Hey, guys I've been doing research into starting my own hosting company. I've been able to get some good prices on servers and heres what I've come up with.

pkg1 - 15gb space, 150gb transfer (can offer under $6 and make decent profit)
pkg2 - 30gb space 300gb transfer (can offer under $10 and make decent profit)
pkg3 50gb space 500gb transfer (can offer under $17 and make a decent profit)
pkg 4 100gb space 1tb transfer (can offer under $30 and make a decent profit)

Those prices are with absolutely NO overselling. So my question is should I oversell for a higher profit margin, and how much is a general rule on overselling?

I'm interested to see what other hosting companies around here offer and weather they oversell or not.

My goal is to offer high availability, and bandwidth. I can guarantee every client with pkg 4 a 100Mbps connection at all times with burstable speeds on top of that. as each server is on a GigE connection. Which I think would be a great selling point, and I don't want to ruin that by overselling. What are your thoughts?

I would have to sell ~ 80% the server's capacity and as i grow I can afford more overhead. Question is on your first server is 80% a normal break even point?


Thanks in advanced!
Wayne

I personally dislike the idea of overselling. My conscience doesn't let me so I can't condone it either without feeling bad so I would stick with your current plans and don't oversell.

To put it in perspective, imagine telling your client this: "I'm lying just to make more money." While the lie is harmless and there is a 99% probability of your lie having 0 impact on anybody anywhere in the world, it's a lie none the less and it's done all in the name of greed. ;)

Have to admit that no overselling is a good ad technique.But, let's be more practical. When overselling could generate great benefit, I don't know what you plan to do. Lie to clients and oversell it privately? Or comply with your agreement and lose money? Tell me...

I would not lie to clients I would not claim that I do not oversell if I indeed did oversell. I was more or less wondering is it better to not oversell and advertise it as this and know 100% you can offer exactly as you say you can. Or oversell a little bit and drop the marketing ploy of "we don't oversell", as long as it doesn't effect customers.

I'm wondering how most of you guys around here would recommend on doing it, or how you or a company you might have worked for did it. Right now I think I'm going to go full force "No Overselling".

I think No overselling and stable high availability (being on the Softlayer Network) will be key selling points. I feel that if these are the marketing tools used to bring in more clients, it will attract power-users and its likely that they may max out their connections as much as possible. Which means overselling wouldn't be a possibility anyway.

I plan on leaving a little headroom on the servers as well, try not to fill them up past 90% bandwidth capacity. being that if all users burst to their top speed they would all exceed their guaranteed bandwidth. By at least 1-2% at all times, while with normal usage on a server can burst into a few hundred Mbps if need be. I think that most users would actually see burst of 200Mbps or more, but never less than 100Mbps for pkg4. They higher the package the more priority on bandwidth they would have.

Anyway, I think I'm kinda rambling on now so I'll end the post here, lol.

You have to remember that money isn't everything. If you're in this business for money then sure, overselling is a great method to make it. But frankly I'm not going to push my hardware or gamble with my clients to make an extra $1000 per server.

My target isn't the newbie webmaster who thinks 500GB of disk space makes the server faster. I'm also not going to hide things in my Terms of Service stating that users can't use their web hosting for file/image storage. They bought the space and the bandwidth, why limit what they can do with it as long as it's legal?

Sorry about my rant but being one of the few people I know of on this forum that doesn't condone overselling I feel I have to defend myself. ;)

Sorry about my rant but being one of the few people I know of on this forum that doesn't condone overselling I feel I have to defend myself. ;)

Ehh, I dont know if I would call it a rant. I'm willing to bet that 90% or more hosts are overselling their services. (its how you can make em cheaper right?) I agree with you about not stressing levels, It's a good point. :D

1tb of bandwidth for $30 and you still would make a profit even if they use up every single drop? I wanna know that provider..

And personally, like a few others, I don't like overselling because it just forces you to put limits on other things. Some companies limit you on how many files you can have, others limit how much cpu and ram you can use or what kind of files you can have, etc. Those are worse limits than having space or bandwidth limits imo.

normal user dont know such limits in tos. this the edge for over sellers.
personally I think if you dont over burden your server capacity and use free resources, if you know how to oversell without hickups than its fine ;)

This demonizing of overselling is ridiculous. You should be getting the most value you can out of your assets, doing anything less is a waste. No, it's not an easy thing to do an requires constant monitoring to ensure that every subscriber has access to what they paid for, but the simple fact is that your subscribers won't use 100% of the resources 100% of the time. You need to effectively manage the unused resources.

