Ok im not awesome at math so please dont flame me if my calculations are incorrect but.....

I did some math about costs running a 1 server hosting business. The server is from Softlayer.

SERVER SPECS
Dual Xeon 3.0 (2x2mb cache)
1gb DDRII 400 ram
1 250gb SATAII HD
100mbs public\private uplink
2000gb bandwidth
cPanel\WHM w Fantastico
249\mth, 99 setup

COST PER GB OF STORAGE SPACE: 99.6 cents\mth (ROUNDED UP)
-with Setup: $1.11\mth setup paid off in 12mths (ROUNDED UP)

COST PER GB OF BANDWIDTH: 12.5 cents\mth

now with Server Management, (acunett used for math)
Server + Management($65) = $314 \mth

COST PER GB OF STORAGE SPACE: $1.26\mth
COST PER GB OF BANDWIDTH: 15.7 cents\mth

So now, with a package containing 25gb space, 100gb bandwidth = 18.75 Just to make cost, WITHOUT server management. (math done splitting cost 50\50 between storage and bandwidth)

W\Server Management = 23.60 (math done splitting cost 50\50 between storage and bandwidth)

And this isnt including any other costs, like your pay, your other software(customer support etc...)

18.75, or 23.60 just to make costs?! So that means youd have to charge like 25-35 bucks for this package. I know i dont pay that much for a package like this. I pay about half that for almost double a package like this (which is now beginning to scare me)

So where is the money in webhosting?> Or is there none unless u have colo or datacenter.

It's called overselling.

Your cost on 25gb/100gb is going to be the $23.60. But if you sell that package to someone, they will probably only use 25% of it or less. So the space they don't use, you sell to someone else. So if you use the 25% figure, you can actually get 4 customers on that spec. Charge $10/mo for 25gb/100gb for 4 customers, thats $40/mo revenue on $23.60 cost.

Now this is a very rough analysis of overselling. Some hosts will oversell on a factor of 10 or greater, counting on the fact that the customer will only use 10% or less of their allocated space.

It's just like the phone company only installs so many lines at their switching stations, counting on only a certain number of customers to make phone calls at the same time. Or cell towers with the cell phone company. Have you ever had a "Sorry, All circuits are busy" message on your cell phone during peak call time?

Hello, hungry4knowhow.

I used to think about the same thing BUT you can possibly get better prices on the server for one which would lower some of your costs. Next you can even buy a server / build one and you'll probably sink a grand or two in to that alone. Next you can have it hosted in a well-known datacenter for so much money a year which I am sure that you'll be paying much less that renting a server itself as when you rent a server your paying:


THEIR rent for having a datacenter host it, or the price it costs for them to run the network for that server (if they own a datacenter).
For the server (so they can payoff the amount they put into it).
Enough on top of all that so they can make some amount of a profit.Buying your own server can and is costly but as you make sales, you will generate all that money back within time and will be all profit from there. :)

Also you can look in to Reseller Hosting which is very similar to renting a server, but you usually get EVERYTHING you need, including cPanel billing software (sometimes), and more. Reselling is where you pay a bigger host say $20 a month for a resell plan then you go and use that plan to make smaller plans that in turn, you sell for say $5 a plan. But instead of selling all of what you got for $20, you split it up so maybe your selling what you got for $20, to 20 clients who host with you. Then your making $100 minus the $20 a month your paying for reselling plan you bought from the bigger host.

In the end you can profit quite a bit. The majority (I believe) of reseller plans use WHM to manage YOUR clients, and your clients use cPanel to manage their web hosting.

In addition to this, reseller hosting is also usually not labeled by the bigger host, therefore no one will ever know if you own a huge data center in Texas, or if you are buying the best reseller account you can find on the net. :)

I hope this helps you and your quest for running / knowing of, a webhosting business. :)

i had heard of overselling, and now i see. And yes i have heard the all circuits are busy. Thank you very much for your help Utaria. Putting it into perpsective. Now, the hosting i use now charges me 4.95 a month and gives me 50gb space and 500gb of bandwidth. THAT IS OVERSELLING! kind of makes me want to just upload my whole hard drive a couple times just to show them you shouldnt do it by that much.

You can upload your whole HD if you want to, but odds are somewhere in their TOS there is a clause that they will catch you on and they'll disable your account (if nothing else the "We can terminate your account at any time for any reason" clause).

It's called overselling.

Your cost on 25gb/100gb is going to be the $23.60. But if you sell that package to someone, they will probably only use 25% of it or less. So the space they don't use, you sell to someone else. So if you use the 25% figure, you can actually get 4 customers on that spec. Charge $10/mo for 25gb/100gb for 4 customers, thats $40/mo revenue on $23.60 cost.

