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.
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.
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?
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):
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.
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
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
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