7 Things to Consider When Starting a Small Web Hosting Business

Posted on June 20, 2011 by

People start a small-scale web hosting business in various ways. Some establish a small company with a few employees, while others prefer to run it as a single-man company from home. A web hosting business is not for those who want a stress free life and dealing with many clients’ sites won’t be a piece of cake. Web hosting business can be stressful, both for a multi-million dollar company and a single person startup. If you have time restrictions, you shouldn’t come into this business. You should be available 24/7 and many times you may even need to sacrifice social life and holidays if need be. Customers will have problems and ask you to do a few things. Your server won’t have 100% uptime and hackers are busy trying to find holes in your system. A web host entrepreneur never sleeps easy.

You shouldn’t expect to make big money in a short time. Too many Web Hosts become dormant or go bust because they can’t reach the ROI (Return on Investment) for too long. Many of them made mistakes by overestimated the ROI and underestimated the costs. They suffer losses steadily and quietly fold their business. Never make money your primary motivation, because you can be demotivated quickly. To get a decent amount of profit, you need to do a lot of works.

What do you need?

All new entrepreneurs should have some business experience before starting a business. If you previously worked in E-business, web programming/design, ISP and computer sales, you may have a good start. It is also helpful to have experience in legalities, taxes, and accounting. If you’re an entirely tech guy, without any knowledge and experience in business field, you should at least learn basics on management and marketing.

Obviously, technical knowledge is a must. At least, you should know how to install and configure Windows and Linux. You need to have enough understanding on various technical aspects of a web server and related control panel software. If you have some knowledge on HTML and web programming, especially PHP, it would be highly useful.

A Web Host owner should be an avid Internet user and comfortable with working on his business in front of the computer for many hours. A stable and fast broadband connection is also necessary for this business to operate properly.

How to choose a server

The core of a Web Host is the server, which can be owned or leased. Your product is the space on your server. For example, if your server has 5TB of storage, you can split and sell it to hundreds or thousands of customers depending on the plan. The operating system and the web server software may require gigabytes of dedicated space, so if you have only 50GB of space, you should be aware that a large proportion of your space won’t be available for the customers.

If you have an average technical knowledge and start on a budget, it’s a good idea to take on the hosting reseller role. It’s cheap as the reseller account only requires $100 as an initial investment. A reseller manages front-end technical supports for the customers, but will be spared the complicated and high-end technical tasks. Unfortunately, you have little or no control on your customers’ websites. Should the servers go down, you must be able to convince the customers to wait patiently, as there is little thing you can do.  Once you’ve managed to get 100 domains, you should go to CoLo or dedicated servers.

If you’re lucky to have a few more money to spare, you should buy an existing Web Hosting company. You’ll be spared the initial hiccups and get a ready clientele. A reasonable price for a web hosting company should be equal or twice the annual revenue. It’s important to make a simple research to know whether its customers are satisfied, the servers are stable and the technical support staffs are competent.

Remember that the core of your business is the server, storage space and bandwidth. No matter what server you’re purchasing, it should be able to hold up at least 300 accounts. This is an ideal and manageable figure. Never try to cram thousands of account in a single server except if you’re expecting disaster. You should allocate 10% of your bandwidth and storage space for emergency.

This is the equation of available disk space:

Available (scalable) storage space = total storage space – (10% total storage space + space for operating system and related software)

How to choose software

Other than the operating system and web server software, you should also need these control panel, helpdesk, and billing software.

Control panel helps you and the client to automate a number of administrative tasks. Common control panel softwares are cPanel, Plesk, Ensim and Hsphere. You may need to pay $500 to use a control panel on each server per year. Luckily, if you’re a reseller, the cost is borne by the hosting provider. Some control panels don’t come with helpdesk software, so you may need to install Perdesk, Ubersmith, Kayako or Cerberus. This software is essential to help you track and solve issue experienced by the customers. Some control panel software only offer rudimentary billing software, so you may need to use a dedicated one, such as Ubersmith and ModernBill.

How to have a reliable tech support?

Once your web host company is running, you’ll get a few complaints like “my site is very slow” or “my email isn’t working”. Others ask you for assistance like “How do I upload my website” and “How do I get my scripts running”. Many of the questions are quite complex, while others are absurd or simply ridiculous. Make no mistake, if you don’t know how to troubleshoot the server in detail, you shouldn’t go about messing with a server. A little mistake can cause downtime and worse, catastrophic data loss. Many new web host owners learn technical skills by tweaking the customer’s data and the servers. This is a scary fact.

Even if you’re a trained sysadmin and have enough experience in the web host business. It may be a good idea to hire a sysadmin to lighten your workload. Some outsourcing companies, such as Bobcares, have trained engineers that can solve most problems efficiently.

The industry standard expects that a 24/7 technical support can provide a meaningful response in one hour or less. The web hosting industry is a dog-eat-dog world, and often the only way you can stay ahead of the competition is by having a very reliable customer support. If you want to outsource your technical support department, you should perform a survey and check the customer testimonials. Cost is not the only consideration when choosing to outsource. Don’t push unsuspecting clients into technical support nightmare, just because you want to save a few dollars. It is preferable to choose an outsourcing company with international certification such as the ISO 9001:2000 to make sure you get what you’ve paid for.

How to deal with credit card charges
If you want to have a successful web hosting company you shouldn’t limit your clientele only from your hometown. You should expect to get paid by credit cards via online. It is much more convenient to use third party service such as 2Checkout, PayPal, Authorize.net and WorldPay. These services provide a safe way for your customers to pay through a secure online form. A good payment service won’t allow anyone including you, from seeing the credit card numbers.

If your business is located in the United States, the credit card fees are usually between 2 to 3 percent of the transaction amount. Some services may charge you a monthly fee as well. If you’re dealing with international clients, the transaction fee can reach as high six percent. However, in many cases if your transaction volumes go up, the rates may come down.

How to market your business?
Once you’ve started your business, you should market it effectively, so potential customers can see you among millions of web hosts out there. Submit your company’s web site to DMOZ.org, Yahoo!, Hosreview.com and dozens of other hosting directories. It’s a good idea to update your site regularly, which often can attract Google crawlers to visit your site frequently. Make sure your company’s site offer plenty of relevant information and news in the industry. If you’ve enough budgets for marketing, it is a good idea to use PPC programs, such as Overture and Google Adwords, however, web hosting can be a little expensive to advertise, as the cost per click can be as high as $2 or more.

If you have plenty of bandwidth, you can offer discounts to clients who have many online visitors in return of displaying your website’s link on their main pages. This is a good way to attract visitors and generate backlinks from popular pages, an effective way to boost your Google page ranking. In fact, many popular sites rarely pay their web hosting pages, because their web host becomes one of the sponsors.

How to deal with the competition?
There are millions of web hosts right now and many of them are taking the role of the cheapest hosting company. If you can’t handle the competition, then this is not a business for you. It’s easy to get yourself burnt really quickly. Things can be so bad that you can go from being the lowest-priced web hosting company to the most expensive one, in one year if you don’t change your plan.

Many startups go bust because they take a too general role. You should look for a less crowded niche and try to become a strong player in it, for example, video, file-sharing, image or email hosting. By focusing on a single niche, you can develop your brand faster and spend less money and time on marketing. After you are well-established in a single niche, it is a good idea to move to another niche, preferably by using a separate website, as the other face of your company. Don’t expand too fast and make sure you’ve a strong foothold on one niche before going to another.

About: This Article was Contributed by Raja. He is a Web Hosting industry watcher and writes regularly on Dedicated Hosting Reviews and Reseller Hosting Reviews.

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