“Bargains for sale, Unlimited Hosting for only a Dollar.”

“Get your hosting here, 50 cents for the first three months. “

“Use now. Pay later”.

In today’s world of hosting, instead of who’s got the bigger and better thing, it’s who has it for the cheapest and don’t forget that they usually it at an “unlimited level”. But if everyone is offering the same control panel, running off of the same type of servers or even from the same data center, why not get it for the cheapest price you can? The reason is, even though the servers may be the same, the service varies with each company and price. This is not to say that the cheapest can’t offer the best service but always remember the old adage “you get what you pay for”.

Let’s break down the costs involved with running a small hosting company that manages a few, low-cost servers from a reputable data center. The dedicated server business has grown within the last few years and competition has created the availability of unmanaged, low-cost server rentals that can range as low as $49 per month.

For our case study, let’s pretend that Bob has leased a server from a reputable data center at an average price of $89 per month. He was even lucky enough to signup during a special that waived the setup fees. At a cost of $89, he now has his own dedicated Unix server running one of the more popular control panels that regular hosting customers like to use. Like many small one or two-man hosting companies, he runs the business out of his house as it would be almost impossible to actually obtain office space on location of the data center, not to mention that he could be in one state and the server might be three states over. Leasing a dedicated server means that he is not responsible for the hardware and only has to maintain the software. This frees Bob up from the added expenses of hardware replacement and allows him to concentrate his investment on marketing, software, scripts and service.

Bob is an extremely good salesman and has a mature understanding of how to run a business. His best friend Billy has a vast knowledge of managing a server and its software, so together; they will be able to manage most common aspects of the business on a day to day basis.

They have purchased or designed a nice website and spent the average of $600 for support items such as tutorials and a customer forum. With the website design and extras, their initial investment averaged at $1000 which they hope to recoup within the first six months of operation. Now, this may be an added cost that some small hosting companies avoid at the beginning, but try to remember, if they are serious about running a company, they will put some type of investment into it. Taking the initial investment spread over 6 months and adding the cost of servers at $89 for the first one, Billy and Bob are spending more than $250 monthly during the first six months of operation on minimum expenses. This does not include other expenses such as their salaries and outside expenses such as phone bills (if they offer phone support), utilities, advertising expenses, etc.

An average amount of customers or domains to have on an individual server is 200 and since Bob is starting out with a new company and no customers, he can acquire 25-30 customers monthly if he works really hard at it. To fill a server, they would need eight months of growth, and that doesn’t include the costs involved during that time. The cost of operation during those eight months is estimated at $1700, without any extra expenses and no personal income derived from the venture. If they were to charge $2 per customer on a recurring monthly basis and signed up 25 customers per month, they’d make $100 profit at the end of 8 months. Remember, this is done without any personal income made at all. Once they add in an advertising budget and allotment for person income for Bob and Billy, the cost jumps dramatically. They aren’t in the business to make friends, they are in it to make money and $100 spread over eight months is not much.

Let’s start adding a small income for Bob and Billy of $1000 monthly each and an advertising budget of $500 per month in order to acquire those customers and calculate what they need to charge to break even after those first eight months. A safe estimate would be $3,000 monthly to cover salaries, server cost, advertising and other miscellaneous items. If they were able to signup 200 customers during the first eight months, they would need to charge $15 per customer to cover the $3000 monthly overhead. If they charged only $2 per customer, they would need to signup an estimate of 2,000 customers to do the same. Because Bob and Billy decided to charge only $2 per customer, they have to support 2,000 customers by themselves because they don’t have enough profit to hire any more technicians.

As a customer, you need to realize these things before you start shopping for a hosting company. Now that you are educated on the backend of a hoster’s life, you can ask yourself what type of company do you want hosting your website and what kind of website you need hosted. If you are running a small personal site that doesn’t need constant uptime and special scripts, then you could choose one of the many free or low cost hosting solutions available. If the company was to go under or lost all of your information due to hardware or software failure, then you are really not at a lost because your website did not contain critical information.

But what if your site does contain critical information and is the lifeblood of your company? Then don’t go cheap. Research your options, find the one with the best solutions and don’t be afraid to spend more for less. It is very important to find a stable company with quality support and service and that doesn’t come cheap. Make sure that if your information is critical, the company offers reliable backup solutions and has a reasonable uptime.

Phone support is a must for quick response and let’s not forget the numbers 24/7. Hosting companies with higher price tags can afford to hire the extra technicians to hold your hand as you build your web presence and your company, which can be important in today’s market.

But does all of this mean that cheap hosting is a bad venture and should be avoided? Not really, just remember, “You get what you paid for.”

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