Pricing Your Services

   Part 1 - Dial Access Basics

To set the right price on your service offerings, you've gotta understand your cost structure—not necessarily an easy thing for ISPs to get a handle on. Here's one way to figure it.

by Jason Zigmont HowToSell.net [June 18, 1999]

I 'm not an accountant but here's my carefully considered outlook on how to price. Calculating costs and determining pricing can be difficult for ISPs, yet clearly it's crucial for the longevity and profitability of your company.

Ideally you would make profit on everything that you sell. In the real world, profit is not always the direct goal of every business transaction. You may price one item at or below cost because you need to acquire a critical mass of sales of that product. In the Internet business, it's a popular practice to sell dial-up at break-even—or even at a loss—to make money when the company is sold.

One trap you certainly don't want to fall into is mindless price wars with your competitors. Your competitors may have a different cost structure. They may also be selling at or below cost in order to acquire as many customers as they can.

Who are your real competitors?
First, you need to make sure that the people you are pricing against are truly your competitors. In other words, you choose who your competitors are. If you are an 'A' level company, with 'A' level service, price it at 'A' levels. If you are a 'B' level company, with 'B' level service, price at 'B' levels. If your competitor is truly a 'A' level service, but is charging 'B' level prices, either their costs are artificially low, or they are not making sound business decisions. In either case, they're risking failure. If they're pricing artificially low, they'll have to struggle when they go up. If they are making bad business decisions, they are going to hang themselves.

Tip:
Determine your costs and pricing before you look at your competitor's pricing. If after you've done this you find your competitor's pricing is lower then yours, you can adjust yours slightly. Remember. In multiple polls of what business users really want, price ranked below both quality of the network, and quality of service.

• Dial-up access (56k or ISDN),
• Web hosting (both virtual and not) and
• Dedicated access (point-to-point, and frame 56k and up.)

The remainder of this column will address pricing for dial-up access. We'll look at the other categories in succeeding weeks.

[DISCLAIMER: All numbers from here on are chosen for the sake of illustration. It is not the numbers that are important, it is the equations. -JZ]

Pricing Dial-up
The first step in determining costs for dial-up access is determining the PPP access cost.

If you don't outsource, you need to figure out your own port access cost before you can determine your PPP access cost. Best choice here is to hire an accountant. The rest of this column is for those of you who choose to go the outsource route.

If you are outsourcing dial-up, you either pay per user or per port. If you are paying per user, you automatically have your per user cost for PPP access. If you're buying per port, then you need to figure out your optimum and operational user-to-modem ratios.

The optimum ratio is the user-to-modem ratio you'd have if you were not growing and had the exact number of users per modem you want to operate at. There is a trap here. Unless you have capped the number of users you serve, replacing the ones you lose as you go, you will NEVER be exactly at your optimum rate.

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