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  1. #1
    Join Date
    Aug 2001
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    How can offering VPS be profitable?

    Hello all,

    Maybe I'm not calculating correctly or something but I have been wanting to get into the VPS market but for some reason my numbers don't add up in regards to making some profit. Review below and let me know what you think.

    Server: Daul - Quadcore 5420 Intel Hapertown CPU
    RAM: 16GB RAM
    HDD: 4x500GB HW RAID 1+0 (1TB space)
    2500GB bandwidth per month

    Estimated cost of $575/mo just for server/bandwidth, DOES NOT include Virtuozzo or cPanel/Plesk.

    Other costs:

    60 User Virtuozzo LIC: $214/mo
    60 cPanel or Plesk LIC: $11/each = $660/mo

    TOTAL MONTHLY COST = $1449 + labor + marketing etc.

    -------------

    Offering:

    15GB space
    250GB bandwidth
    256MB RAM Commit

    $39/mo + cost of Panel @ $8/mo = $47/mo TOTAL

    So with a 256MB commit

    TOTAL REVENUE OFF OF 60 CLIENTS = $2820

    -------------


    NET profit/loss = $1320/mo - ad cost - labor

    Am I missing anything in revenue/expenses? I am finding it is less profitable doing VPS than shared.

  2. #2
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    After checking your numbers and logic behind them everything seems to be in order.

    As far as not being as profitable as shared, the simple reason behind that is because there isn't as many account per server. You could always raise your cost from $39 to $49 to make up for the less profitability margin you're talking about
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  3. #3
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    Personally I wouldn't get Virtuozzo, too expensive.

    I wouldn't worry about cPanel/Plesk until the client orders it, THEN you buy that.. That should change your profitability margins
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  4. #4
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    Quote Originally Posted by Plutomic-Andrew View Post
    After checking your numbers and logic behind them everything seems to be in order.

    As far as not being as profitable as shared, the simple reason behind that is because there isn't as many account per server. You could always raise your cost from $39 to $49 to make up for the less profitability margin you're talking about
    What would the math be for that?

  5. #5
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    The thing that baffles me is that I see many hosts offer cPanel VPS and it only cost about $5-$7/mo. But the wholesale cost that i've seen when I talked to cPanel is $11/mo. So either I was getting shafted by cPanel on the wholesale price or every VPS host is loosing money on offering cPanel VPS addon.

  6. #6
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    Cranky the math for $49 per vps w/ cpanel would be as follows:
    $49 for vps + $8 for cpanel license times 60 clients times 12 months= 49+8*60*12=6348 per year.
    That is also not including the cost of cpanel or any other licenses into that equation.
    Plutomic Hosting
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  7. #7
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    Quote Originally Posted by Plutomic-Andrew View Post
    $49 for vps + $8 for cpanel license times 60 clients times 12 months= 49+8*60*12=6348 per year.
    Come again?
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  8. #8
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    Quote Originally Posted by MMH-Moe View Post
    60 User Virtuozzo LIC: $214/mo
    Where is this from? A reseller?
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  9. #9
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    Quote Originally Posted by MMH-Moe View Post
    Hello all,
    Server: Daul - Quadcore 5420 Intel Hapertown CPU
    RAM: 16GB RAM
    HDD: 4x500GB HW RAID 1+0 (1TB space)
    2500GB bandwidth per month
    The cheap VPS Hosters i know are now using Q6600 with 8 GB DDRII. Much much cheaper. And if you have more hardware it is also easier to move VPS around to find the right balance (a simple mathematical knapsack problem). Your Harddisk Requirements are also high. Normally you only see RAID 1 (absolutely required because IO is the worst problem on VPS) and if it crashs you have your backup (if provided by the hoster).

    Only the premium plans give you RAID 1+0

    Then do your maths again. The monthly cost of the server is now much less if you fill a half or full rack. And cheap VPS also do not have an Administration Panel.

  10. #10
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    Quote Originally Posted by CrissicSolutions View Post
    Personally I wouldn't get Virtuozzo, too expensive.

    I wouldn't worry about cPanel/Plesk until the client orders it, THEN you buy that.. That should change your profitability margins
    That's not a good business plan.

    He's calculating the possibility of cPanel, which he should.
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  11. #11
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    Quote Originally Posted by FHDave View Post
    Where is this from? A reseller?
    The pricing is direct form the makers of Virtuozzo (Swsoft).

  12. #12
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    It's funny how VPS pricing now seems to be where shared pricing was 6 years ago.
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  13. #13
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    Quote Originally Posted by Aussie Bob View Post
    It's funny how VPS pricing now seems to be where shared pricing was 6 years ago.
    Everyone wants to go cheap to get customers. Making a profit and viable business plan is an after thought
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  14. #14
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    I think that your plan sounds just fine. The trick is to stop looking at profit per server and start looking at profit per client. You would make $22 per client before expenses which is not bad. Plus you will be reaching a market that would remain untapped if you only offer shared accounts. I think that the hardware choices you have made are excellent. Keep in mind that by using superior hardware to the competition you will be offering a service with much lower latency and fewer bottlenecks, which should result in it being well received by customers leading to word of mouth growth. If only more providers would take this approach over the "cheapest way to make it just barely good enough" approach, there would be fewer complaints on boards like this.