Now this is a very rough analysis of overselling. Some hosts will oversell on a factor of 10 or greater, counting on the fact that the customer will only use 10% or less of their allocated space.

It's just like the phone company only installs so many lines at their switching stations, counting on only a certain number of customers to make phone calls at the same time. Or cell towers with the cell phone company. Have you ever had a "Sorry, All circuits are busy" message on your cell phone during peak call time?
I do not encourage overselling. If the client does come back and end up using all the space, or bandwidth then that can cause damage to you and your other clients.

It is probably safe to say that no one will use all the space you assign him, but you never know. If he does use it, and it interfers with other clients of yours, really he can't be at fault for using what rightfully is his while he still pays rent every month.

thank you z for your post as well. good info. I have looked at resellers and i just cant justify the cost. I would much rather just have my own server and do everything MYWAY. yeah ill loose alot more money in the beginning but i believe it will work out better in the long run. Also i have read here about colo, but im not sure i like the idea of being responsible for hardware as well. If i could find a system administrator for 65 a month unlimited i would haha but thats unreasonable

Check your PMs mate, sending you some info on resellers that would be pretty nice to use. :)


EDIT: oops, nevermind can't send PMs currently. :(

@dollar, yeah im sure your right. I was being sarcastic about that though. I wouldnt take the time to do that. but it is a funny thought :)

EDIT:; i cant accept pms yet z. Thanks for the try though. If you want i have icq or email. ICQ: 79436324, email: bjholdings (at)comcast (.) net

hungry4knownhow, what is your email (one you don't mind others having)? I will email you some info.

Put it in email[at]blah.com to keep it protected from bots and all those other bad things. :)

You edited before I cna post, :P lol

Well it's very nice to see you are sitting here and planning everything out beforehand (and actualyl looking at costs for that matter!)

Many people try to ignore the fact that webhosting, like any business, is generally something you are going to take a loss on before you ever start to make a profit. When I speak to new hosts I like to tell them to plan for at least 6 months worth of losses (I was set for a year when I first started) as it will really help you concentrate on what matters most in the company... gaining clients!

Now onto the planning portion, I will give you the mini-version of my favorite speech here. What is your target market? This will really tell you how to plan your services, plans, and pricing. The more specific you can get with a target market the better. Just because you are targeting a small niche does not mean your services won't appeal to a much larger area.

Once you have this market decided it makes things like looking at the cost of a machine much easier to understand. Speaking from a decent amount of experience gamers really love to host different files and forums. The forums are usually not that active at all, but they do eat up a lot of bandwidth and space on their files. If I was to create a hosting company aimed at gamers I would be looking into an unmetered lower-end machine to host them on as it would be the most cost-effective means.

On the same token if I was looking to appeal to web-developers I would be expecting to run PHP and Apache with quite a few modules compiled. I'd probably drop in JSP/Java support and Ruby on Rails as well to give them the most tools to play with. Knowing these developers are using my machine as a testbed for different applications I would price my bandwidth and diskspace higher, and end up with a higher end machine to run everything.

Hope this helps some ;)

You certainly do not need to oversell to be profitable. We do not oversell, and our average customer is paying $20/month. It does not take very many clients at that rate to cover the business expenses.

@ dollar - very much so but where can i find the full version of this speech?

And thats the hardest part for me, defining my target market. I really just want to offer the best all around machine for the best price (that i can) buttt....i realize that this is unreasonable at this point due to financing. So....is there certain things i can ask myself or something in defining my target ??? What did you do to define yours?? Did you just know, or what kind of research should i be doing?

Im good with cost analysis and other things that are obvious, but this is not so obvious. atleast to me

EDIT this message is directed towards dollar

EDIT: i cant do the math yet on this reply so if someone wants to delete it thats fine

Your target market should focus, primarily, on what you enjoy doing. If you are dealing with a business you don't enjoy, then chances are you will lose enthusiasm very quickly.

Web hosting is just like any other company, in that satisfaction is a trickle-down function, meaning if you're not happy, then chances are you won't be making many of your clients happy.



It is good to see someone doing some research before diving in. Good luck.

You can do as I do, not define one type of target. But then it may be harder to run your business. I have plans ranging from 100MB to 10GB of space and bandwidth from 1GB to 100GB. I have types of plans set for people who are into running a business such as an online store, and people who just want a small Gaming Clan website for the 10 members or so in their game's clan/guild.

But remember, no one will buy from you unless they know of you. And even if they know of you, there has to be something that makes you seem like a better choice than the competition hosters out there. Also you should make some good Good Ads and other ad programs to draw some attention to your site, or atleast enough to make a few sales.

