15+ Years Experience
How to Start a Web Hosting Business
Let Two Industry Veterans Guide You to Success.
13+ Years Experience
Trey: I have been in the web hosting business since 1999. I have worked for or have helped to build 8 web hosting companies including; iPowerweb, iPage, StartLogic, Dot5Hosting, Globat, Lunarpages, Hostpapa and GreenGeeks. My primary role in most of these companies has been in the sales and marketing of the hosting services we have provided, which includes the reseller program manager for several of these companies. I have also held executive positions in Quality Assurance and Operations.
I would like to talk with you about marketing and sales acquisition strategies for those of you looking to start a web hosting company. I have been around the block a few times and I have helped grow a company from 1,000 customers to over 250,000 customers in just a few years. I have also seen how poor decision making at the senior level has stymied growth in some of the other companies I have worked for. Before I continue I'd like to introduce my business partner and COO of GreenGeeks, Kaumil Patel. He's the one that makes sure that everything works right for our customers once they get here.
Kaumil: Originally starting out as a web developer and running several successful web projects, I decided to get involved in the web hosting industry in 2001 at the young age of 16. It's safe to say that I have grown up with the web hosting industry. I have held positions in sales, billing, technical support, abuse, system administrator, network administrator and even data center technician. I've also been involved in acquisitions, mergers and have extensive experience with account migrations.
With over 12 years of experience, I will provide some insight on the operational foundation that your web hosting business will need to ensure its long-term success.
COMPANY GOALS & MARKET SHARE:
Starting a small, midsize or large hosting company.
Trey: So the first thing I would ask anyone who is looking to start a web hosting business would be; what is the goal of starting this company? Are you a web developer who wants to make some extra money and retain your clients by offering them hosting with your web design service? Are you looking to have thousands of clients and have this be your sole source of income, or something in between. Knowing the answer to this question will help you study the next important question: Is there a share of the market you believe you can acquire?
Knowing if there is market share and how you will develop customers is vital to how you grow your web hosting business. You may already have many potential clients lined up, say for instance if you are a web developer, and the clients you've built sites for come to you for updates. You bill them for the updates, why not bundle that service with web hosting that you provide, make more money from your existing clients and keep the business closer to you. This would be my example of a smaller hosting company.
Kaumil: And for smaller hosting company goals our reseller hosting is a great option. It's easy to use and easy to setup and if you need help migrating hosting clients over we can help you do so for free. You will get access to web host manager (WHM) which is a very popular control panel where you'll be able to create and manage your clients web hosting accounts. Your web hosting clients will have their own cPanel control panel, which is the most widely used and most stable control panel in the hosting industry.
You'll be able to set packages and limit features and sell your own unique web hosting packages. The best thing about our reseller hosting is that you do not have to worry about the technical stuff such as how to setup and manage a server, or dealing with system administrative responsibilities. GreenGeeks takes care of that for you. You will be able to create 10 accounts on our sprout package which works out to $1.99 per website per month and as you grow, the price per website comes down to $0.40 cents.
When you have time you can see our reseller plans.
Trey: Now if you're not a web developer and say you want to own a particular part of the market, what part of the market will you go after? After all, there are many types of ways to go to market to acquire new customers. So, let's take customers that use WordPress as a type of market to go after and let's take a geographic location like Dayton OH. (for the sake of argument Dayton is where you live and work and you are also a WordPress aficionado).
Say you know a lot about WordPress and you want to build a web hosting company catered just to those customers. You'll be competing with a ton of competitors, including GreenGeeks as we offer WordPress as one of our scripts, as well as many hosting companies which are solely geared toward WordPress sites. You are going to run into some headwinds in terms of growth due to competition. Going after strictly WordPress sites is not an impossible goal for gaining success but you'll need to be strategic in how you go after these clients.
Now say you want to build a web hosting service that offers all the main features as other shared web hosting companies, not just WordPress, and you want to keep your focus on Dayton because you know the local market and you believe you can drive local businesses to your service. The population of Dayton is around 140,000 people and if we say conservatively 5% of businesses and individuals have websites there are 7,000 potential customers. You may have local competition and you most certainly will have global competitors but you could carve out a good piece of the market for yourself by promoting your hosting company in the local market.