  15. #15
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    Quote Originally Posted by MMH-Moe View Post
    The pricing is direct form the makers of Virtuozzo (Swsoft).
    They now rebranded to Parallels. You will get the license cheaper with a reseller.
    Also you should not renting dedicated servers for VPS hosting, you can better go for a leased server and colocation solution, this is where your match goes wrong.

    The server you selected will not support 60 VPS servers, because you need much more I/O for that (more disks).
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  16. #16
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    VPS shouldn't be in the shared pricing ranges IMO. It takes more to run, requires more know how, requires more support and better hardware. It is a premium upgrade to shared not a replacement. I have seen hundreds of give it away people come and go here in the past few years.

  17. #17
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    Our pricing structure is simple and thats for us to see a profit thats worth our time. We also only offer self-managed plans which helps with the support cost.

  18. #18
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    You could probably even get away without having cpanel or any other pricy control pannel. All you really need is Linux as host OS then something like VMware server (which is free) then maybe a custom coded front end for billing and that stuff, and give people SSH access to the host so they can tunnel the VMware console to manage their server. Vmware console is VERY slow, so they'd only need it for if the server is trashed - there could be a repository of ISOs so customers could choose their OS, should they decided to reinstall.

    Though that brings an interesting point, would VMware have anything against using their free product for profit like this? I could see this being very profitable if setup right.

  19. #19
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    Quote Originally Posted by Aussie Bob View Post
    It's funny how VPS pricing now seems to be where shared pricing was 6 years ago.
    And it's still being sold far too cheap, taking into account the hardware needed for performance. We're going to see an awful lot of these vps providers being sold off (or disappearing) as the recession digs into the market.

    It's going to be very ugly to watch.
    David
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  20. #20
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    Quote Originally Posted by swiftnoc View Post
    They now rebranded to Parallels. You will get the license cheaper with a reseller.
    Also you should not renting dedicated servers for VPS hosting, you can better go for a leased server and colocation solution, this is where your match goes wrong.

    The server you selected will not support 60 VPS servers, because you need much more I/O for that (more disks).
    Actually, we would be co-locating them but we go off a 24/mo on the payment plan of the server + colo cost.

    Also, which reseller sells Virtuozzo licenses cheaper than Parallels(Swsoft)? I was going direct to them to lease them.

    Are you sure the 4x500GB SATA II running HW RAID 1+0 won't be able to hold 60 VPSes? I was tempted to go SAS-SCSI 15k but the cost would add another $1500 to the server cost.

  21. #21
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    Quote Originally Posted by David View Post
    And it's still being sold far too cheap, taking into account the hardware needed for performance. We're going to see an awful lot of these vps providers being sold off (or disappearing) as the recession digs into the market.
    Not sure. The server prices in Germany dedicated and VPS are much lower then in the states and there are good companies who make a profit. I never understood why there was such a price gap in the past 5 years.

  22. #22
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    VPS server's can be very profitable if you take the time to sit down and come up with plans and prices that fit the price you are paying for your server. You must also take into consideration the time that you must pay your support staff for as well.

  23. #23
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    Quote Originally Posted by MMH-Moe View Post
    Actually, we would be co-locating them but we go off a 24/mo on the payment plan of the server + colo cost.

    Are you sure the 4x500GB SATA II running HW RAID 1+0 won't be able to hold 60 VPSes? I was tempted to go SAS-SCSI 15k but the cost would add another $1500 to the server cost.
    The difference in I/O for SAS and SATA is like night and day even on nice raid cards.

    3ware 9650 4x500gb SATAII Raid 5 under minimal load
    /dev/sdb:
    Timing cached reads: 4216 MB in 2.00 seconds = 2108.98 MB/sec
    Timing buffered disk reads: 332 MB in 3.00 seconds = 110.64 MB/sec

    Areca 1110 4x80gb SATAII Raid 1+0 under considerable load
    /dev/sdb:
    Timing cached reads: 4232 MB in 2.00 seconds = 2115.97 MB/sec
    Timing buffered disk reads: 342 MB in 3.02 seconds = 113.14 MB/sec

    Adaptec 3405 4x37gb SAS Raid 1+0 under considerable load
    /dev/sda:
    Timing cached reads: 4528 MB in 2.00 seconds = 2265.97 MB/sec
    Timing buffered disk reads: 538 MB in 3.01 seconds = 178.72 MB/sec

    Those under my term of considerable load are dedicated MySQL servers being hammered 24/7

    24/mo on your payment plan? Servers are depreciated on a 60 month schedule, but personally I factor them at 36/mo life as some will last shorter, most will last longer and provide income well beyond 36 months somehow or another. I still have Pentium and Pentium II's in service.

    There is something to be said about using premium hardware from the start, and that will build some brand loyalty. But.... how loyal are your future customers? Or are you just going to be offering this to your already loyal customers as an upgrade path so they do not leave for someone already offering a service you are not currently? If the later, premium hardware makes perfect sense. If the former though, there are many ways to deploy VPS to meet everyones needs. Every VPS customer will have different needs, and myself, I really like the flexibility with HyperVM where I can take commodity hardware to build a cluster for VPS, mix in some high end hardware for customers needing that type of resource, and make a win/win for the customer and myself.

    If you are looking at that dual quad core class server though, and want truly stellar performance, consider a 2U case with 8 bays if you wish to use SATAII as opposed to SAS. I think you can archive near same performance while saving on cost.
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