Pricing Your Services    Part 1  - continued

So, you want to figure out your projected operational rate. The reason for this is growth. If you have 1,000 users, and a 10:1 ratio, you would have 100 modems. This is great for optimum situations, but lets say you add 100 users that month. Then you would have 1,100 users for 100 ports, therefore a 11:1 ratio. If your optimum rate planned for few if any busy signals (which it should), then your operational rate of 11:1 will cause busy signals—and cause you to loose customers. In turn, your growth rate will drop and your cost of acquisition for new users will go up. This is a nasty cycle you'll be wise to avoid. If you massively exceed your optimum rate, you can end up loosing as many or more than the number of users you added. I've seen it happen.

Easy does it
In order to ease your growth and defray your marketing costs, you actually end up having existing users pay you for adding new users. Going to my last example, you plan on adding 100 users this month, for a total of 1,100, and your optimum rate is 10:1, you should have 110 ports going into the month,—a 1000-user-to-110 modem ratio (roughly 9:1). So if your port cost is $50, each user's share is roughly $5.55—a cost of $5.55/user for PPP access.

This number can of course vary from month to month. I would suggest that smaller ISPs try to plan to have at least 20 percent excess capacity at all times. So if your optimum user-to-modem ratio is 10:1, you should plan your costs on 8:1. After tracking your growth pattern for six months or more, you'll start to learn what modem-to-user ratio is right for your operations.

Tip:
If you use this cost determination method, you don't necessarily have to give the users the break if you find out your costs are lower. I have met some ISPs who automatically drop their prices when their costs go down. This doesn't mean you might not want to drop your prices, it just means think first.

What's the right ratio?
I can't in good faith tell you at what user-to-modem ratio you should operate. It's a sliding scale that factors in size and the service you wish to provide to your users. But here's how to calculate it:

Start off with your RADIUS logs. You need to know how long the average user stays on, how many times s/he logs on in a given day, and when your peak usage is. Then you adjust your ratio, keeping it low enough that users won't get busy signals at peak times.

With some creative setup you can get MRTG to graph how many modems are in use at any time. If you find that your peak usage hours are, say, between 6 PM and 10 PM, you need to look at that 4 hour period in your logs.

Note that I say 'average user.' The line campers who are on throughout your peak hours really mess up your user-to-modem ratio. You need to be sure your pricing and AUP/TOS address this.

If the average user (I am making up numbers, it varies widely) stays on for 24 minutes of peak time, every day, (12 hours/month.) then you have to set aside 24 mins out of the peak time for each user which would give you a 10:1 modem to user ratio.

Here's the math:

• 6 PM to 10 PM = 4 hours of peak time.
• 4 hours of peak time = 240 minutes of peak time
• 240 minutes of peak time /24 minutes per user = 10 user/peak period
• Therefore, 1 modem can handle, on average, 10 users (10:1 modem:user ratio)

These user-to-modem ratio calculations assume that not all of your users call in at one time. The formula above is based on the assumption that all of your ports were used completely throughout the peak period. Since peak time tends to look more like a bell curve, if you want to make sure you have as few busy signals as possible, you need to have a slightly lower user-to-modem ratio.

Those of you with better math skills than mine could probably refine the calculation to correct for the bell curve, which would of course produce more accurate (and useful) results. But this will get you into the ballpark.

—End

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Part 2 - Basic Operations Costs
Part 3 - Web Hosting
Part 4 - Dedicated Access

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