Pricing Your Services

   Part 3 - Web hosting

Having looked at costing out dial access services and basic operational costs, today, we'll tackle special issue related to Web hosting. The principles are the same, but the details differ.

by Jason Zigmont HowToSell.net [June 25, 1999]

In costing out Web hosting services, you must factor in both the equipment dedicated to the hosting service (mainly servers), and the cost of the bandwidth consumed by your cuctomers—plus the cost of IP addresses used.

[DISCLAIMER: All numbers are chosen for the sake of illustrations, not to accurately reflect current market prices. It is not the numbers that are important, it is the equations. -JZ]

Equipment costs
If a server costs $3,000, and can host 50 virtual domains, the cost per domain/per month is $5—working on a 12 month depreciation schedule.

Here's the math:

• $3,000 /12 months = $250/month
• $250/month/50 domains = $5/month/domain
  

This assumes that all domains get equal shares of hard drive space. If you need to charge more for hard drive space, take the cost of the hard drive, divide it by your depreciation schedule, and then divide it by the number of megabytes in the hard drive. You will see the cost is low.

IP address and Bandwidth costs
Actually, IP addresses are so cheap that the cost for a single IP per month is usually in the penny range, so it's really a negligible cost. Not so for bandwidth.

There are two common approaches to calculating bandwidth costs:
In smaller situations, bandwidth is typically figured per GB (GigaByte) of data transferred. In larger situations, especially with dedicated servers, bandwidth is typically charged per Mbps (Megabits per second) sustained—the way you are billed. Web data, by nature, is a bursty medium. Figuring in GB of data transferred makes it much harder to account for bursts. The Mbps method makes it easier to charge for bursts.

GigaBytes-transferred costing
The first thing you need to figure out is the total GBs of data a single T1 can transfer in a given time period—assuming no overhead or packet loss. (If you have stats for your packet loss or overhead, you can subtract the overhead from the amount of data that can be transferred and continue with the equation.)

A T1 transmits data at 1.536 Mbps (Megabits per second). To translate that to Bytes per second you divide by 8 (since there are 8 bits in every byte), and you find that a T1 can transfer data at 192 KBps. Multiply that by 60 seconds in a minute, times 60 minutes in an hour, and you will find that a T1 can transfer 691.2 MB of data per hour, or 6.589 GB per day. Assuming that your web traffic is evenly spread over a day(which in most hosting situations it isn't, of course) your cost per GB of data transferred—given T1 costs of $2000/month—is just over $4.

Here's the math:

• 1.536 Mbps /8 = 192KBps
• 192 KBps * 60 seconds/minute = 11.52 MB/minute
• 11.52 MBps * 60 minutes/hour = 691.2 MB/hour
• 691.2 MB/hour * 24 hours/day = 16.589 GB/day
• 16.589 GB/day * 30 days/month =497.67 GB/month
• $2000/month/T1 / 497.67 GB/month = $4.02/GB of data transferred.

go to page 2 - GigaBytes-transferred costing, continued