Ok you have $5,000.00 to spend on web hosting. Basically you got
2. Support program
3. Billing program
4. web design
5. Business cards
7. eNom account
8. domain names.
9. Server management
Now you got enough to have all of this stuff to host for a full year, but leaves no real advertising. Or would you have it down to 6 months of paying rent, ect and then have the other half for marketing.
Oh and for people to wonder why start with a server then not it is for a couple of reasons.
1. You have to trust the host to not over sell the server to where it crashes, ect.
2. If server goes down you have to wait until they can get it up.
3. No reseller account I could find fits what I am looking for.
though on other hand.
1. A lot cheaper
2. Do not have to worry about server
For people who are wondering I just wanted to state that.
Well, I've been doing hosting now for just about 3 years, and have over $15,000 invested into my company (hardware, software, infrastructure etc). And I am just above my breakeven point where I can actually start paying myself (after paying the employees).
I'm not going to recommend the 6 or 12 month plan for you. I'll let you choose what kind of risk you want to take, with some of the knowledge of what its taken for me to get to where I am.
I would say that you go with the 12 months. In the time period of 12 months you could probably get enough clients for you to have some revenue to reinvest and put that in your marketting budget. Also you get cash from other sources. The most important thing is to have enough capital to keep your business running for a long time.
Split the difference - 9 months, and spend 1 qtr on advertising.
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Advertising is EVERYTHING in this industry for a new company. There is no point having an owned $500 modernbill license, when you could spend $25 per month leasing it. It's known as opportunity cost, and the long term benefit of leasing the licence and spending the money on marketing the company will far outweight the benefit of big fixed costs.
Of course, that doesn't imply that you should not have the best of everything, you should. But don't tie your money up in the early days.
With the 12mth option, and no advertising, you are essentially going to go nowhere.
That said, I don't recommend going crazy with adverts, and I don't know a thing about your business to accurately comment, but logically, if noone knows about your site, the best software in the world won't help make your company a success.
Get some clients by slow, no advertising other than word of mouth etc.
For word of mouth to really work, you need customers in the first place, so you'd need to have some aces up your sleeve to get the first customers without advertising at all.
On another note, I believe Professor said it right. Considering that most likely in the first months the server will be rather empty, you're losing probably some $1000 or more based on that factor alone, money that you now have to borrow for your advertising.
On the other hand you can get a what could be considered an expensive reseller account on a light loaded server from a reputable company and save a lot of money, money that you could allocate for advertising.
Each business works on its own model and different starting conditions. While Aaron needed 3 years to get to where he is now we don't know what his budget was when he started, nor what route he took or what mistakes he made (no offence Aaron). He does have a point though, that you need to prepare your business and have it able to survive for a long time.
Profit is determined by the costs and the markup. Lowering the costs (and especially what is arguably waste) is IMO the smart thing to do.
From what I can see, advertising is where most hosts fail. That's why we see so many "I'm looking for a cheap or free way to advertise". Too much emphasis is put on the technical side of the business, disregarding what really grows the business: properly funded advertising.
The longer you manage to stay in business, the more time you have to learn how business should be done. So regarding your question, I would shoot for 12 months of sustainability.
Note: I do not run a hosting business, these are merely observations based on what I've read, my personal preferences and opinions.