Pricing Strategies

Find out what your cost of providing hosting service is. How much does a GB of bandwidth will cost you in wholesale and how much do you pay for disk space? These are the main factors on creating a basic price structure. Once you have that information, you will need to put a price on your service and support. You don’t want to give your work away for free. So, it has to be worth something, right?!

With all information at your hand now, you can go and setup a pricing structure and start your business. But wait – that is not everything yet. What about your target group of customers? If you target the lower end of the market, you can’t just place your pricing in the upper range of web hosting. You need to decide, if you rather have 100 customers paying $5.99 a month (=$599.00) or if you prefer to have only 50 customers who instead pay $11.99 per month (=$599.50) for the same package. It might be easier to find 100 customers who want to pay no more than $5.99 per month for web hosting, but you have to put into consideration you also have to support 100 customers then. You need to bill 100 customers and you will need to expect 100 support requests comig in. You need to setup 100 accounts and you will need to monitor these 100 accounts for SPAMMERs or someone doing illegal stuff using your hosting service.

If you decide to go with a higher pricing structure, it might take a little longer to get customers (not everyone is willing to pay $11.99 for webhosting), but from what we have described above, you know you will have less work to do, to get the same money. In the long run you will also be able to support more clients and still increase your income – compared to a pricing structure with lower prices. At one point you would need to hire somebody to help you out with all the support requests. This will put a dent into your income stream for a while until you have caught with new sign-ups.

The next issue is marketing and reputation. If you go into the Dollar store to buy something, you know that everything is dirt cheap. You do not expect the highest quality either – you know it is cheap stuff. The same is true for web hosting. If you compare web hosting providers, you see the web host with lowest the lowest pricing on earth and you see others with much higher prices. Both options get your website on the Internet – but do they provide the same kind of service? Probably not. That does not mean the most expensive web host is the best option, but if somebody can make a living charging that much more money for the same kind of service, customers expect this host to be of higher quality. So, in your case this means that you do want to be the cheapest web host around because people will question the quality of your service. But if you start with prices too high, it will take forever to get clients. Start somewhere in the middle (lower part of the range) and then slowly increase pricing over time once your business has its name out on the street and once you have build up a good reputation. Of course – if your target group is the lower end of the market – go for it and see if it works for you.

Neither of the 2 strategies is 100% wrong or right. You just need to figure out, which one fits your business model best.