In your opinion, what is the acceptable Gross profit margin for a web hosting biz.

Originally posted by matrosov
In your opinion, what is the acceptable Gross profit margin for a web hosting biz.

I think you should explain what Gross profit margin is. I think a lot of host have no clue. :)

It's a basic business term, that anybody who runs a business should surely know... :rolleyes:

Oops accounting talk sorry. Gross profit margin is your revenues less expenses directly related to your hosting business like server rentals, backups, cp licences merchant account fees. (Does not include your salaries, publications, or travel and entertainment.), divided by your revenues and expressed as percentage so basically it is this formula

(Revenues-Direct expenses)/Revenues*100%

So as an example if your Revenues are $3200 and your Direct expenses are $1600 your Gross profit Margin is

(3200-1600)/3200*100%=50%

Originally posted by ubergeek22
It's a basic business term, that anybody who runs a business should surely know... :rolleyes:

I know. Thanks. I was joking. If you hang around here long enough I think you will see my point. ;)

Well good businessman is not the one who knows what that term means but the one who can hire a good accountant to keep that businessman honest :).

I would have to say 30 to 50% would be ideal, as once all the other expenses are factored in, it will keep cutting in.

umbilly, I was following ya!

Originally posted by matrosov
Well good businessman is not the one who knows what that term means but the one who can hire a good accountant to keep that businessman honest :).

I hired Andersen :cartman:

Seriously though, hosting has been infamous for its razor-thin margins. If there's a host out there with a GPM of >=20%, they are doing damn well.

matrosov you'd really have to define your question about the GPM%. There are many types of webhosting services...those who provide only dedicated servers, those who provide ded servers and shared hosting and those who only provide shared hosting (did i miss anything?). the margins for these different types of services would vary differently. for example shared web hosting companies would have a higher GPM margin since they would not have higher costs involved compared to dedicated server providers like maintaining data centers and such...you get the point. :)

one thing i do know is that pure service based companies have a much higher margin, typically 40% or more based on what my accountant told me.

UmBillyCord
Loves Square Dancing

Registered: Nov 2000
Posts: 1337

UmBillyCord is l337
Congrats

just for some contrast walmart's profit margin is about 3%

-Brendan

Given sales of $226.7B , 3.1% are enormous.

Originally posted by matrosov
Oops accounting talk sorry. Gross profit margin is your revenues less expenses directly related to your hosting business like server rentals, backups, cp licences merchant account fees. (Does not include your salaries, publications, or travel and entertainment.), divided by your revenues and expressed as percentage so basically it is this formula


Shouldn't sales commisions and wages for support employees be included in the above equation. They are variable expenses and directly related to sales volume.

Mike

Originally posted by Duchz
Given sales of $226.7B , 3.1% are enormous.

About 1 out of ever 200 people in the US works for Walmart.

-Brendan

Originally posted by HRBrendan


About 1 out of ever 200 people in the US works for Walmart.

-Brendan

You're kidding right? Wow! Can you show me a link or some report about this?

278,058,881 Inhabitants ( according to the CIA Factbook )
1,383,000 Employees ( number provided by Yahoo! Finance )


equals to.... ?

heh. I went to one of the top 3 public accounting schools .. University of Florida baby !! :) and this even made me say.. uhh where is my accounting book hehe..

Thats what the teachers get for making me memorize every stupid term, since then I have created my own terms that make more sense because really I don't have anyone that cares until I need a loan or venture capital money or something along those lines :P

I've just done quite a detailed business plan for the 12 first months. Launching very soooooooooooooooon ;) Anyway,I'm projecting a 54% gross profit margin. Am I dreaming? :stickout OF course one of my concerns is that it will drop as I (wishfull thinking here) grow and so do labour costs for support etc.

Originally posted by ISPCEO

Seriously though, hosting has been infamous for its razor-thin margins. If there's a host out there with a GPM of >=20%, they are doing damn well.

Holy crap... IS there a business with a GPM of 20%? Expecting that high is ridiculus, setting your business plan that high will almost always result in failure. My opinion: Take your estimated GPM cut it by 3/4's and you'd be getting close ;).

Originally posted by ubergeek22
It's a basic business term, that anybody who runs a business should surely know... :rolleyes:
Yes :laugh:

Originally posted by UmBillyCord


I know. Thanks. I was joking. If you hang around here long enough I think you will see my point. ;)

:emlaugh: :emlaugh: :emlaugh:

So true and so sad.

If you are only seeing 10% GROSS you are dead in the water.

Wal-Marts 3% is NET not Gross.

Originally posted by Monte


:emlaugh: :emlaugh: :emlaugh:

So true and so sad.

If you are only seeing 10% GROSS you are dead in the water.

Wal-Marts 3% is NET not Gross.
Better yet - simulate your cashflow at least 180 days in advance, factoring exact times when you must pay for componants of your business [servers, staff, internet access, chips, drinks etc ;)] and factor in exact times when you receive money. By harmonising these 2 aspects of your cashflow, you are on your way to building a money making machine.

Which at the end of the day, that's what we're doing this for. :pimp:

Originally posted by Duchz
278,058,881 Inhabitants ( according to the CIA Factbook )
1,383,000 Employees ( number provided by Yahoo! Finance )


equals to.... ?

I was wrong, according to those numbers its 1 out of every 201 ;)

-Brendan

Shouldn't sales commisions and wages for support employees be included in the above equation. They are variable expenses and directly related to sales volume.

Depends on the way you look at it. I did not want to take in account salaries since many people in webhosting wear different hats, one day you are a support person and the next day you are sales person. So for my purposes I am treating all salaries as SG&A expense :). Just wanted to see what is the general feeling in the market place on this topic.


matrosov you'd really have to define your question about the GPM%. There are many types of webhosting services...those who provide only dedicated servers, those who provide ded servers and shared hosting and those who only provide shared hosting (did i miss anything?). the margins for these different types of services would vary differently. for example shared web hosting companies would have a higher GPM margin since they would not have higher costs involved compared to dedicated server providers like maintaining data centers and such...you get the point.

Ok :) Lets say we are talking about a shared/dedicated webhosting and company rents/colocates its servers from a data center.

Originally posted by ISPCEO

I hired Andersen :cartman:


:D :laugh: LOL