Also remember, your not going to be buying a new house with the funds you make from hosting anytime soon. ;)

Just thought I might say, you won't find my website in my sig or anything because it is still under-construction. I have most of it done, but still would like to finish setting up the order form, and few other things before I publicly open the site. :)

Here's the most recent thread with a very nice discussion (in my opinion at least) of starting up a hosting company: http://www.webhostingtalk.com/showthread.php?t=507048

I owe my target market to two very important things in business. Luck and stupidity ;) A the time of starting up my company I was under the impression that cramming as much bandwidth and space in a package, then sticking an incredibly small price tag on it, was the only way to make it in the hosting industry (hence the domain name I ended up with). I learned very quickly in great part to this very forum that in reality that's a great way to have a lot of sleepless nights and huge headaches.

I liked the domain name so I decided to keep it and rework it, and my target market sort of fell into my lap so to speak. My family does circle track racing (small time stuff) so I was at the track with them quite a bit. I knew most everybody around the racetracks we went to and one day the discussion of websites came up so I started to talk about it. My father chimed in that I was starting a hosting company and my very first true client asked me a few questions about how it all worked. He had no clue how a website worked at all. I sat down and talked to him and ended up setting up a deal with him for hosting and a design.

I do design work myself which helped quite a bit, I showed him a few mockups and he was happy with what he saw and paid me a year in advance via cash. I learned then what target market I was going to go after... the "noob" user. My taget market is people that have never had a website before. The benefits of such a platform have helped me to keep costs quite low as a matter of fact.

A few quick facts about the first time hoster:

1. Generally they have a personal/very small business site that they want up. It gets very little traffic and uses very little disk space.

2. PHP, MySQL, etc... are big fancy terms they have no use for at all when starting out. Static hosting is plenty for them (you would be amazed at the amount of sites you can host without PHP MySQL use on a machine, I'm talking about a Sempron machine with 1TB of bandwidth as well)

3. They upgrade later on down the road or you never hear from them again. Many people ask me how I can offer my cheapest plan as it's obvious I don't make anything on it. In truth I do make money on it, just not a whole lot ;) Users always take one of two paths.

Path A: They really start to enjoy webhosting and look around and different options out there. They come across phpBB, PostNuke, PHPNuke, etc.. and decide that's what they want. They then contact me and upgrade off of the static plans.

Path B: They have a small simple static site that the upload and never contact support. Generally with a static site support questions almost don't exist, and it's very hard for something to break on a static server (no php scripts to be exploited, no CGI scripts running away with resources, etc..)

The other extremely interesting thing about these users is that they have no loyalty to any control panel or software. They do not ask me about Horde webmail, cPanel, plesk, ASP, etc.. They are generally amazed to see a website that they made or was made for them.

Now when marketing towards these users (please keep in mind I feel I have currently expanded beyond my target market, and I am planning to break parts of my current services off into a sepearte brand) you have to put yourself in the shoes of a complete novice. This means 3 main things to me:

1. Any user interfaces must be simple and easy to use. This is why we leverage DirectAdmin currently (very clean, fast, and easy for new users to get around in).

2. With a lack of experience offering an easy to use sitebuilder suite is really a MUST.

3. The helpdesk will be able to answer most all of their questions, so make sure it does (great knowledgebase).

Number 3 has made the biggest difference as far as costs are concerned.

Just to toss out some quick numbers (this was done from simple math on one of my machines):

The cost of the maching is $65/mo (includes 1TB of bandwidth, 80GB HD)

I like to assume 10GB of space used for system files at least, which puts it down to 75GB of space. Half of the space on a machine is used for backups from another machine so that leaves us with about 35GB of usable space and 1TB of usable bandwidth. I am able to manage my machines on my own so that cuts cost quite a bit right there.

Bandwidth is $0.065/gb
Space is $.00181/mb or about $1.85/gb

Without getting into plan details one of our plans (assuming 0 overselling) would cost us $.1555 in space/bandwdith cost is fully utalized per month. There is processing fees (paypal, 2co, etc..) but these are covered for about the first 10-11 months via the setup fee.

Assuming we were to charge $1.00 for that account per month, we would be making $.8445 per month on that plan. With the ability to safely fit (no overselling) 418 of those accounts on the server, it could make $353/mo profit off of that machine.

In any event this post is running a bit long, so I'll stop it here, but I hope this is helping.

Excellent post there dollar, it even has helped me a bit. :)

You wouldn't be willing to PM me, or post here, who you rent a server from would you?

amazing dollar, i LOVE seeing the actual math behind ANYTHING. you cant go wrong with math and there is no more than 1 way to do it, so its guarunteed to be right the first time.

