to know your market. And you can explain
that to your potential clients too.
I told you once, but I'll tell you again. A lot of people who are
starting a web hosting business provide the customer service/support
by themselves. Considering the fact that they also are in charge
of advertising, maintaining the website, etc. it's only normal that
they report working 14+ hour per day. Few if any are getting
rich, but many earn a living. Having to respond to customers in
a timely fashion to answer the same simple questions over and over
for different customers really ties them down. Plus, when the server
goes down, everyone on that server starts calling or e-mailing,
swamping them. And they cannot reply to the emails sent by customers.
That's when they lose a lot of good customers.
Take care of your customers, and they will take care of you!
Nowadays, people expect 24 hour support. Will you be able to be
on call 24 hours a day to handle all requests that will be coming
in once you start your business? Prompt support is a really one
of the most important aspects for the success of a hosting business,
so you should ask yourself how much time you can put into this business.
Since in the beginning, most likely you'll do everything by yourself,
you will not be able to offer true 24/7 support. However, I recommend
you to monitor your support email(s) and help desk every waking
moment. You might be able to impress most people with your timely
responses.
Perhaps the most important thing that you have to do right is actually
very simple: you have to listen to what your customers want and
then give them what they need. Doesn't sound very difficult, eh?
Go to the topics list
4. Shopping for a reseller account or a
dedicated server
In hosting, as in almost anything else, price shouldn't be the
only factor considered, or even the most important. Quality is the
most important aspect. Then the price.
If you're going to resell someone else's services, then customer
service and technical support are far more important than the price.
The performance of the company you're reselling for will be directly
reflected on you -- most of your clients won't accept "it's
not our fault" as an explanation. I know I wouldn't.
Based on my experiences with web hosts, it seems many hosts one
might go with are fine for awhile... then one has downtime and other
problems. Many hosts run on thin margins so it's common to find
them using IDE instead of SCSI drives for instance or overloading
their servers with too many accounts (reseller and/or retail ones).
Many hosts maintain a support forum for their customers. You might
visit the one for the host you are thinking of going with (if they
have one) to get a feel for how things are with them.
There is a forum where people ask for opinions on hosts, as well
as discuss various hosting topics. The URL is www.webhostingtalk.com.
Keep in mind there are a lot of young adults that go there as many
web hosting companies are owned and run by teens and people in their
twenties.
As for support options, some folks subcontract that out to companies
like www.bobcares.com. They are located in India. You can do a search
for them at the forum noted above and see what folks have to say
about them.
Also, many hosts make their money by overselling space and especially
bandwidth. Seems folks like having hosting accounts with large bandwidth
limits, but don't use much of it. Keep that in mind when considering
how much bandwidth and space is offered to you. When resources
are oversold, one or few heavy user(s) can bring things to a crawl
quickly for everyone.
If you decide to lease a Dedicated Server then you can review offerings
from companies such as Rackshack.net, Eservers.biz, Rackspace.com,
Cyberworldservers.com and may others. Each of those companies will
allow you to lease a server on their connection, set a specified
amount of bandwidth, and allow you to host your client's websites
on that server.
If you're building your own data center and you're looking for
bandwidth, check out Level3.com, Twtelecom.com and Verio.com, and
for cheaper bandwidth visit Cogentco.com. Each of these companies
will allow you to have bandwidth in your data center facility.
Just to be of some some help, here are a few companies that I found
to provide good service (based on customers reviews at WHT):
Hostgator (which I've been using to host this very site for more than 4 years now)
DownTownHost
Httpme
Unitedhosting
Hostingmatters
Vnpixel
Go to the topics list
5. Accepting credit cards
To accept credit cards, most of the just starting web hosting companies
are using third party credit card processors, so they don't need
a merchant account.
Go to the topics list
6. Final words
In conclusion, this is what you need to tackle (basically) if you're
starting a web hosting business:
a) A business plan - this is the first thing that you need, but
I bet it's not yet the first on your priority list
b) A server (or a reseller account)
c) A Control Panel - both for your use, but also for the customer
d) A merchant account (or you can use a third party credit card
processor)
e) SSL Certificate
f) A website with a domain
g) An advertising budget
I will also add a list of things to remember:
- Don't take the "cheap hosting" road. It will not give
you the rewards that you want and it can kill your business in the
long run.
- Write a business plan.
- Get and assimilate as much information as possible. Ways to do
that: get employed in the web hosting business, read books on the
subject, participate in web hosting forums (ask questions, read
threads), get used with Control Panels
- Become a webmaster. Learn HTML and some scripting too.
- Providing support is not one of the key aspects especially in
a just starting web hosting business. If you're running the business
all by yourself, time can become a problem.
- You need to accept credit cards online. Everyone in the business
does.
- A web hosting business is just another business. It needs an advertising
budget to bring in customers. Budget means both time do create the
ads and money to buy ad space.
- You need to do a great job when shopping for a reseller account
or a dedicated server. It's one of the most important decisions
you will make for your business.
Related articles:
Why a web hosting reseller
program
Choosing inexpensive website hosts
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