1tb of bandwidth for $30 and you still would make a profit even if they use up every single drop? I wanna know that provider..

Well actually, believe it or not, its through an exclusive partnership with Softlayer. Basically the servers cost $220 a peice, and that gives us the following specs:

Intel Xeon 3230 4x 2.66Ghz
6GB Ram
2x1TB drives raid 1
10,000MB transfer
1Gbps port (fully dedicated)

so at 1TB of transfer per user that's 10 users per server. 10*30 = 300 - 220 = $80 profit per server(without overselling).

Those are the current specs and ideas. I'm hoping that this can provide hosting to those power users that'd normally require a vps for that kind of demand.

I can also provide extra bandwidth as little as $0.02/GB. So for $50 it would be 100GB space, 100mbps+ uplink, and 2TB transfer.

And like i said its all hosted directly with Softlayer, its their network, and their servers. So you know its the real deal. lol :D

I'm even looking at providing unmetered hosting plans at ~ $250/month (same burst pattern as pkg4 -- yes this is also feasible in pricing), you could max out at 100mbps or more if you wanted non stop 24/7 :D

but wouldn't really be worth upgrading to this option unless your transferring more than 10-12tb of data, it would feasible in a CDN setup.

and I will be reselling the servers as well, with as little markup as possible. :D

----------------
However things may change, so don't hold me to the quotes, but right now everything I said above could be done today. Given adequate funding to start.

The problem I see with your plans is that the clients you are aiming for will most likely think you are overselling at first glance based on the resources and the clients that don't care about overselling will be turned off by the prices.

What I would do is lower your resources per plan a bit. This will both increase your profits while increasing the believability factor for your target audience. A profit of $80/server is extremely low and offers no real buffer for any big jumps in licensing costs or additional services in the future. Right now with our business plan, with no overselling and only filling the servers up to 45% capacity (allows for failover to another server and still only hitting 90% until the failed server is replace) we're making at least $500 profit per server (and that figure is considering they are purchasing the largest plan which results in less accounts per server).

so at 1TB of transfer per user that's 10 users per server. 10*30 = 300 - 220 = $80 profit per server(without overselling).

I don't mean to be rude, but based on those numbers you're not going to making enough profit a) to employ anyone and b) to invest in the future of the business. I strongly suggest you reconsider your business model/plan.

How much does your bandwidth/transit cost you Jweb2? If you're paying more than $7-10/mbit 95th, you're overselling...

Ya, i've been revising and revisiting every aspect since that post. It doesn't look good once its all down on paper. I'm wonder what kind of profit ratio do i want for pricing this out? 1:1 being if the server was $200 I would bring in $400 if we reached full capacity. Not that I plan to fill the servers up, I plan to leave headroom, my question is how much profit should be comming in off a server. Should the income be doubled that of the cost to run it?

I personally dislike the idea of overselling. My conscience doesn't let me so I can't condone it either without feeling bad so I would stick with your current plans and don't oversell.

To put it in perspective, imagine telling your client this: "I'm lying just to make more money." While the lie is harmless and there is a 99% probability of your lie having 0 impact on anybody anywhere in the world, it's a lie none the less and it's done all in the name of greed. ;) This is my theory on it exactly :P

My goal is to offer high availability, and bandwidth.

The two often don't go well together. :)

my question is how much profit should be comming in off a server. Should the income be doubled that of the cost to run it?

Rather, the question should revolve around estimating your real costs more accurately. It's only after you have a decent estimate of your costs (present and future) that you'll be able to set a correct price for your service. What you see as profit isn't profit yet by any means.

Will you be advertising? Then you should notice that the cost to acquire a customer can easily be in the tens of dollars range. Will your pricing enable you to pay say $50/customer? What's your customer support cost? What's your server management cost? It's easy to say "zero" while you're a one man show, but that's just one way of saying "profits will be my wage". If by the time your business requires hiring an employee, all it brings in is your full wage, as soon as you start paying him, your profits are gone, and there you are, having a business for the sole purpose of hiring somebody. ;)

You need to put a value on the work that makes your business run, even if it is fictitious at this point in time (you'll not really be paying yourself a full wage yet).