Now, let's think outside the box, you live in Dayton but you're also a WordPress expert and you think you can offer exceptional WordPress Hosting to people and businesses in Dayton. WordPress is a widely used content management system, so we'll say 20% of customers need WordPress hosting and in Dayton that means there are potentially 1,400 customers. You've reduced the potential customer base from 7,000 to 1,400, BUT, if you are the expert in the area you could grab a larger percentage of the 1,400 customers than you would of the 7,000 all around web hosting customers.
By focusing on not just the WordPress or Dayton market, but by combining the two you have a higher potential to acquire customers from an albeit smaller but more focused market share. This allows you to concentrate on the features which your potential customers will be looking for and it allows you to focus your marketing budget towards acquiring those customers saving you money and increasing your ROI.
If you acquire say half of the 1,400 WordPress customers in Dayton you'll have 700 clients which if you bill them at $10 a month, you'll have $7,000 a month coming in. To make more money you can have a higher monthly cost (I've seen $30+/mo in some cases) or you can expand. Let's say the WordPress + Dayton offer worked, what about WordPress + Ohio. You are still local because you are in Dayton but with Ohio's 11 million plus residents and using the same metrics of 5% have websites and 20% of those use and need WordPress hosting then you could have upwards of 110,000 potential clients.
Quick Note: The web hosting business is seasonal. After you read the rest of this page I would encourage you to go to my KB article on how the seasons affect new customer acquisition in the web hosting marketplace.
Learning about the market you want to go after is essential, but you dont have to know from head to toe every marketing niche you want to go after from the start. I have found success and hard work breeds potential including things you had never thought of before. When I started GreenGeeks we offered shared and reseller hosting. We found out early that some clients outgrew their CPU usage, their sites were just too strong to be hosted with other shared clients because they ate up the resources that all our shared clients use. We needed a higher level plan to accommodate these stronger websites and decided upon VPS hosting services.
I was nervous about VPS hosting services because I had marketed for a couple companies who didn't know what they were doing with VPS. Kaumil convinced me that not only could we do it properly but also that there was a strong market for those services and it would allow our customers with high usage sites to stay with us. We started offering it, worked through the kinks everyone experiences at the start of a new venture/offering and today it is one of our strongest service lines.
WHAT SERVER TYPES YOU MAY NEED:
GreenGeeks options that are available to you.
Kaumil: As Trey mentioned in his example of Dayton, the growth potential is high, but is not going to happen overnight, so how do you set up your infrastructure to support growth without breaking the bank? You have several options:
A common question after upgrading from our standard reseller platform to VPS/dedicated is how many customers per plan can I host. Our reseller hosting gives you a limit of accounts that you can create, so that's a no brainer but when you.ve outgrown the reseller platform, it's no longer that clean cut, but i still easy to manage. The truth is, there is no set number. It doesn't work like that. It depends on the type of customers that you acquire, what kind of websites they are running, etc. You have to manage your computing resources, I.m talking about CPU, memory, disk space and bandwidth. When you reach a certain threshold, let's say 70-80% utilization of your resources, you simply purchase another VPS or dedicated server and begin to provision new accounts on that server, you keep repeating this as you grow. So when you have 1000 customers, you may end up looking like this:
- Reseller Hosting: This would be your starting point and would support you up to 250 customers through a very seamless upgrade process. While you would be in control with what kind of resources and features to offer your customers, you would be ultimately be limited by what comes standard on most shared or reseller hosting services. For example, we do not offer Ruby on Rails on our reseller hosting platform and therefore you would not be able to offer this as it is not available. Reseller hosting with GreenGeeks starts from $19.95 per month allowing you to host up to 10 customers and goes up to $99.95 allowing you to host up to 250 customers. This allows you to keep your costs minimal while you grow your customer base.
