Over Selling

[webling]

I'm a highly technically minded person so over selling bothers me because it requires that we sell more space than we have. I imagine it's because most hosting clients don't use 100% of their space. So I'm trying to wrap this around my thinking and make adjustments in the interest of being successful. I'm seeing web hosts offering 10GB of space for about $3.00. If you are starting out with a 70GB VPS you need to reserve about 10GB of that space for what the server needs leaving you 60GB of space. Technically you can fit 6 clients on that which brings you $18 a month while you are paying for the VPS at about $40 a month. So it seems that the only way to be successful is to oversell. I remember when I was fairly new to web hosting and got a hosting account I was unable to use all my space and I noticed in the control panel that it showed less space than what I paid for. I submitted a support ticket and mentioned this and they changed my space to the amount I paid for.

I'm trying to understand more of the thinking on this because it seems like it's cheating customers to oversell.

 

[SharedGrid]

I understand that you’re comparing the disk space you can offer to other hosts on the market and wondering how to make it work. Starting out can be challenging, especially when it feels like a race to the bottom.

Instead of competing solely on price, consider what will make you stand out. What’s your unique selling point? Could you find a niche? For instance, WordPress managed hosting is popular but crowded. Is there room for you to specialise in something similar? Can you offer better personalised support than other hosts? These are important factors to think about.

You also need to consider economies of scale. While renting a dedicated server may seem more expensive than a VPS, you get more CPU, memory, and disk space. This means your bottom line cost per 10GB package could be lower with a dedicated server. Larger hosts can offer cheaper prices because of economies of scale, and some even oversell.

How long do you plan to stay on a VPS? You could start with a VPS and price your packages at $3.00 for 10GB (or your chosen rate), even if it’s not immediately profitable. Once your VPS is full, you can move to a dedicated server. This way, you can gradually scale up, avoiding the upfront cost of an expensive dedicated server.

Overselling isn't always a bad thing too, as long as you manage it properly.

 

[bigredseo]

Looking at the grand scheme of things, MOST people don't need 2GB of space let alone 10GB. So, if you wanted to stand out from the crowd, advertise yourself as "never oversold" and "realistic resources" or something to that effect. This is how we stood out years ago.

We advertised realistic resources and then capped our server.

In the e-commerce space, we had hosting at $36.95, and we had a maximum of 20 accounts on a server. So for that machine, we brought in $739 and spent $150 to rent the machine giving us a net profit of $589/month. We could never make any more than $589 on that machine - it was now FIXED COSTS and so much easier to budget too!

For our smaller packages (back then it was 1GB of space) for $6.95 and we had a maximum of 100 accounts on a machine - again, we're at $695 - $150 = $545/month.

We had other plans too, but you get the idea. We were able to fix our costs based on hardware and rental fees. We also had some machines that cost us $250/month and $350/month, and to offset it, we either rented out those machines as dedicated servers, or we had higher priced packages. We then had management fees etc that could be added on.

Multiply this out with 10 staff and 400+ server environments (including VPS rentals etc), and life got interesting. At the end of the day though, we had fixed costs for hardware, software, staff, etc. We never purchased a new machine until we needed it, and we were able to offset the costs with just a couple of accounts.

Yes today's world is different, but pay less attention to what others are doing and start looking at what YOU want to get out of it. Focus on your unique selling point. Start with what you need to make, then you can start to figure out what your operating costs are and how much you need to charge to cover costs and actually make money.

 

[upback]

I would not call it overselling. It's just overcommitting resources, which is absolutely normal in the cloud industry.

Consider that cloud providers overcommit hardware resources when they sell VPS's, because statistically nobody is using 100% CPU, 100% RAM and 100% Disk Space. Not overcommitting is a waste of resources, and it's hard to be profitable otherwise.

So, when it comes down to share resources of your VPS, the same logic must be applied. Take into account that you're not just selling disk space anyway, but also CPU and RAM, and while these resources might not be explicitly allocated, are still part of the hosting plan. There are tools to explicitly allocate those resources in order to prevent a single website to consume all CPU of your VPS for example, but still you are overcommiting them.

Of course, the bigger the VPS is, the more customers you have on it, the more overcommitment works better thanks to statistics.

 

[Saranya Subramaniam]

Hi...
Overselling in web hosting is a common practice because most customers don't use their full allocated resources, allowing providers to offer competitive prices. It involves allocating more resources than are physically available, based on typical usage patterns. This helps cover costs and maximize resource utilization. However, it requires careful monitoring and management to ensure performance remains high. Providers should be transparent with customers about overselling and implement fair use policies to prevent abuse. By balancing resource allocation and usage, providers can maintain service quality while keeping prices affordable. Properly managed, overselling benefits both the provider and the customer without compromising service integrity.