Right now you're probably able to avoid a lot of the overhead involved with being in business, but things like renting an office (and getting it ready for employees to come in and do their work), legal and accounting services, insurance etc. will turn into real costs as soon as the business starts to grow. Of course, you could just sell the company then, and start fresh, if you like building stuff from scratch. :)

A new, small hosting business will require a good bit of time to fill a server up with customers (months, at the very least). All the while, the server's bill will come in without any deductions. That's a cost that ultimately must be paid by someone, and that someone are your customers. Price that in or start smaller, with a reseller account, because if your business is like most, it'll be a long while before you'll reach the level where you fill 1 server per month.

If I were to venture a guess, many hosts offering $6 hosting, staying in business and growing, will probably put something like 200+ such accounts per server. Some I bet put a lot more. Now it's time to decide if you want to oversell or not. ;)

(And we didn't even bring into discussion the ability of that server to actually push the 10TB you want to sell, using busy blogs, forums and whatever "high availability" seeking customers will put on it.)

This is my theory on it exactly

So, your 50GB/500GB for $10 doesn't rely on overselling? :confused:

To put it in perspective, imagine telling your client this: "I'm lying just to make more money." While the lie is harmless and there is a 99% probability of your lie having 0 impact on anybody anywhere in the world, it's a lie none the less and it's done all in the name of greed. ;)

What a completely ignorant assessment of overselling - overselling is not lying, and as I've said in other threads on the subject overselling doesn't necessarily go hand in hand with resources mismanagement (which is only at the point where overselling goes wrong, unless you're grossly overselling, which some could argue is resource mismanagement in and of itself).

Let's put it this way, if you put fliers around a small-sized city instructing everyone to take a shower at the same time on the same day, and they all comply, what do you think will happen? Is your water company lying to you because not every person in the city can take a shower at the exact same time?

Why do you think, in states of emergencies, not everyone can get a connection through? You guessed it - overselling as well.

The fact is that for the most part, in most industries, a little bit of overselling is actually responsible because otherwise you have a lot of unneeded capacity. The fact is that not every user will need (for example) 100mbps available all day every day, all you need is the capacity to reduce the number of times when the required capacity isn't available to as close to zero as you can manage. Sure, dedicating 100mbps to every client will guarantee that, but you'll probably find it's nowhere near necessary - and guess what, you'd be overselling in that case.

Which brings me back to the other point about resource management - just because a company oversells their resources a tiny bit doesn't imply they can't manage their resources, and most importantly just because a company claims to not oversell doesn't imply they have any clue how to manage the resources of a server or 10.

Don't get me wrong, I cringe when I see 10TB of bandwidth for $2 a month as much as the next guy... but overselling is merely the gun some idiots use to shoot their own foot off, take it away and they'll find another, perfectly viable way to run their "company" into the ground.

What a completely ignorant assessment of overselling - overselling is not lying, and as I've said in other threads on the subject overselling doesn't necessarily go hand in hand with resources mismanagement (which is only at the point where overselling goes wrong, unless you're grossly overselling, which some could argue is resource mismanagement in and of itself).

Let's put it this way, if you put fliers around a small-sized city instructing everyone to take a shower at the same time on the same day, and they all comply, what do you think will happen? Is your water company lying to you because not every person in the city can take a shower at the exact same time?

Why do you think, in states of emergencies, not everyone can get a connection through? You guessed it - overselling as well.

The fact is that for the most part, in most industries, a little bit of overselling is actually responsible because otherwise you have a lot of unneeded capacity. The fact is that not every user will need (for example) 100mbps available all day every day, all you need is the capacity to reduce the number of times when the required capacity isn't available to as close to zero as you can manage. Sure, dedicating 100mbps to every client will guarantee that, but you'll probably find it's nowhere near necessary - and guess what, you'd be overselling in that case.

Which brings me back to the other point about resource management - just because a company oversells their resources a tiny bit doesn't imply they can't manage their resources, and most importantly just because a company claims to not oversell doesn't imply they have any clue how to manage the resources of a server or 10.

Don't get me wrong, I cringe when I see 10TB of bandwidth for $2 a month as much as the next guy... but overselling is merely the gun some idiots use to shoot their own foot off, take it away and they'll find another, perfectly viable way to run their "company" into the ground.
Exactly!
That is what I was saying almost every "overselling bashing" thread.
Overselling is not a bad thing, unless you suck at risk/resource management.

