Yet another post in my little series about getting the most bang for your buck, this time about making money (or not) from offering VPS (virtual private servers) hosting. Just a short introduction to the big bad world of web hosting and how to stand a chance making money with it.

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Table Of Content

An introduction

I have have been hosting websites amongst other things since the good old days of acoustic modems and bbs (bulletin board systems), where you had to dial a regular phone number to connect to a remote computer!

This is a long time ago now and I have always tried to make small resources go further, just because its fun tinkering with hardware and software that way. A while ago I offered hosting on my own hardware at befriended data centres and at some point even from my office through a leased line.

Times have changed and with an awful lot of competition offering hosting at nearly zero cost to a customer, my hosting service has changed somewhat.

Today virtual machines and the ‘cloud’ are en-vogue and thankfully offer the enterprising hoster a way to generate an income. Various control panels and scripts make the job of a sys-admin that much easier but also introduce a lot of pitfalls. In fact, a lot of those ‘rock bottom’ virtual machine service providers are run by people that have no idea what they are doing and usually on dubious hardware and in suspect data centres. (this is based on a few months trying out various providers to see what it is like… quite shocking)

Coming from knitting stuff by hand, I tend to stay away from control panels as the free ones usually make more work then they save me and the good ones cost license fees that erode the already slim profits.

A word of advice

Should you compete with the low-end providers, you need bags of cash, a lot of hardware and solid software. Most of us won’t fit in that category.

Should you wish to compete with Rackspace™ and the like, you need bags of cash, a lot of good hardware and excellent software as well as a battalion of friendly, dedicated and very hard working staff. I hence you won’t fit in that category either.

So where do you fit?

This is for you to decide and I can only give you an example of the route I took: offering a solid, managed service at a price point my customers (small businesses and professionals) can afford.

In other words, somewhere between Rackspace™ and your 99p hoster (that’s a gap as wide as the Pacific -ed).

Try to find yourself a respectable provider (like OVH) and don’t make the mistake of buying the cheapest dedicated box you can find (*cough* Kimsufi *cough*)! Get something that comes with a decent specification but fits in your budget.

Price yourself on service and professionalism rather than features and price point. Fighting somebody on price and features is hard, making a stand on reputation and service much easier.

An Example

One of my servers is rented from OVH and provides me with 16GB RAM and 120GB disk space (on two SSDrives in s/RAID1). Discounting 2GB RAM and 20GB disk space for O/S use, we are left with 14GB RAM and 90GB disk space for our virtual machines.

The maximum users I will host on this server is therefore: 28 (512MB RAM, 0MB swap, 3GB disk space). I’m selling that at a minimum of £9.99 (incl VAT or £8.32 net) per VPS but normally £19.99¹ (net) as a managed service.

At the minimum of £8.32 I stand to generate £232.96 in revenue. Subtract £64.99 for the server (SP 2011 SSD) + £15 for professional usage + £34.99 for 32IPs (RIPE block) over 12 month £2.91 per month, you end up with a total figure of £82.90 net in costs vs £232.96 in income, leaving you with £150.06 net profit.

That sounds good until you add support costs, Paypal charges and other business overheads to that and you pretty much break even depending what customers you have and how much support you are likely to have to give. Plus I spend a fair bit of time improving the software configuration and staying well clear of overselling anything.

£150.06 divided by 28 customers is just £5.36 profit per customer per month. If you set £15² per hour as your base rate, and you just spend a smidgen over 21 minutes dealing with requests every month you start loosing money. Now 21 minutes per customer is quite a lot but if they are having a problem you haven’t seen before you end up spending hours tracking stuff down.

It’s important to remember this folks, otherwise you look at your bank balance and think ‘sweet!’ but work your butt off every day for treading water instead of growing your business. Good support takes time and costs money. It makes customers happy so they stay with you but it is not growing your business (much).

£150.06 net is not to be sniffed at though because at least you are breaking even and can start growing your business. Once you have enough experience, scripts and customers you can start renting more servers and reduce the costs base at some point.

Sadly more servers and more customers mean more support and more overheads, so you will be relegated to watching your margins very carefully and spending more time in spreadsheets than hacking code or getting creative with designing websites!

1 | A managed service means I look after the core software running in the virtual machine. Operating system and software updates, making sure the firewall is doing its job, checking for abuse and malware. Generally an hours work per machine per month.

If all customers were using this service, I’d stand to generate £559.44 in revenue with around £82.90 a month in costs, that’s a nice little profit of £476.54 for 28 hours of work a month. Or just over £17 an hour profit (before tax and other business costs).

2 | You should calculate your hourly rate based on all the costs factors in your business, not what you think you should charge, to calculate this figure properly! I simply wanted to illustrate a point here. Take into account you might need to hire somebody else to look after support, you start loosing money very quickly unless you up your monthly charges or do what a lot of other hosts do and charge per incident (eg. £10 per support ticket outside basic support, some call this ‘remote hands’).

A final thought

I’m firmly looking to stay small and offer vps / web hosting as a ‘valued added service’ in addition to my core service of designing successful websites for freelancers and small businesses. I could raise prices for hosting to recoup some money for managing the hosting side but as long as my costs are covered and I can asure a dependable, speedy service than I shall be happy

Make Money from Offering VPS Hosting

Table Of Content

An introduction

A word of advice

So where do you fit?

An Example

A final thought

Other articles in this series

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