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  1. #1

    Question Pricing Data in Packages

    I am trying to work up some hosting package pricing and the area I am having the most difficulty with is the Data transfer. We are looking at going with a managed Windows server with a provider that I would classify as one of the higher end ones.

    In the quote the monthly data allocation is 100GB with additional traffic being charged at $3.50 per GB.

    We are intending to target the ever popular small business market in the US and after doing some research it appears that a mid level package goes for between $4 - $10per month with data of about 5GB +. With this profile I am starting to think that either everyone in the market are using lower end servers/hosting or more likely are banking on the fact that thier users won't use the data allocation. We don't want to be at the cheapest end of the market, but obviously our pricing is going to be compared with what a Google search returns and it appears the cheapest end features prominently.

    I can understand the latter but to what extent do you factor this in? In various business schools of thought the old 80/20 rule comes up so when pricing do you work on the assumption that on average the clients will use 80% of the bandwidth and thus discount the cost by 20%? Or is it more? and if so what do you use and how often do you get 'caught'?

    Or is there another formula that is used?

    Thanks for all help and assistance.

    Antony
    Last edited by webmanager; 07-18-2005 at 08:00 PM.

  2. #2
    Join Date
    Dec 2004
    Location
    United Kingdom
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    1,750
    No formulae its up to you, Think about it. What do your target market want to pay? How much of a profit do you want to cut.
    Weigh up all the options.

  3. #3
    Join Date
    Jun 2004
    Location
    NJ
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    Another thing to keep in mind is don't base your costs strictly on server resources, keep in mind the support and billing cost of maintaining a customer.
    I always did like the clouds

  4. #4
    webmanager, I think if you are able to calculate your “net profit” minus discount which you want to operate, it might be possible that you can set a rational price inclined with other cost thereupon it.

    Do you need a formula to calculate the "net profit"?

  5. #5
    Thanks everyone for your responses.

    I don't think I explained myself properly in my original post. I understand that I have to come up with my own formula and there are other things to take into account other than the cost of the server as well as setting the level of profit we require.

    Its while doing all this that I have hit the issue with the data traffic portion. If it is going to cost me $3.50 per GB just for traffic (ignoring for now the built in allowance) I should be charging at least a multiple of this, depending on the traffic provided in the plan. The traffic is coming up as the biggest variable cost component.

    I understand that not every client is going to continually use the full allocation and this adjustment is what I want to find out more on. Basically I am looking for some industry benchmarks/ alternatives on how other web hosts bring data costs into thier overall pricing.

    Antony

  6. #6
    For calculating profit I should suggest you to use the mathematical formula as below, might be helpful to you.

    Leads x conversion rate =Customers

    Customers x Average Sales x Sales per customers =Gross profits

    Gross profit X profit of Margin = Net profits


    Good luck!

  7. #7
    Join Date
    Aug 2004
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    Zurich, Switzerland
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    770
    I don't know what you mean with high end servers, but I'd say their bandwidth prices are way too high when you can get tier 1 bandwidth from good datacenters for $2/GB and less (not to mention they offer 1000 GB and more with a server, not only 100).

  8. #8
    Originally posted by RambOrc
    I don't know what you mean with high end servers, but I'd say their bandwidth prices are way too high when you can get tier 1 bandwidth from good datacenters for $2/GB and less (not to mention they offer 1000 GB and more with a server, not only 100).
    RambOrc, I am not too sure about the policy of mentioning names on the forums. When I said higher end I was talking more the operation than the server. The company we are looking at has had good write ups as well as been reccomended especially for thier level of support/service. They also have been around for quite a time.

    Antony

  9. #9
    Join Date
    Aug 2004
    Location
    Zurich, Switzerland
    Posts
    770
    What I meant is that if you are targeting the small business area where you look at selling 5 GB bandwidth for $10 or less, you simply can't afford either these plans or the company you are looking at, because the two business models are incompatible. You can opt for a provider with $3.50/GB charges, but then you have to charge your customers those $10 for a 1 GB/month plan or even less. Or you can offer $5-$10/month plans with 5 or 10 GBs, but then you need to find a provider who offers you $2/GB and lower (plus including a large base amount of bandwidth with a server, at the effective cost point of $0.50/GB and lower). Hope it's more clear now what I mean and not even more muddled than before.

  10. #10
    etechsupport2
    Thanks for the formulas. However, before you can use these you have to figure out the cost of what you want to provide. This is where I am currently at.

    RambOrc
    Yes I understand where you are coming from. I will lower the target a bit and look for someone who can provide a bigger built in data transfer and lower per GB cost.


    However, I still don't have any idea of any benchmarks to use when pricing the data into the package. Do you just include a charge calculated as:
    Cost + margin or
    (Cost x ADJ) + margin where ADJ is the percentage of the bandwidth that the client would use on average?

    If its the latter any suggestions on the ADJ to use?

    TIA
    Antony

  11. #11
    Join Date
    Aug 2004
    Location
    Zurich, Switzerland
    Posts
    770
    It's a question of whether you want to oversell or not. If yes, use ADJ in your computations, if not, don't.

  12. #12

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