Overselling is not lying to your customers, actually quite opposite. You WILL give what you promise, but manage your sources/customers wisely. You will earn more, customers will get more service for their bucks

How much does your bandwidth/transit cost you Jweb2? If you're paying more than $7-10/mbit 95th, you're overselling...
How exactly do you oversell a limitless product like bandwidth? It's not like a hard drive or RAM that has a set amount. Although I do only pay for a dedicated amount, if I do go over that amount it's not like my data center will shut me off I just pay for the additional bandwidth at the current rate I am paying now (which is less than $10/mb).

What a completely ignorant assessment of overselling...
I'm sorry for not taking the time to read your post but I have a vague feeling I know what it's going to say. I never said overselling is a bad thing, I just said I prefer not to oversell.

Ok, so maybe overselling isn't lying, but it is deceitful at best. You are selling "dedicated" resources that are shared among all users and are not guaranteed. Regardless if they are using them or not it doesn't matter.

Again, it doesn't make you a bad person for overselling if that's what your business plan calls for and you know what you're doing. But even though it is harmless and will have 0.001% impact on the end users it's still dishonest.

How exactly do you oversell a limitless product like bandwidth?

On your own website, you mention that your servers are on 100mbit connections...

Yes and with a call to the data center that can be changed. ;)

I think the reality is that overselling is a part of this industry. It is just a matter of whether you can deliver on your promise if a client reaches the limits.

So, your 50GB/500GB for $10 doesn't rely on overselling? :confused:

Short answer: YES.

Long answer:
I wouldn't be losing money if i could do that and sell 60% or more of the slots on the server. 60% is about where the profits start on the server with that plan. I don't know if it'd be viable having to keep most of the servers full to stay in a good profit(that is WHEN we have a lot of servers).

Starting out the company it will be hard to make a good profit (but is possible). but If I can get a lot of adopters say grow to a hundred servers or so it'd be easier to manage on the cost of operation front. But, its a pretty high risk, and low return vs. amount invested. Even 20 servers would make it easier. that'd be about 200-300 users(assuming most of them get the high end plans -- 50/500 and 100/1000). So I'm juggling it around right now, seeing what I could get away with while making a good enough profit to afford what the business needs when we get to that size. I'm thinking of just adding more space and stacking more users on one server. and lower the guaranteed bandwidth a bit. say 60-80Mbps rather than 100Mbps on the high end accounts (100GB/1TB). Which would give a better return per server.

I'm sorry for not taking the time to read your post but I have a vague feeling I know what it's going to say. I never said overselling is a bad thing, I just said I prefer not to oversell.

You could have at least read the paragraphs with bolded text, where I actually postulate that in some cases overselling can be a good thing.

Ok, so maybe overselling isn't lying, but it is deceitful at best. You are selling "dedicated" resources that are shared among all users and are not guaranteed. Regardless if they are using them or not it doesn't matter.

Again, it doesn't make you a bad person for overselling if that's what your business plan calls for and you know what you're doing. But even though it is harmless and will have 0.001% impact on the end users it's still dishonest.

You and I must have very different definitions of what makes a bad person - because in my opinion if it's in your business plan or not, being deceitful in business makes you a bad person. :)

I just disagree with your idea that overselling is deceitful - if it is, then the companies in all the other industries doing it are being "deceitful"... What's funny is that web services is about the only industry that ever has issue with companies overselling, but then again that's probably because a 14 year old can't start a water company.

Short answer: YES.

IamDH4, I wasn't quoting you. You don't have a 50GB/500GB for $10 in your plans there. ;)

You could have at least read the paragraphs with bolded text, where I actually postulate that in some cases overselling can be a good thing.



You and I must have very different definitions of what makes a bad person - because in my opinion if it's in your business plan or not, being deceitful in business makes you a bad person. :)

I just disagree with your idea that overselling is deceitful - if it is, then the companies in all the other industries doing it are being "deceitful"... What's funny is that web services is about the only industry that ever has issue with companies overselling, but then again that's probably because a 14 year old can't start a water company.

I went back and read it after making my post but my opinion didn't change so I didn't edit my post. As for other industries doing it, 90% of all for profit companies primary goal is to make the most money any way possible. Deceitful doesn't mean illegal and thus it's well within the law to follow these practices.

I also don't see why people have an issue with overselling. If the company has multiple servers or a cloud system where expansion and shuffling accounts is possible then with some proper checks in place overselling should also be transparent.

