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  1. #1
    Join Date
    Aug 2002
    Location
    Australia
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    297

    How much profit do you make per account sold?

    im reselling, so my profit isnt all that great.

    for each reseller package, i would be paying $20, and assuming all packages are re-sold, my total income would be around $50, so profit is about $30. so its around 150% profit.

    what is everyone else's like? im curious to see if im overcharging or undercharging?

    another thing is...the 150% profit is only true when ALL accounts are re-sold, so its like..i need 5 customers before i break even, and 10 customers to make a profit...while waiting for the rest of the accounts to fill in, so there are some loss before you can make a profit.
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  2. #2
    Join Date
    Jun 2001
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    If you aren't happy with the amount of money you're making, raise your rates.

    Of course though, you are on cogent ... maybe you should just find a better network before raising your rates. Sure, it'll cost you more, but you can then charge your customers more, they will get better performance, more relaiablity and redundancy.
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  3. #3
    For starters, 150% is a nice margin in any business, but of course don't forget to factor in other costs such as advertising, printing, postage, and hopefully one day your time!

    At the same time, hosting is very much a business of "economies of scale" - meaning your margins change as you grow. Use something like excel and model out scenarios of what costs, revenues and profits would be in various stages of your growth.

  4. #4
    Join Date
    Nov 2001
    Location
    The South
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    Actually the margine here would be 60%

    Income = $50
    Costs = $20
    Profit = $30 or 60% of revenue.

    Edit: yes margins seem to go down a bit as you grow.
    Gary Harris - the artist formerly known as Dixiesys
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  5. #5
    "Edit: yes margins seem to go down a bit as you grow."

    Did you mean that? Excusing "growing pains" that any succesful business is going to have - if your profit margins shrink as you grow I am suggesting something is wrong with your business model. It should be the exact opposite!

  6. #6
    Hey, Dixie, I could be wrong here, but are you sure your equation is correct to get profit margins, per se?

    I always understood it to be his costs are $20, his revenue is $50, which leaves $30, which is 1.5X his operating cost, thus operating at a 150% margin. Am I wrong in my definition of a margin?

    If so, it sure would explain a lot! LOL.

  7. #7

    Margin vs. Markup

    Margin is his profit (sales - cost) divided by the sales. So, in this case the margin is 60%.

    Markup is the profit divided by the cost. So, in this case his markup is 150%.

  8. #8
    Join Date
    Nov 2001
    Location
    The South
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    5,403
    Originally posted by lpguitars
    "Edit: yes margins seem to go down a bit as you grow."

    Did you mean that? Excusing "growing pains" that any succesful business is going to have - if your profit margins shrink as you grow I am suggesting something is wrong with your business model. It should be the exact opposite!
    Yep, because at some point you're no longer able to be a one man show, and adding employees lowers those margins you were enjoying.
    Gary Harris - the artist formerly known as Dixiesys
    resident grumpy redneck

  9. #9
    Well of course if you mean growth equals move from a free support staff to a paid support staff!

  10. #10
    Join Date
    Sep 2002
    Location
    MD
    Posts
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    Did you mean that? Excusing "growing pains" that any succesful business is going to have - if your profit margins shrink as you grow I am suggesting something is wrong with your business model. It should be the exact opposite!

    correct me if im wrong, but i think what he was saying is this:

    As a company grows and invests more in itself with more equipment and man costs, the precent of profit margins shrink, but b/c of the growth of the company and the added amount of money its making, that lower percent is actually more money. For instance, his income is 50$ and his costs are 20$, but lets say he expands and his income becomes 30,000 and costs are 23,000. The percent is not as good but hes making 6,970$ more.

    Again, i could be completly wrong lol...let me know

  11. #11
    Hi bandwidth, although point is a good one, no I was actually making an even bolder statement, suggesting that with the exception of some occassional reinvestment growing pains he should be able to maintain or exceed margins as he grows.

    Now, you can grow and totally shift your business plan, and come out with less margins but still better money, as you were pointing out, but what I mean is he should be able to continue buying his $20 to serve $50 service, and eventually be able to leverage his buying into deeper wholesale discounts - whether that is through negotiating a better rate from his current supplier or reinvesting in a larger single server. While costs and revenues are still growing, he's the only one in that deal who's making any quantity buys.

