Reselling Profit Margins
- Thread starter rocketgirl
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Frank Hagan
New member
Try to establish what gross margin you want to aim for, and then price your offerings accordingly. You can take your basic costs of web space per 100M and bandwidth per GB, for instance, and calculate what the selling price would be for accounts at a 50, 75 or 85% gross margin.
If you are into any kind of niche at all, an 85% GM (or more) is not out of the question. There are other costs that have to be considered, and net profit will be quite a bit lower.
I'm often amazed at how many people how no idea how much margin they have, setting their prices just by a comparison of competition.
If you are into any kind of niche at all, an 85% GM (or more) is not out of the question. There are other costs that have to be considered, and net profit will be quite a bit lower.
I'm often amazed at how many people how no idea how much margin they have, setting their prices just by a comparison of competition.
Frank Hagan
New member
A lot of us are throwing out numbers, and I realize some who say margins are slim may be thinking in terms of net margins, while those of us saying shoot for 100% margins ... I use 85% in my business ... may be talking about gross margins. So here are some definitions and how margins are calculated:
Definition of Gross Margin:
I do a gross margin calculation on each product or service I sell. My overhead is otherwise low, but even so there is a big difference between an individual product or service's gross margin and my company's net margins.
Definition of Net Margin:
The formula for net margin takes into account not only the cost of all goods, but also all other expenses the company incurs:
Net Margin = (Net Profit/Total Revenue)
Where "Net Profit" is the difference between total costs and total revenue. To get the margin percentage, you divide net profit by the total revenue as shown in the formula.
Savvis, a large company that provides hosting for businesses and owns data centers (among other things) has their financial information published since they are public. I don't know of any "hosting only" companies that are also public, but there may be some. It would be interesting to see their 10K reports.
The recession has hit Savvis hard, as their net income for 2009 was -20 million (negative numbers are bad). In 2007, before the recession, they had net income of 250M+.
Looking at 2007, they had 794M in revenue, with 454M in costs, for a GM of 75%. Down at the bottom of the chart, they had 251M in net profit, for a net profit margin of about 32%.
So if you ask Savvis, they could say they have a margin of 75% (gross margin), but there is really only 32% (net profit margin).
(If I've done the math correctly!)
Definition of Gross Margin:
I do a gross margin calculation on each product or service I sell. My overhead is otherwise low, but even so there is a big difference between an individual product or service's gross margin and my company's net margins.
Definition of Net Margin:
The formula for net margin takes into account not only the cost of all goods, but also all other expenses the company incurs:
Net Margin = (Net Profit/Total Revenue)
Where "Net Profit" is the difference between total costs and total revenue. To get the margin percentage, you divide net profit by the total revenue as shown in the formula.
Savvis, a large company that provides hosting for businesses and owns data centers (among other things) has their financial information published since they are public. I don't know of any "hosting only" companies that are also public, but there may be some. It would be interesting to see their 10K reports.
The recession has hit Savvis hard, as their net income for 2009 was -20 million (negative numbers are bad). In 2007, before the recession, they had net income of 250M+.
Looking at 2007, they had 794M in revenue, with 454M in costs, for a GM of 75%. Down at the bottom of the chart, they had 251M in net profit, for a net profit margin of about 32%.
So if you ask Savvis, they could say they have a margin of 75% (gross margin), but there is really only 32% (net profit margin).
(If I've done the math correctly!)
Hosting reselling is indeed a good business, which can give you a good profit every month.
But you should remember one thing that it is not such a business that will start giving you good profits and make you rich over the night. You must have patience and a good support team earn good profits as soon as possible.
Also, do not forget marketing, I would suggest you first target your local market instead of world wide.
But you should remember one thing that it is not such a business that will start giving you good profits and make you rich over the night. You must have patience and a good support team earn good profits as soon as possible.
Also, do not forget marketing, I would suggest you first target your local market instead of world wide.
50% sounds reasonable to me, but obviously the higher the better if your base cost allows you to stay within a reasonable price range for your clients. My current plans are calculated for 30%, but I still realize certain costs I forgot every day so I might nodge it up to 50%.
Also, I want to be prepared for the future. Being a reseller (like me) is generally a lot cheaper than renting or owning your own server. The last thing you want to do is having to increase your prices by 200% because the basecosts of running a dedicated server are 200% higher than your reseller package. I'd rather lower my prices should the dedicated server end up cheaper than expected. No nasty surprises and potentially leaving clients, that way.
Also, I want to be prepared for the future. Being a reseller (like me) is generally a lot cheaper than renting or owning your own server. The last thing you want to do is having to increase your prices by 200% because the basecosts of running a dedicated server are 200% higher than your reseller package. I'd rather lower my prices should the dedicated server end up cheaper than expected. No nasty surprises and potentially leaving clients, that way.
The profit depends on:
1. where you get your services from (hosts charge different amounts)
2. How many clients the customer has that actually pay and stay dedicated to paying.
Them are only a few, there are many different prospecting factors in what decides the resellers profit. There can be some huge profit margins depending on where you get the package and how much you have to pay. Are you overselling or underselling. Its really hard to figure out per host. I don't think they would tell you if you asked either
Just my opinion.
1. where you get your services from (hosts charge different amounts)
2. How many clients the customer has that actually pay and stay dedicated to paying.
Them are only a few, there are many different prospecting factors in what decides the resellers profit. There can be some huge profit margins depending on where you get the package and how much you have to pay. Are you overselling or underselling. Its really hard to figure out per host. I don't think they would tell you if you asked either
Just my opinion.HostingWardJohn
New member
The more that you are willing to spend, the more you are going to be able to make. I would start small with a reseller just to test the waters, and see how you are going to like running the operation. Then upgrade it as necessary, once you have gotten your feet wet.
RobertMaltby
New member
This will be different with every host you ask.
I would say that the Hosting business is so over-saturated with hosting companies that it's ridiculous.. However, you could get started on a good VPS for under $25.00 and easily make $50-$100 on that single VPS. Granted, you would need to have a very good niche / market to offer to.
I have had a great deal of success advertising to my local businesses and doing just fine maintaining a healthy profit margin
XHIServices
New member
I find enticing new customers in with one time discounts works best such as a free month or reduced rate first month
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