I just cannot bring myself to oversell my servers because even if I personally weren't bothered with it, it would not work with our business plan (all of our servers have a max of 45% capacity which is a fixed number based on my infrastructure engineer's setup).

You can say you're not overselling space or bandwidth but those mean very little in terms of if a site can fit on a server. So the fact you're selling say 80% of the space and 80% of the bandwidth allocated it still does not mean every type of site can use it.

In most cases these days the space and bandwidth is not a limiter for any user. Whether it's 10GB of space or 10000GB it makes no difference. The same can be said about bandwidth at a point no site is going to be reaching it anyways.

Lets actually talk about the CPU and memory usage required to use the resources for most users. The fact is very few would be able to use the amount for their wordpress blog, forum, cms site ect. ect.

So to clarify there is nothing wrong with overselling. Most people in these parts do a bad job with it. That is the actual issue the big providers do a much better job well because they are big and can afford to lose money. A lot of the complaining comes from competitors of theirs saying it's dishonest or this and that. It's smart by these competitors to do it because they could not compete otherwise.

Once you have enough servers overselling looks more and more to make sense. Rather than selling a total of 250GB space on a server you sell 1000GB say and even then you struggle to even get into the 100GB range most likely. It's just making use of the excess resources you have at your disposal.

So to clarify there is nothing wrong with overselling. Most people in these parts do a bad job with it.

Exactly! As I said above, gross-overselling is just the gun kiddie hosts happen to use to blow their own toe off on a regular basis. Having a bad experience with a host that oversells and then attributing the problem to overselling is like being hit by a guy in a Toyota and then assuming people who drive Toyotas hit people.

That is the actual issue the big providers do a much better job well because they are big and can afford to lose money. A lot of the complaining comes from competitors of theirs saying it's dishonest or this and that. It's smart by these competitors to do it because they could not compete otherwise.

Once you have enough servers overselling looks more and more to make sense. Rather than selling a total of 250GB space on a server you sell 1000GB say and even then you struggle to even get into the 100GB range most likely. It's just making use of the excess resources you have at your disposal.

Right again - if you have multiple servers you can also juggle accounts around and spread the load of the few "problem users" over several machines so that you're providing a decent service to everyone, including the statistically insignificant portion who actually use anywhere near their allowance (this argument is of course assuming, rather naively, that all "resources" (hard disk, bandwidth, CPU usage, RAM usage) go up together in a rather linear fashion - Reality makes it much more complicated, but also easier for larger hosts to juggle).

By contrast, smaller hosts (eg those with a single server, or a VPS) who oversell might be playing a dangerous game, because more than one problem user can want to use too much resources, and they may not have the cash/extra servers/experience to cope with it. I don't see that as an advertising point though, when I see "NO OVERSELLING! NO OVERSELLING! *squeal* NO OVERSELLING!" in a marquee, I read it as "we're not big enough to oversell yet".

Most people associate overselling with performance. Less users per server = better performance. My target audience isn't the user who needs 10GB of disk space, it's the user who needs fast load times for their 100MB site.

We do not oversell our shared hosting solutions and our pricing reflects that. However, we do have overselling enabled for resellers with limitations.

A reseller has the capability of creating an account with more disk space and bandwidth than they purchased, the actual usage cannot exceed the total amount given to the reseller. Therefore, there is a limitation. In addition, resellers cannot create packages with unlimited disk space or bandwidth.

This system is working well for us.

We do not oversell our shared hosting solutions and our pricing reflects that. However, we do have overselling enabled for resellers with limitations.

A reseller has the capability of creating an account with more disk space and bandwidth than they purchased, the actual usage cannot exceed the total amount given to the reseller. Therefore, there is a limitation. In addition, resellers cannot create packages with unlimited disk space or bandwidth.

This system is working well for us.

Your resellers and shared hosting clients are on different servers correct? If not you're overselling without the pricing benefit. ;)

Clients don’t like to be lied to. Overselling can give you a bad name to your brand which can lead to negative reviews and a lose in profits.

Clients don’t like to be lied to. Overselling can give you a bad name to your brand which can lead to negative reviews and a lose in profits.

You forget that the majority of people don't know what disk space and bandwidth even are, and will simply see large numbers and think they are better.

Also, you do realize that every major industry oversells right? Movie Theatres, Telecommunications (home and cell phone services), ISPs, Air lines, etc.