Cheap Hosting or Why Did your Site Desapeared

I often have to answer questions from clients as to why our hosting costs so much. On the contrary our hosting is not expensive compared to any of the reputable hosting companies. In fact in many cases it’s cheaper. Here is an example. A .NET Windows hosting account costs $40/month at Bell and we charge $75. The truth is that Bell charges $40 but if you want SQL database, it’s an optional $50/month or bringing your price at $90/month but on top of that we provide a managed service included in the price – We manage your account completely and all is expected from you, the client is to call us. At Bell you get confusing Control Panel and you are on your own but if you require managed service, it’s another $100/month therefore your cost goes to $190/month

Recently we took over a company that was charging $1.99 Canadian for hosting. The company was run by a single person with good intentions however their math did not work as they expected. Their idea was to Rent a very low cost server for $199/month and all they have to do is find 100 clients to break even and everything on top is profit. Sounds good but two problems. The first is finding the bare minimum 100 clients which they did. The second is hosting 100 clients on a server that has less power than a current desktop computer. The previous owner was subsidizing the server for almost a year and not only not making money but  loosing.

Here is a simple math for costs to host 200-250 clients (higher on Windows) without sacrificing performance and customer experience

Server Rental/Lease (Dell PowerEdge Class)  -  $350/month
Rack Space/Bandwidth – $150
Monthly Server Management/ Maintenance/Backup – $100
Control Panel/Billing software lease – $50
Customer Support (1 ticket per customer – 15 minutes technician time per ticket) – $1000
Payment processing/Billing costs – $100

Total cost for serving 200- 250 websites – $1750 – $8.75/client/month break even cost

This is providing that they are all good clients, they pay on time and you don’t have any overdue or unpaid invoices.

So how come there so many companies providing such a cheap hosting? The simple answer is cutting costs or simply no business plan. Some rely on volume making very minimal profit on each client. What do I mean by cutting costs:

1. Slow support or no support or outsourcing the support to a third party company (saving $2 – $3 per client)
2. Lower quality server/bandwidth (potential saving of $1-$2 per client) but sacrificing performance
3. Lowering server maintenance cost ($0.20 -$0.30 per client) but this gives the potential of irreversible disaster
4. Lowering the billing costs by requiring prepayment for 6 months, a year or in some cases for 2 years to get the best deal
5. Overselling the server  (the biggest cost cutting measure by far) therefore significantly endangering the performance of the server.

So, the next time you see $0.99/month hosting think about it and ask yourself the question, what am I sacrificing in order to get this deal.  If you are hosting your personal site or a site that is not really huge deal if it goes down or even worst – disappears, it may be a good deal but if your business relies on it think twice!

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