I like the info on how you "fell" into your niche market. Ive thought about my advertising methods and what ways i can do advertising. Adwords wont be part of the first phase but it is in there once a profit is coming in.

Oh ya, about the target market... you can try newspaper ads? lol I don't know if it would work but it doesn't cost anything... Also say you were looking for small businesses, just go to your local mall and have a neat, professional paper with information on your company then you can go to small stores that aren't part of some big corporate or company chain. These may not be the best ways to advertise, but they are free ways, if your current advertising funds are empty. :-D

@zamoret, you are exactly right. in my first phase of advertising the majority of it is printing ads to put in the local coffee shops. (which are aplenty on the north side of chicago)

Ahh Chicago has enough places to advertise for sure. :) Good luck with all man! :)

Also, did you happen to receive my email I sent you?

@Zhamoret, yeah i just got done reading it, thank you very much. I am checking the sites now. But i must say. I am heavily leaning towards a dedicated server. I know i dont need it, but...i know im getting the most bang for my buck. But i also know and heed wisely the fact that every post i see regarding starting a webhosting company there are countless people saying "Reseller" or "VPS" first before dedicated. And im the last person to throw out a persons advice who has travelled down the path before me. I did it for 15 years of my life and it got me no where :)

Excellent post there dollar, it even has helped me a bit. :)

You wouldn't be willing to PM me, or post here, who you rent a server from would you?

I have no fear of posting here ;) I am quite a fan of them.

LayeredTech (feel free to search for reviews, they are generally quite popular around WHT) Http://www.LayeredTech.com

Also just a note that they are truly 100% unamanaged.

On the adwords note I have begun playing with adwords and in truth it's not as easy as one would think. Keyword choice is really king in getting good quality clicks at affordable rates.

Good reading! Love it.

David K.

Not sure if this has been mentioned but remember that just because you have 2000GB of bandwidth available doesn't mean that your server will actually be able to push that much bandwidth. After seeing many servers and their bandwidth usage, depending on the target market you might only be pushing 300-500GB at most from a Dual Xeon with 2-4 GB RAM.

Also, there are *many* more costs to factor into all of this. First and foremost, you need to make sure you're getting paid for your work. Second, one very important area I think some forget is to make sure you can make the company grow in the future. You need to factor in future employees, office space, toll free numbers, funds available so you can purchase hardware, etc. You need money for advertising, PR, etc.

Factoring in all of these different things is one important area that separates hosting operations that will be profitable in the long run from those just looking to run for a year or two, or sometimes even much less.

@anky, you are right. but i wanted to keep post simple, and at its simplest, it still makes a point. Now when you add in the other opertaional costs( which we already have, even without webhosting) you are needing to charge even more.

But what i have gathered from this post IS even in webhosting YOU GET WHAT YOU PAY FOR.

now this stuff about 300-500gb at most from a dual xeon w/ 2-4gb ram....this is new to me, and if true means even more cost, can you explain this further to me?

2000GB of monthly transfer on a server would mean an average line utilisation of around 5 to 6mbps... Maybe around 8 or 9 mbps by 95th percentile rule (the rule all major Tier-1 providers use to charge for bandwidth).

If you were using a decent bandwidth mix, you pay around $40 per mbps.. Meaning a monthly cost of around $400/month just for bandwidth.

As you grow bigger, you'll start getting bandwidth on a per mbps basis with the 95th percentile rule.. The 2000GB some dedicated companies provide have alot of tricks... For one.. you could expect to share a common 10mbps port ensuring you are never able to reach your full bandwidth potential... There is also alot of overselling involved

@yash, the server used for the math is on a 100mbs public and private uplink, and server is from Softlayer, ive not heard of them using tricks or anything. But by tricks do you mean like small print in the tos?

Let's assume this company has got a very good deal on bandwidth and are paying $20 per mbps.

That is still $200/mo in bandwidth if you fully use the 200GB of bandwidth to its full potential

so obviously they are overselling, as upgrading from 10mbs pub\private uplink to a 100mbs uplink on both is only $10 a month, and 1000mbs on both is only $20.

