I fundamentally do not understand reselling (as a biz)
I really don't understand how/why people make money from reselling. I'm referring to shared hosting, though this kind of applies to VPS as well. I've long been fascinated with the business and have read several books (yes, there have been a few). But I've never gotten into it because it just didn't seem like there was money to be made.
First, it seems to me that any customer I have (as a reseller) is also a potential customer of my hoster. Why go with me? Indeed, aren't I just a speed bump? If my provider is having an outage, now I have an outage, and the news and status has to go through me to the customer, who is going to be calling me at 2am. My provider can give a customer everything I can in terms of features, etc.
The answers I usually see are either package or service.
Package...forget for the moment that, say, Hostgator sells "unlimited" plans for $5-7 a month. Let's say I can convince customers that it's not truly unlimited and they don't need to spend that much because I can give them what they really need for less. Most people wanting to host their blog or their company brochure site need less than 1GB and are lucky to serve 1GB in bandwidth. So I carve up my package and sell it for $2/month. Sure, you can get Hostgator for $4/month but you have to pre-buy for 3 years and if you pay month-to-month it's $7+/month and see, I'm cheaper.
Great! I have an advantage. No wait...I have a nightmare. Let's say I have 50 customer bringing in $100/month. I've have to do all the work of acquiring and servicing them, and at $2 each, if I spend a half hour on one, I've lost money. They're going to open tickets and ask questions. They're going to want status if something goes wrong. I'm going to have to deal with spammers and abusers and some loser who puts up a kiddie porn site. Someone is going to setup some autoblogger that causes my provider to say my account is using too much CPU. Etc.
Let's say my alternative is a job flipping burgers for $10/hour. I'd have to get a lot of clients that have virtually no support needs in order for reselling to be more profitable than just working at a fast food joint.
OK, so underselling is really not the ticket. The other option is to sell service. Why deal with big impersonal DreamGator? I'm just down the street and am happy to provide you with excellent service.
But...can you really charge enough per customer to make this lucrative? I'm skeptical. Let's say I can get $10/month for a basic plan. Let's say my alternative is to work 10 hours a week flipping burgers ($400/month). So I need 40 of these high-paying customers...and I have the same support problem. Worse, I have promised excellent service. And with my burger-flipping job, I can go home afterwards and get drunk if I want. With my hosting biz, I'm probably oncall 24x7 and can't take a vacation.
Yes, eventually I may get to the scale where I can bring additional help on, but I think you have to get to a pretty big scale before that pays.
Maybe I'm overstating the support angle, but I just don't get the marketing/business side of reselling.
Now, I'm aware there are people who specialize in a particular kind of web service. "I sell and support Whizbang Accounting and can setup and support your office with a web-base accounting package for $50/month". Under that they have a reseller account. That's different and I get that.
I get the sense that "reselling web hosting" was big around 1998 and while people still do it, they're not really making as much money. For college kids who have limitless time, or people who have a low cost of living due to geography and few economic prospects, maybe it's a different story.
Maybe I'm looking at it all wrong.
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I'm gonna read your post latter as I'm in the middle of some stuff.
so, I'll go ahead and just say the following:
We do WebDesign and WebHosting
(Numbers are intentionally not exact)
My case is that for a 65usd/m Hosting account on which I can host more than 200 cpanel accounts for 28usd/m each.
200 x 28usd = 5600usd
My customers are local or recommended, they don't know what hosting is, they would never have of search it on the web, they don't care about it, and even if they knew they wouldn't want it if possible.
They just want their good looking WebSite and their emails to work
So I give that to them.
I don't compete nation wide nor internationally(1and1, godaddy, etc.)
They see it as a technology service(which it is) just as their Internet, Cell phone etc., so 28usd/m it's normal for them.
And it actually costs us more ofcourse: phone support, certain level of webdesign included, visiting, etc.
So how does this compare to selling from a dedicated server? Selling from a VPS? There is nothing special with reselling VS Dedicated/VPS. The concept will always be the same. If you have a dedicated server, sure you have more webspace/bandwidth to play with but you also have the additional cost,, plus, the additional work load. All the problems you have brought up will happen with a VPS and with Dedicated, and with the latter, you stand to lose much more. It is all relative.
A reseller account simply takes the headache out of it all. You're essentially outsourcing the back end work. And with some hosts offering billing systems, end user support etc. there really isn't much for you to do apart from market your service. We see more and more customers move from dedicated servers/vps's to reseller just so they don't have to deal with the headache of a server.
Reselling can be considered a stepping stone, or a convenient method of selling hosting. But just like any business, price points & etc. are going to be things you need to sort out.
The issues you have brought up are not exclusive to reselling, but they relate to starting a business in general. The problem here is that you're comparing working for someone else to working for yourself. For the beginning, reward is always going to be disproportionate to effort. In other words, you're going to put in much more effort for little reward - and this applies to pretty much any business you start up.
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Great post OP, however there is much more to hosting! One must definitely have a passion for hosting to be in this industry else within no time this industry will eat them alive with it's very demanding work flow approach and cause a specific host to become a fly by night.
With that being said, you always have to think about adding that value to your customers and not compete with the unlimited $1-$2 hosts. If you want to compete at that level you need to have a decent enough infrastructure where your overhead costs per account work out to be cheaper but your overhead itself will be higher compared to just having a reseller account. There are companies out there who provide reseller hosting with end user support which takes the whole support headache away from you so you can focus on sales and also your full time job, this way even though your margins are slim it's not that bad because you're not servicing customers.
Alternatively, you can tap into the local market which is very lucrative as jagarco mentioned and in fact that is a similar model we have begun approaching since our launch (14th of this month). The results to date have been fantastic from a numbers point of view and we couldn't be happier as we look forward to an excellent month end and M/M growth next month and the future months to come.
I don't know if what I'm saying is relevant but here's my opinion. I, myself, uses a reseller account. But your business does not rely on it alone. You buy a reseller account because you want to make the server administration work as "abstract (OOP)" as possible. You don't have to focus on that part for it is not that essential to your work. You can get a reputable host, then focus on the services you really provide to your market. For example, you can offer web design works, develop web applications, install and manage applications, etc. There's a lot you can do with it, you just have to think of the added "value" you can offer to your customers to make your business profitable.
I started a previous company on a $25/Mo reseller account. Within about two months, up to a VPS. 1.5YRS later we were paying about $1,200/Mo for the rental of several dedicated servers for Shared/Reseller hosting, VPS nodes and a R1Soft backup server.
Sometimes reselling just makes the most financial sense.
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Sure there is money to be made, you start with reseller and move the way up. You enter the market affordably and raise your pricing slowly. I personally, expect to be doing $70k just from 1 of my businesses 1 year out from today with about 50% profit margin. Sure, that is not a lot of money but 10 of those = $700k /yr, $350k/yr profit.
A reseller account is great if you have a large number of websites, it typically works out cheaper
I tend to agree though, for the simple purposes of reselling then the profit (after all costs) will be minimal
However, add website design and/or other services and there is considerable profit (or earnings) to be made
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