Jul
17
WebhostingBuzz: What is the strategy of this company?
Posted by Administrator
If you want to review WebHosting Buzz: WebhostingBuzz Review
I came across with an insane plane: WebhostingBuzz
They offer crazy amounts of resources for $3/month (5G disk space; 100G bw). I have no idea how these guys survive if ever. I more and more think these companies live on their current cash which is their initial investment for a few years (must have lots of money in the beginning), and they charge $3 just like they could charge $1, wouldn’t make much difference. In the end, they resell the company with lots of customers.
I think this is the only way because let’s say they have 10,000 customers, this means they earn only $30,000 / month for all their bills and expenditures! Impossible…
Our business model is tried and tested. We’re entering our 4th year of business. We have over 10,000 clients and the vast vast majority are very happy with our services.
There’s a bunch of companies that are down to under $5 per month these days for hosting. And I bet their all coders. Kudos to them all for stream lining. That’s also why as an ISP and colo provider, we outsourced our hosting years ago.
Yeah, not bad. Since you opened the door…
Let’s say you average $9/month per customer (triple your budget plan) for 10,000 customers. That would be 1.08 million gross revenue per year. So, with your 58% margin, you’re saying that your expenses, *including* salaries to all of your employees (including yourself and other owners) to support this large customer base (I’ll ignore hardware lease costs that you pay to fortressITX) are only around $550,000 per year, leaving you and your business partner with $600,000 to split, plus your salaries you pay yourselves?
Now, let’s go conservative and say 9,000 of the 10,000 customers are your small hosting plan type. If you pack 500 accounts per server, that would be 20 somewhat high end servers to manage. We’ll estimate each around $200/month. The other 1,000 use up another 60 servers around $200/month as well, for a total of 80 servers at $200/month. That would be $16,000/month or around $200,000/year. That leaves you with $350,000 for all other expenses.
We’ll throw in advertising, office, phone, internet, etc… around $50,000 per year, leaving you with $300,000 for salaries. Let’s say you have 1 support technician per 1,000 customers, that would give you ten employees (not counting any sales staff or billing people). Split that $300,000 ten ways, and each employee is making around $22,000/year after deducting payroll taxes, etc… Cut it to 5 employees and each is making around $45,000/year but each supporting 2,000 clients. If you do this, sure, you could squeeze a nice profit for yourself and the other owners, but the above scenario paints a bleak picture (and one that is highly unrealistic as 10 people total supporting 10,000 customers is stretching it beyond thin).
Maybe you outsource all of your support to cut costs? Maybe you outsource billing these customers also? Maybe you have no sales force? Maybe automated scripts answer most of your support questions 24/7? Maybe you have the secret formula for profits beyond compare in the web hosting industry?
Throwing numbers out that are not realistic will get you some very skeptical looks around here. I’ve only been doing this for 10 years, so my experience is limited, but the math does not support the claim, or paints a workplace that is beyond cheap and ready to collapse at the slightest issue to get a 58% profit margin after salaries.
- John C.