Overselling in that case would be an understatement ;)

but back to the issue im really concerned with is anky said about with the dual xeon 3.0 etc(see server setup) the cpu could only handle 300-500gb a month why is this?? It just cant process that much in a month or.....

im looking for some tech info here. Is it because of only having a gig of ram or something else?

so should this make me wary about going with Softlayer??? Or is this just something im going to have to deal with until i have my own data center or can afford to pay $500 a month for a leased dedicated server?

but back to the issue im really concerned with is anky said about with the dual xeon 3.0 etc(see server setup) the cpu could only handle 300-500gb a month why is this?? It just cant process that much in a month or.....

im looking for some tech info here. Is it because of only having a gig of ram or something else?
That estimation isn't necessarily correct. It just depends on what you are running on the server. For example, we host a server for 1 client who uses any where between 700 - 1500Gb of bandwidth per month on a Pentium 4 3.0 with 1Gb ram. His customers are happy, and his content is very speedy.

I see, now that i look back anky did state "depending" on setup etc....

18.75, or 23.60 just to make costs?! So that means youd have to charge like 25-35 bucks for this package. I know i dont pay that much for a package like this. I pay about half that for almost double a package like this (which is now beginning to scare me)

Well, your research has shown that your current host must be overselling. Also, please do not forget that you have forgotten countless costs in your calculation (alot more involved then space and bandwith). Additionally, the profit margins you have left yourself are not adequate - at least not adequate enough to account for future support staff, etc...

So where is the money in webhosting?> Or is there none unless u have colo or datacenter.

Yes, web hosting can be a profitable business - however, you need to approach it 1 of 2 ways. Either oversellto increase your margins or charge more for your service

@cartika, i have not forgotten any calculations in my reports math, i simply posted those absolute basics as means for general discussion. I have costs calculated for everything, as we are already an established business with office space, phones, internet, and employees.

this post was just meant for most basic. Nobody needs to know or cares to know my personal business expenses, but server costs are something everyone cares about

now this stuff about 300-500gb at most from a dual xeon w/ 2-4gb ram....this is new to me, and if true means even more cost, can you explain this further to me?
Yes, you have to basically look at what kind of content that the server is handling. If you're pushing 300-500GB from just basic website pages and images, then that's quite a bit of files to be handled. That's different from say websites with large videos, the bottleneck in that case in not the system but rather the data transfer.

Unless most of that 2000GB is being used up from large file transfers, you aren't going to be able to push webpages fast enough to use anywhere near that 2000GB.

Not sure if this has been mentioned but remember that just because you have 2000GB of bandwidth available doesn't mean that your server will actually be able to push that much bandwidth. After seeing many servers and their bandwidth usage, depending on the target market you might only be pushing 300-500GB at most from a Dual Xeon with 2-4 GB RAM.


That's not entirely true.

We were hosting some adults sites using Comusthumbs (php,mysql based thumbs script) pushing over 3000 GB per month in a P 4 2.8 1 GB RAM without any problem with a normal load of 1-2

this post was just meant for most basic. Nobody needs to know or cares to know my personal business expenses, but server costs are something everyone cares about

Great to see you have calculated some secondary costs, however, often times, people overlook these costs when calculating package prices etc - and based on your numbers and projected plans/profit margins - you are also excluding many of these costs - these costs include more then just office space and phones - consider licensing fees, backup solutions, hardware upgrades, etc and your costs are still missing what you consider to be "basic"

by licensing fees you mean software licensing correct? there are no special business licenses that i know of for internet\web hosting businesses.

and again backup solutions, hardware upgrades, are more than basic to many hosts on this forum. Many just grab a server and go with cpanel\whm, granted from what i have seen\heard these hosts dont make it that far but they are still there.

But thank you for the info because i had not even thought about hardware upgrades, i just thought i get to my set cap on server and purchase another one......going back to the drawing board

by licensing fees you mean software licensing correct?

Correct ! (Control Panel, Billing Software, Helpdesk, Microsoft - if you plan on offering MS), etc

and again backup solutions, hardware upgrades, are more than basic to many hosts on this forum. Many just grab a server and go with cpanel\whm, granted from what i have seen\heard these hosts dont make it that far but they are still there.

Exactly right - I guess it depends on what sort of service you are planning on offering and if you want to include these costs (however, even if you choose to start without these expenditures, you still "should" build them into your costing/pricing model in case you want to add them later

But thank you for the info because i had not even thought about hardware upgrades, i just thought i get to my set cap on server and purchase another one......going back to the drawing board

Not a problem at all - and no reason to go back to the drawing board, just a few tweaks to your plan. Better to think all these things out thoroughly before hand and looks like you are doing just that...

That's not entirely true.

We were hosting some adults sites using Comusthumbs (php,mysql based thumbs script) pushing over 3000 GB per month in a P 4 2.8 1 GB RAM without any problem with a normal load of 1-2
Those numbers were to just make a point, not necessarily real numbers.

I'm indeed giving you real numbers, a Single P 4 with 1 GB RAM pushing 3 TB per month of php/mysql :)