I've been planning for a basic hosting company. I found in my calculations that it is very hard to put competative prices on your plans. Even good companies today seem to offer too much bandwith for the price they are expected to be paying for it.

The only way I could come up with is to allot more bandwith than I have and hope that it isn't going to be all used by my clients. The problem is that you are playing a risk game now. If your clients do actually use all the bandwith alloted, then you will be in a big trouble. If they, on the other hand, utilize only a small portion of it, they might feel cheated about it.

I'm sure this is not new, but I want to discuss this model.

The pre payment model.
Every client will have an account with you that stores their balances. You can use dollars as your currency, or you can brake it up to what you are really offering, like gigs of bandwith and amount of disk space used per month .. etc.

This way, you can make sure that each customer will get what he pays for. You will never run into the risk of running out of resources. You and your clients will be having full efficiency.

That might bother some high bandwith customers, but it is only fair that they get what they pay for, all what they pay for, and nothing more!

What do you think?

It's kinda like in golf - pay-as-you-play . Cool idea. I certainly don't have the experience in this business to give an educated answer, but I really hope you get a few replies from some members with experience.

Is this a viable business model?

Well this sort of falls along the same lines as auto insurance. If you never have a claim you spent all that money just lining the insurance companies pockets. But if every insured client has a serious accident with a very large claim the insurance company would go belly up in no time..

I am assuming this is in regards to a Reseller's type of account, because if it was a dedicated or co-located server you would control this by limiting the number of accounts you actually put on each individual server, plus your resource limits are much larger.

The practice of overselling your alotted resources is quite common in the hosting business, in fact I might go as far as saying it is a part of the business model for most. The problem with this is in fact what you stated above, if every account uses their allowed limits you could be in deep water.

The trick (if that is what you wish to call it) to doing this, would be to figure out what type of customer base you are looking to go after and base your limits and pricing on them. If you plan on hosting adult sites, etc. plan on these type of customers to use every bit of their limits. But if you are looking at clients who wish to host a small business or personal site, normally these type of clients only use a small percentage of their limit. What ever your typical customer is make sure that your pricing is structured in such a way that you will remain profitable.

Your method above of "Pay on demand" is a good idea and would eliminate some of the risk of overages, but you are also losing out on profits that could otherwise be used to cover the costs of a customer who uses all of their limits.

When someone signs up for your service they are well aware of your pricing and package limits, so if at the end of the month if they only use 5% of disk space and 10% of their bandwidth limits , they are not expecting to be credited for the differences as they signed up for the agreed price. On the flip side of this a customer who uses 99% of disk space and 100% of bandwidth per month does not expect to pay any additional amounts above what they signed up for as they are still within their limits.

I hope this explains this method a little better, and if you are truely concerned about it I would start out by offering packages and pricing within the limits you are given and still make a profit from, until you get a better feel for what type of client you are really drawing in with your service.

Sorry for the story book.. I'm starting to feel like Tim Greer :D no offense Tim:D:D

What you need to do is compute some sort of average, because at no point in time is EVERYONE going to use all the resources at once, it is just accepted and it would be like getting hit by lightening if they did. By calculating some sort of average you can come up with a ballpark figure you need to cover

Right now I have about 300 GB of bandwidth between my servers at one of the companies i use, I am only using about 60-80 GB of that a month...on AVERAGE, so i have a lot of room if it spikes and so forth...Also make your bandwidth that people use over their set amounts enough where they can also pay for those people who use just up to their limit (ie you pay 2.00 per GB, charge 5.00 / GB) That way you make 3.00 dollars per GB and it can go towards someone elses account indirectly...

If you are not taking risks then you're not playing the game right, and you won't make much money out of your business. Don't worry about those 100GB for $1 companies, they burn out them selves. Cogent will soon die, and you'll see a lot of people coming here and complaining, and looking for more hosting.

I see what you all mean.

I'm not sure about my market though, espicially that I'm a start up, imagine if one web designer with lots of high quality images signs up, and he likes it. Then he starts inviting all his fellow designers to me. They will easily use up all my accounts (I don't have a lot of them, remember I'm just starting) and I'm stuck with customers that use every bit of there bandwith!

Low profit for me is not an issue, but I don't want to be loosing money either.

Did that happen to anybody before?