Scarpia
05-31-2008, 05:48 AM
I'd like to hear people's opinions on this one. I've never gone into reselling or web hosting myself, but I've done the math a couple of times just for the fun of it. At first, it looks like easy money: instant profits, essentially no risk, no need for a huge investment or staff.. But then you do the math, or at least I did, and it looks like a different story:
(I hope I'm not bursting too many bubbles by posting this-)
Let's say you get a really good reseller's package or a VPS even. You then use a simple template and your own HTML skills to build a nice and friendly web site. You won't spend a lot of time or money on either, but you're not making any money either - yet.
Of course you want to make money, but competition is fierce, so you align your prices with some of the better hosting providers. Your prices will be a little higher, but your clients won't know that. You'll never be able to match the giants anyway, so you're going for a different target audience. People who need hosting, but who don't know the hosting world as well as you. So you decide on a pricing scheme that's guaranteed to make you an excellent profit without being a blatant ripoff. Seems like a nice compromise there -- especially for you.
Now, it would be nice to have a lot of money to put into advertising and AdWords, but you don't have a budget for it yet, so you'll probably have to spend some time finding clients yourself. Still, this isn't costing you a lot of money, but you are investing quite a lot of time in your business without any income. But, as you tell yourself: getting the sales is worth the effort.
Then come the customers. Let's be spectacularly optimistic once more (this is a magical fantasy world, after all) and give you fifty customers right off the bat. They're in, they're paying for your standard package, and you're starting to feel like a really shrewd business person.
Now, you don't want to oversell too hard, since that just somehow feels dishonest (and what will you do if one or two of your clients suddenly want to use their space / bandwidth?), so you put 25 on one server and get a second server for the other 25. You're still overselling of course, but it's not excessive. All the technical stuff is handled by your VPS provider, and you got a billing system with your VPS, so you don't need technical or billing staff.
The first month passes, and the money starts ticking in. You pay for the servers, and your 50 clients pay their dues. After paying your expenses, taxes and so on, you're still making $15 on each of them in pure profit (again, fantasy world). That's 50 times $15 = $750 for a month's work. Easy money, right? I mean, there's not a lot of it, but at least it was easy.
In the next few months, business is great. You're advertising now, which is costing you a bundle, but it's working, and you get another 50 customers this way. You're getting confident about overselling, so you put all 50 on one server to cut costs. For the sake of simplicity, you actually save the same bundle you are spending on advertising (magical fairy tale singing-pixies-flying-around-world, remember?), and you're still making $15 per month per customer.
But with 100 clients, some of them are starting to make requests. Quite a lot of them, in fact. They have questions about billing, policies, reselling, custom plans, server load, chat scripts, copyright, whether your servers run on green energy -- all sorts of things you can't just pass on to your server provider (whose support people you don't really trust anyway). And some aren't paying their bills on time, so now you're sending claims and suspending accounts, which is really getting to you. And you have people complaining about server downtimes because you have 50 clients on one server, and a couple of them are hogging its resources. So now you're terminating accounts and revising your TOS again and again, and getting bad reviews because of it, so on top of everything else, now you have to do damage control on blogs and hosting forums. And then an abuse report comes in, saying that someone on your server is sending out spam, so you have that to deal with, and meanwhile, your server provider is telling you you're nearing your space limit on one of the servers and need to upgrade to a more expensive package, and you're now spending 8 hours a day, 7 days a week responding to email, trying to make sales, putting out various fires and just generally running (or rather, being run by) your company.
And the kicker is, you're still only making $1500/month. At best. And that's in a magical dream world where customers are a given, advertising is dirt-cheap, web design is free, and profit margins are *huge*. I don't even want to think about what it must be like in the real world.
So, after doing the math -- I'm personally going to pass on reselling.
/Scarpia
(I hope I'm not bursting too many bubbles by posting this-)
Let's say you get a really good reseller's package or a VPS even. You then use a simple template and your own HTML skills to build a nice and friendly web site. You won't spend a lot of time or money on either, but you're not making any money either - yet.
Of course you want to make money, but competition is fierce, so you align your prices with some of the better hosting providers. Your prices will be a little higher, but your clients won't know that. You'll never be able to match the giants anyway, so you're going for a different target audience. People who need hosting, but who don't know the hosting world as well as you. So you decide on a pricing scheme that's guaranteed to make you an excellent profit without being a blatant ripoff. Seems like a nice compromise there -- especially for you.
Now, it would be nice to have a lot of money to put into advertising and AdWords, but you don't have a budget for it yet, so you'll probably have to spend some time finding clients yourself. Still, this isn't costing you a lot of money, but you are investing quite a lot of time in your business without any income. But, as you tell yourself: getting the sales is worth the effort.
Then come the customers. Let's be spectacularly optimistic once more (this is a magical fantasy world, after all) and give you fifty customers right off the bat. They're in, they're paying for your standard package, and you're starting to feel like a really shrewd business person.
Now, you don't want to oversell too hard, since that just somehow feels dishonest (and what will you do if one or two of your clients suddenly want to use their space / bandwidth?), so you put 25 on one server and get a second server for the other 25. You're still overselling of course, but it's not excessive. All the technical stuff is handled by your VPS provider, and you got a billing system with your VPS, so you don't need technical or billing staff.
The first month passes, and the money starts ticking in. You pay for the servers, and your 50 clients pay their dues. After paying your expenses, taxes and so on, you're still making $15 on each of them in pure profit (again, fantasy world). That's 50 times $15 = $750 for a month's work. Easy money, right? I mean, there's not a lot of it, but at least it was easy.
In the next few months, business is great. You're advertising now, which is costing you a bundle, but it's working, and you get another 50 customers this way. You're getting confident about overselling, so you put all 50 on one server to cut costs. For the sake of simplicity, you actually save the same bundle you are spending on advertising (magical fairy tale singing-pixies-flying-around-world, remember?), and you're still making $15 per month per customer.
But with 100 clients, some of them are starting to make requests. Quite a lot of them, in fact. They have questions about billing, policies, reselling, custom plans, server load, chat scripts, copyright, whether your servers run on green energy -- all sorts of things you can't just pass on to your server provider (whose support people you don't really trust anyway). And some aren't paying their bills on time, so now you're sending claims and suspending accounts, which is really getting to you. And you have people complaining about server downtimes because you have 50 clients on one server, and a couple of them are hogging its resources. So now you're terminating accounts and revising your TOS again and again, and getting bad reviews because of it, so on top of everything else, now you have to do damage control on blogs and hosting forums. And then an abuse report comes in, saying that someone on your server is sending out spam, so you have that to deal with, and meanwhile, your server provider is telling you you're nearing your space limit on one of the servers and need to upgrade to a more expensive package, and you're now spending 8 hours a day, 7 days a week responding to email, trying to make sales, putting out various fires and just generally running (or rather, being run by) your company.
And the kicker is, you're still only making $1500/month. At best. And that's in a magical dream world where customers are a given, advertising is dirt-cheap, web design is free, and profit margins are *huge*. I don't even want to think about what it must be like in the real world.
So, after doing the math -- I'm personally going to pass on reselling.
/Scarpia