 

[Greenhost.cloud]

It's not always about storage capacity; a provider may buy a large amount of storage space on their hosting server. Managing all resources, including storage space, RAM, and CPU, can be crucial. However, in the end, this is a common practice among most providers. While some may offer unlimited storage space, it would be unrealistic to expect unlimited storage space to be allocated for us at a cost of $30.
Finding the right balance between selling and providing quality service is key to being successful in the web hosting industry.

 

[webling]

Looking at the grand scheme of things, MOST people don't need 2GB of space let alone 10GB. So, if you wanted to stand out from the crowd, advertise yourself as "never oversold" and "realistic resources" or something to that effect. This is how we stood out years ago.

We advertised realistic resources and then capped our server.

In the e-commerce space, we had hosting at $36.95, and we had a maximum of 20 accounts on a server. So for that machine, we brought in $739 and spent $150 to rent the machine giving us a net profit of $589/month. We could never make any more than $589 on that machine - it was now FIXED COSTS and so much easier to budget too!

For our smaller packages (back then it was 1GB of space) for $6.95 and we had a maximum of 100 accounts on a machine - again, we're at $695 - $150 = $545/month.

We had other plans too, but you get the idea. We were able to fix our costs based on hardware and rental fees. We also had some machines that cost us $250/month and $350/month, and to offset it, we either rented out those machines as dedicated servers, or we had higher priced packages. We then had management fees etc that could be added on.

Multiply this out with 10 staff and 400+ server environments (including VPS rentals etc), and life got interesting. At the end of the day though, we had fixed costs for hardware, software, staff, etc. We never purchased a new machine until we needed it, and we were able to offset the costs with just a couple of accounts.

Yes today's world is different, but pay less attention to what others are doing and start looking at what YOU want to get out of it. Focus on your unique selling point. Start with what you need to make, then you can start to figure out what your operating costs are and how much you need to charge to cover costs and actually make money.

Thank you! Your information is valuable. I definitely agree about how much space people need. I saw one host offering 10GB for about $3.00/mo for the first year then $10.99/mo after that. I remember my first web hosting account in 1996 was 30MB and costed $30.00/mo now space is so much cheaper. I think most anyone these days can run a site on 500MB unless it's a large business.

 

[bigredseo]

Thank you! Your information is valuable. I definitely agree about how much space people need. I saw one host offering 10GB for about $3.00/mo for the first year then $10.99/mo after that. I remember my first web hosting account in 1996 was 30MB and costed $30.00/mo now space is so much cheaper. I think most anyone these days can run a site on 500MB unless it's a large business.

Yup - I remember back in the 90's with 10 and 50MB as being premium space almost - but then we were also dealing with strictly HTML sites and small images.

Most sites today we see with just a few hundred MB, especially with WordPress sites, but we've also seen what should be small sites of 10-15 pages using nearly 1GB of space. The reason has to do with their images. They take pictures with iPhones and never optimize it, uploading instead a 6000px image. While sure, in their site WordPress will use a thunmail version of 150px, that 6,000 pixel image is still stored on the server and eating up space. Don't even get me started with people wanting a video background image and the video stored in the site

But you get the idea. While others say there's nothing wrong with "overselling", our business model was strictly against it, and we ran a highly profitable company without an issue.

 

[webling]

Yup - I remember back in the 90's with 10 and 50MB as being premium space almost - but then we were also dealing with strictly HTML sites and small images.

Most sites today we see with just a few hundred MB, especially with WordPress sites, but we've also seen what should be small sites of 10-15 pages using nearly 1GB of space. The reason has to do with their images. They take pictures with iPhones and never optimize it, uploading instead a 6000px image. While sure, in their site WordPress will use a thunmail version of 150px, that 6,000 pixel image is still stored on the server and eating up space. Don't even get me started with people wanting a video background image and the video stored in the site

But you get the idea. While others say there's nothing wrong with "overselling", our business model was strictly against it, and we ran a highly profitable company without an issue.

I remember the gopher servers. Text only. Then when HTTP servers entered the arena we began to be able to do a whole lot more. Domain names were expensive also in comparison to what they are now. I could only afford one but now I have several. And VPS is great since I can be as big as life with smaller costs. I remember back in those days, talking to someone at my web host that it would be great to have a script so we didn't have to edit the configuration files manually. They shuddered at the thought and told me it would be a big security issue. But now we have scripts like cPanel, Plesk and others that make life in cyber land easier. I got one of the first Windoze 95 computers and used to run an IRC server on it with a dial up connection. We could do all kinds of stuff back then that we can't do now.