    Simple math scenario... If he's buying $20 worth now to service $50 worth of business, my guess is he's selling basic $10 shared hosting. Now if he grew that to $30k then he'd have 3,000 accounts. Let's say the standard $139 deal from rackshack for a P4 with Ensim would support what 500 of these average accounts? That means he needs 6 servers at less than $1000 per month. Add $9,000 per month for support costs, throw in a $4,000 per month marketing campaign and he's still exceeding his initial margins. And in truth, he should outsource his support making that a good bit less than $9k provided his service stays up!

    Yes, I believe low end SHARED hosting is an economies of scale industry where the more you make, the more you make.

    Of course, then there's the Govt. Just my $.02.

  12. #12
    Join Date
    Jan 2002
    Location
    Melbourne, AU
    Posts
    740

    Re: How much profit do you make per account sold?

    Originally posted by Aplusmedia
    for each reseller package, i would be paying $20, and assuming all packages are re-sold, my total income would be around $50, so profit is about $30. so its around 150% profit.
    If you're only able to get 5 accounts from your reseller account, I'd suggest getting a better account.

    There would be no reason why you can't get 40+ accounts under a reseller plan - depending on site contents of course.


    Lats...

  13. #13
    Join Date
    Aug 2002
    Location
    Australia
    Posts
    297
    The maximum number of accounts i can hav (with my plans), is 25, and thats for a basic account with 1GB per account, as the plans go up, the number decreases, eg. i can only have 2 10GB account and 5GB leftover for other accounts.

    why are you saying i should be able to get 40+ accounts? that would totally depend on YOUR plan, and resources.

    my current resource is 3GB space and 25GB bandwidth. im just starting out, so i got a smaller package, once i sold all the packages, i will move onto a larger package.

    im asking this question(this thread), is to see if its sensible to lower my price, make less profit, BUT get more customers, although i think my pricing is reasonably low already.
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  14. #14
    Join Date
    Jan 2002
    Location
    Melbourne, AU
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    I see. I wasn't aware of what your plans were.


    Lats...
    Lats...

  15. #15
    WHy don't you do something like this... as soon as you can afford to lease a dedicated server, do so. In this case, you won't be losing so much money on the reselling and your costs will not increase with the amount of profit you earn.

    Boris

  16. #16
    Careful in lowering your pricing as it does not turn on this magic faucet of new signups. If you plan on entering the price war and going after that demo - be prepared to go really low in your prices. There's lots of money to be made in budget hosting, but it takes a lot of accounts and your exit strategy is not that promsing.

    I think I am starting to sound like a broken record on here - but find a niche and really penetrate it. I honestly think that is where a small host will find most of their signups the easiest these days.

  17. #17
    Join Date
    Aug 2002
    Location
    Australia
    Posts
    297
    thanks for the advice, im planning to move onto dedicated as soon as I can afford it, all the money that i would make from reselling will be saved to go ded. no personal luxury for me while on reselling, i think this is th way to go if i want to start on a low budget, I want to make money from reselling..use that money to grow, instead of risking a huge lump sum and lose it all if it doesnt work out,

    most of you probably disagree and think i should invest something to start the business, im just not prepared to lose money!
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  18. #18
    Join Date
    Mar 2002
    Location
    San Jose, CA
    Posts
    34
    absolutely not! grow your business slowly and organically, it will pay off in the long run.
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  19. #19
    Join Date
    Aug 2002
    Location
    Downers Grove, IL
    Posts
    304
    Originally posted by Aplusmedia
    thanks for the advice, im planning to move onto dedicated as soon as I can afford it, all the money that i would make from reselling will be saved to go ded. no personal luxury for me while on reselling, i think this is th way to go if i want to start on a low budget, I want to make money from reselling..use that money to grow, instead of risking a huge lump sum and lose it all if it doesnt work out,

    most of you probably disagree and think i should invest something to start the business, im just not prepared to lose money!
    that's basically how i'm planning on working. i'm starting out small, with a little bit of money, and i'll just be re-investing the money i make to help grow. once i've outgrown the reseller plans, i'll start looking into a dedicated solution.

  20. #20

    Talking

    Let's just cut to the chase and talk about net profit after taxes.

  21. #21
    After overhead of colo racks, bandwidth, support staff, accounting/admin staff, server admins, less refunds/etc our financial records give us about a 20%. It really depends - I've got a good accounting background so I can make that number 40% or 5% depending how I do the accounting.
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  22. #22
    gross margin and profit are two completely different things.

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