Starting a Web Hosting Business
A lot of stuff has been written about starting a web hosting business here on the Web Hosting Resource Kit. A lot of things have been combined into our very own book "The Web Hosting Manager. While the book is aimed at the beginner, it also contains a lot of useful information for the professional who needs a little help promoting his or her existing web hosting business. But what about somebody with enough venture capital available to start a web hosting business from the ground up? Different rules apply and it certainly does not make sense for somebody like that to start with a $25.00 reseller account. But the money shall not be wasted either and if you do not watch your spending, $50,000.00 can be gone really really fast.
So, here is a basic plan of how to start a web hosting business with at least $50,000.00 USD available in funds. We will split the knowledge transfer across several articles. So, make sure to come back and check on how this series of articles develops.
How to Start a Web Hosting Business with $50,000.00 USD available in funds?
The Planning Phase
Planning a new business should be done thoroughly no matter if you start with $1,000 / $25,000 / or $50,000. Having more money available does not mean that you should cut planning short because you can pay for mistakes as you go. Well, the ones that want to pay for mistakes as they go due to bad planning are usually the ones that will fail. Everyone will make mistakes, but it should be a priority to a) avoid them and b) learn from them to avoid making the same mistake twice. For the matter of this series of articles we will plan for 12 months as well as we assume that you have a) $50,000.00 available to invest in your new business + b) having enough funds in addition to that or income / financial support of some other kind to cover your cost of living for the 12 months. Goal is to build a business that will be able to cover your cost of living after 12 months. If your spouse or partner works and you can live of one salary – perfect. If you need to have extra cash, make sure to have it upfront. It takes some sacrifice to be successful.
1) Office location
Web hosting businesses allow the luxury to work from home. All you need is a computer and a high-speed Internet connection. This will cut down on your cost to start your business. Employees can be located at their home once it gets to that point or you can still lease office space as you grow. But signing an expensive lease for office space in the beginning is just a killer expense you do not really need right away.
Cost: $50.00 per month / High-speed Internet
2) Server Hardware
Start with leased hardware. Two servers will be sufficient to get you going. Why not start with buying your own hardware? While owned hardware is cheaper in the long run, the added cost of co-location will cut deep into your budget in the very beginning. You do not have customers at this point and therefore no income. Just expenses. Co-location your hardware does not only mean buying servers, but also means to buy a network switch, maybe a remote reboot console, and maybe a hardware firewall. You should also have a spare switch in place for redundancy. The expense for all this is just not needed at this point. Leasing servers also gives you a better feel on what it takes to work with dedicated servers and to do more research on which co-location provider is best for you. You are not forced to decide right away and maybe make a bad decision that is difficult to reverse.
Why 2 servers? The first server should be dedicated to your business setup only. No customer accounts should be on that server. This is a) for security and b) for stability purposes. You can use the server for backups of the second server though and therefore add more stability to your setup. Looking at providers like ThePlanet.com or Softlayer.com we believe that you can get 2 servers powerful enough for your needs at around $280.00 per month per piece. Make sure that the servers come with RAID1 or RAID5 for redundancy.
Cost: $560.00 per month / 2 servers
3) Server Administration
Unless you are experienced with Linux Server Administration you should outsource this task and concentrate on the business side instead. Providers like Platinum Server Support or Touch Support offer monthly plans for around $30.00 per server. These providers even monitor your servers for you and keep an eye on them 24/7/365. These companies also include the server setup in their services so that you do not have to worry about the initial setup and lockdown.
Cost: $60.00 per month / 2 servers
4) Billing and Customer Management Software
As we are planning this business for the long run, we do not want to limit our growth by starting with a spreadsheet and a self-build sign-up form for billing and customer management. A proper setup now before the first customer signs up, will save you a lot of headaches later on. For this case study we choose one of the market leading software packages = Modernbill. You can choose between recurring (monthly) fees or one-time fees for an owned version. We will go with the owned version and will choose the 500 client package as it gives us a lot of room for growth without the need to worry about upgrading for a while.
Cost: $379.95 one-time / 500 clients
Cost: $79.95 one-time / 6 months support to be covered for a total of 12 months with support (6 months come with the initial purchase)
5) Helpdesk Software
A dedicated, feature-rich helpdesk software will allow to self-serve customers better up to a certain degree. The more you automate and cover upfront, the less your need to spend money on support issues. Keep in mind – support is a cost for you and not a revenue generating piece for your business. Spending money on the right product will be a good investment. For this purpose we choose Kayako’s eSupport helpdesk software. Email-piping enabled and feature-rich – this software will grow with you to become a market leader.
Cost: $299.00 one-time
6) Credit Card Processing Services / Merchant Account
Well, getting customers is one thing, collecting the payments is another. You will need a credit card merchant account. The variety of vendors to choose from is huge and it can depend on your personal credit situation and company setup of how much it will cost you. For the matter of this budget plan we will just pick some average values. Do your research before signing up with a provider. Make sure you budget for fraud protection, too.
Cost: $50.00 per month / $2,000 processing volume / Fraud protection included
7) Other Startup expenses
You got your infrastructure in place, but you are not done yet. Pick your business type. As we are USA based we recommend to look at either a LLC or Inc.! Check with an accountant as needed. The registration / license fees to get registered with your state vary depending on which state of the union you are in. For this budget we use a number of $200.00.
You will also need a website and a domain name. While some website templates can be bought cheap, it would not separate you from the competition. For this project we assume that you can do some work yourself for the customization, but want a good looking framework to start out with and then customize it. Make sure the website is easy to spider for search engines. Stay away from flash-only fancy websites. Provide content and keywords on each page. Build a knowledge base of some sort with valuable -> related <- information.
$750.00 one-time (includes domain name for that matter)
There are probably some other smaller expenses you will experience, but we do not want to go into too much detail for stuff that is considered minor (paper, pen, business cards, etc.). We will budget $250.00 for these items.
Well, you got pretty much everything in place now. Depending on how hard and fast you work, these steps should be able to be completed after 2-3 weeks. You might even be able to do them while you are still employed and earn money from a job before you do the jump into self-employment.
Calculating this out for one-time fees and adding up the monthly to a yearly amount, will give you a better impression of how the remaining budget will look like for the end of the first 12 months in business. So, even if you didn’t do it yet, you already spent almost $12,000.00 to start your web hosting business.
The next article in our new series of "How to start a web hosting business?" will be online soon. Come back and check it out.
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