 

[webling]

Looking at the grand scheme of things, MOST people don't need 2GB of space let alone 10GB. So, if you wanted to stand out from the crowd, advertise yourself as "never oversold" and "realistic resources" or something to that effect. This is how we stood out years ago.

We advertised realistic resources and then capped our server.

In the e-commerce space, we had hosting at $36.95, and we had a maximum of 20 accounts on a server. So for that machine, we brought in $739 and spent $150 to rent the machine giving us a net profit of $589/month. We could never make any more than $589 on that machine - it was now FIXED COSTS and so much easier to budget too!

For our smaller packages (back then it was 1GB of space) for $6.95 and we had a maximum of 100 accounts on a machine - again, we're at $695 - $150 = $545/month.

We had other plans too, but you get the idea. We were able to fix our costs based on hardware and rental fees. We also had some machines that cost us $250/month and $350/month, and to offset it, we either rented out those machines as dedicated servers, or we had higher priced packages. We then had management fees etc that could be added on.

Multiply this out with 10 staff and 400+ server environments (including VPS rentals etc), and life got interesting. At the end of the day though, we had fixed costs for hardware, software, staff, etc. We never purchased a new machine until we needed it, and we were able to offset the costs with just a couple of accounts.

Yes today's world is different, but pay less attention to what others are doing and start looking at what YOU want to get out of it. Focus on your unique selling point. Start with what you need to make, then you can start to figure out what your operating costs are and how much you need to charge to cover costs and actually make money.

I got the site redeveloped and it's up now. Your advice went a long way and influenced this new site a lot. Thanks for all you do.

 

[OnTheCloud.co]

You guys must have good luck. We host a lot of large WordPress sites, but @bigredseo is right, a lot of high resolution photos take up space that aren't even being used. A properly developed business site that is maintained by a professional will take up a lot less space than by an amateur.

 

[bubblehost]

Yes, overselling can be quite tricky. That's why I tend going down the self-hosted path personally.
But people have bills to pay unless you are a big company like Hostinger or AWS, where they just have loads of money and still choose to overprice.

 

[webling]

Yes, overselling can be quite tricky. That's why I tend going down the self-hosted path personally.
But people have bills to pay unless you are a big company like Hostinger or AWS, where they just have loads of money and still choose to overprice.

I can compete with any of the big companies. What I'm seeing is that for your first year you really don't make any money. You charge a low introductory price to build your database with clients and add servers as needed. You charge a very low fee and make barely enough to pay for your servers and new servers as you need to add them. It's in your second year that you begin to earn money when customers begin to pay full price.

 

[bubblehost]

earn money when customers begin to pay full price.

What if you never end up changing prices?
With me, I have affordable prices ($3.99/mo), and add promotions on top of that.
So if the full price is $3.99/mo and you end up keeping it like that, surely, you would get more customers and more money, correct?

 

[bigredseo]

your first year you really don't make any money. You charge a low introductory price

Try skipping this part! You don't have to charge a low rate, at any point. Coupons, specials, discounts, bulk purchase - you don't actually have to do any of that either.

Charge a rate you need or are comfortable with, and then that's it. Yes, people want a deal, but they also understand the "you get what you pay for" mentality.

If you target the right niche, you don't need to show rock bottom pricing, or pricing at a loss. Show the product, justify the cost, show why the others are a bad deal, and you'll be surprised at just how many will pay.

 

[OnTheCloud.co]

Try skipping this part! You don't have to charge a low rate, at any point. Coupons, specials, discounts, bulk purchase - you don't actually have to do any of that either.

Charge a rate you need or are comfortable with, and then that's it. Yes, people want a deal, but they also understand the "you get what you pay for" mentality.

If you target the right niche, you don't need to show rock bottom pricing, or pricing at a loss. Show the product, justify the cost, show why the others are a bad deal, and you'll be surprised at just how many will pay.

Conor is right here, you just have to work extra hard by doing sales old school to go out and earn the client's business. I doubt you could do online advertising with this method, unless you already have the client for some other reason. I have lots of shared and reseller clients that have been clients for 20+ years that I acquired via acquisitions over the past 10 years.

 

[bigredseo]

I doubt you could do online advertising with this method

It's time to think outside of the box

Target Web Designers, for example.

When a web designer recommends someone, their reputation is on the line. You, the web host, must be held to a higher standard, as you've got more than your own reputation on the line. Reinforce this message regularly.

Everyone loves affiliate programs, right? Pretty much all the big box places offer a 10% affiliate or something similar when someone signs up.

Now, instead of going with ****, which gives affiliates 10% of $48 ($4/mo * 12 = $48), charge the users $10 or $15 - what it actually costs to run a budget account. Now it's 10% of $120 or $180. Your developers are now getting the following:
$48 = $4.80
$100 = $12
$150 = $18

So, instantly, they're getting more of a kickback. And if that user is on a higher plan, the payout is higher, too.

But wait, there's more!

Web designers generally work with clients for the long term, some for more than a decade. So, instead of 10% of the first year, make the commission recurring annually. And don't be stingy—after all, they've done all the marketing for you to get the client—pay them commission on upgrades, too!

So, the e-commerce account that started out at $10/month is doing better and now needs a larger account at $24 or $34/month. Reward that designer for sending you a high-quality client!

All of the above is how I operated Hands-on Web Hosting. But let's go a step further—don't lock users into one-year contracts, and don't pay commission only once per year.

Set a reasonable payout level at $50. Generate the 10% commission, and when the user reaches $50, they can cash out. Now, you're not losing any money on commissions! So many fear the commission, as you pay out after 60 or 90 days, then the client cancels, and you're left holding the bag. If the commission is paid monthly and kept on hold until they request a payout after $50, then the payout is strictly from income.

If you want, give a signup bonus of $20 when they join the program - that helps them meet their initial payout level faster, but it still encourages them to send at least 3 or 4 customers just to get the payout.

Don't be stingy - pay commission on reseller accounts too, on a VPS, and on dedicated servers. Pay them. They've been busting their ass marketing for you while you took care of support and awesome servers.

You just have to think differently than the mega-million dollar companies. Find the niche and go after it, be it web designers, podcasters, e-commerce platforms, local meetups, agencies, etc - there are plenty of places that have clients that need hosting. You need to market to them, and they'll do all the work for you!

Maybe this needs its own thread

 

[webling]

It's time to think outside of the box

Target Web Designers, for example.

When a web designer recommends someone, their reputation is on the line. You, the web host, must be held to a higher standard, as you've got more than your own reputation on the line. Reinforce this message regularly.

Everyone loves affiliate programs, right? Pretty much all the big box places offer a 10% affiliate or something similar when someone signs up.

Now, instead of going with ****, which gives affiliates 10% of $48 ($4/mo * 12 = $48), charge the users $10 or $15 - what it actually costs to run a budget account. Now it's 10% of $120 or $180. Your developers are now getting the following:
$48 = $4.80
$100 = $12
$150 = $18

So, instantly, they're getting more of a kickback. And if that user is on a higher plan, the payout is higher, too.

But wait, there's more!

Web designers generally work with clients for the long term, some for more than a decade. So, instead of 10% of the first year, make the commission recurring annually. And don't be stingy—after all, they've done all the marketing for you to get the client—pay them commission on upgrades, too!

So, the e-commerce account that started out at $10/month is doing better and now needs a larger account at $24 or $34/month. Reward that designer for sending you a high-quality client!

All of the above is how I operated Hands-on Web Hosting. But let's go a step further—don't lock users into one-year contracts, and don't pay commission only once per year.

Set a reasonable payout level at $50. Generate the 10% commission, and when the user reaches $50, they can cash out. Now, you're not losing any money on commissions! So many fear the commission, as you pay out after 60 or 90 days, then the client cancels, and you're left holding the bag. If the commission is paid monthly and kept on hold until they request a payout after $50, then the payout is strictly from income.

If you want, give a signup bonus of $20 when they join the program - that helps them meet their initial payout

I may have to consider this. I may offer monthly paid accounts also. After almost a month I don't have a single customer. When I ran a hosting company in the past all my clients preferred to pay monthly. I think the yearly numbers scare some people.

 

[bigredseo]

When I'm evaluating a company, for any service, having a short term contract is always preferred. I have no problem paying for 1 month or 3 months to see if it will meet my needs, but getting locked into a 1 year right up front always annoyed me. Sure there are 30 day refunds, but anyone can BS their way past 30 days.

It doesn't really cost you any more money to offer monthly services. Yes there are credit card transaction fees and percentages, but the percentage never changes. So now you're just talking about the $0.35 or $0.45 transaction fee. Write that off as COGS and you have money back in your pocket at the end of the year anyway.

 

[webling]

When I'm evaluating a company, for any service, having a short term contract is always preferred. I have no problem paying for 1 month or 3 months to see if it will meet my needs, but getting locked into a 1 year right up front always annoyed me. Sure there are 30 day refunds, but anyone can BS their way past 30 days.

It doesn't really cost you any more money to offer monthly services. Yes there are credit card transaction fees and percentages, but the percentage never changes. So now you're just talking about the $0.35 or $0.45 transaction fee. Write that off as COGS and you have money back in your pocket at the end of the year anyway.

I started setting up some regular monthly plans to try to keep things simple. I think some people might be scared off with the prices of a yearly plan. I'll see how it goes.