- VPS Hosting or Dedicated Servers: After surpassing 250 customers, you will need to upgrade to a virtual private server or dedicated server which will be your first real step into the wonderful world of web hosting. You will be able to have full control over your environment and so if you wished to offer Ruby on Rails, you could. You also would not be limited to the number of accounts that you could create as you would have dedicated resources available to your customers. GreenGeeks virtual private servers start from $39.95 and can go up to several hundred dollars for our high end dedicated servers. We could also build custom configurations to meet your requirements.
server1.yourhost.com - 250 accounts
server2.yourhost.com - 200 accounts
server3.yourhost.com - 300 accounts
server4.yourhost.com - 125 accounts
server5.yourhost.com - 125 accounts
Placing more or less customers per server depends on the computing resources that you have and the utilization threshold that you set. After a few servers, you will have a better understanding of your averages which can be used to optimize your servers even further. Setting up your customers split across many different servers versus on one large server also ensures that your customers are spread across different hardware. If there is ever a server interruption or peak period, not all your customers are affected.
With this being said, the best way to get started is to start with a reseller hosting plan, focus on growing your customer base and then start to branch out with a virtual private server or dedicated server. The beauty of our system is that we allow seamless upgrades, so as you grow your business we will be able to assist you with migrations and upgrades to ensure that you have the capacity to keep growing.
END CLIENT COMMUNICATIONS:
The importance of comprehensive communication with your clients.
Trey: Ok, you have found your ideal customer base and let's say that is WordPress + Dayton, you'll want to build your web hosting business presence around that so you buy a domain name related like: DaytonWordPressHosting.com or something to that effect which tells people right away what your business does. You start to market your services and you begin to acquire customers.
The essential part now is making sure that the clients remain with you for many years to come and that means you need to have comprehensive messaging to the client about how they get started, where they go to login to their accounts and how they build new sites using WordPress or upload their existing sites to you. Without a strong, comprehensive, instructional welcome email these new clients can get lost, frustrated and leave. Kaumil and our support team have drafted and redrafted our welcome and client information emails to make sure that they cover everything these new clients will need.
Kaumil: You.ve got to realize that not every customer is going to be technically inclined and that this is going to be their first time even attempting to have a website so clear and easy to follow welcome instructions are integral to the long-term success of your web hosting business. When constructing our welcome emails at GreenGeeks, we have 4 main sections that we focus on which make it easy for customers to get done what they need without the intervention of support.
This e-mail is never set in stone. It is an evolving piece of literature based on the feedback that we see from our customers. We are always on the look out for issues that can be addressed in the welcome e-mail.
- Introduction - This is where you'll thank them for their business and re-introduce your company and the product that they have purchased.
- Account Information & How to Login - This is where you'll list the login credentials and how they are able to log into their account and begin using it.
- Supplemental Information - This is where you'll provide any service specific information. It can be anything, such as how to setup e-mails, how to take advantage of the special offer that you included or in the case of our WordPress + Dayton example, you could include specific information relating to WordPress.
- Support / How to Get Help - Customers will get frustrated and lost. Don't make it frustrating for them to find out how to get help. Let them know how they can contact you, where their can obtain self-help articles, etc.
Client Feedback And Customer Retention.
Trey: I think it should be a no brainer to anyone when I say; gaining clients is far more fun than losing clients. You might think, "well ya duh Trey" but I have got to tell you losing clients can be catastrophic to a web hosting business.
I remember back in 2002 I was transferred a call from someone looking to sell his web hosting business. This was not a small business that he wanted to sell, they had over 30,000 clients and they were losing those clients in droves, the person on the other line was completely distraught.
He was having major server issues (which happened more frequently in the early 2000's) and could not stop the flow of customers leaving him, primarily I found out later from some of those same clients, because none of them knew what was happening. Their sites were down, there was no update on the hosting company website, the phones were jammed so no one could get through, no one was giving them a straight answer by email and no time of resolution and so they left. To them this was a nameless and faceless company that did not care about them when those clients. were having issues.
So we learn from this, at least I did. One of the first things I did at GreenGeeks was to make sure that my personal business email was on our site so that if someone needed to go beyond customer support to vent or praise they could do so directly to me. Over the years I have found this extremely useful to know my clients. mindset and to have a more personalized company. My clients appreciate it and it helps to make sure that they know that we care about our clients.
I would recommend this approach to anyone starting out your web hosting business to either have the top person or the top manager in the company offer the ability for your clients to get to you if they need to. In addition to this we take periodic surveys of our clients, asking how we.re doing and if there is anything that we can do better, which again helps keep our finger on the pulse of those clients and what their needs are.
Kaumil: A good way to keep in touch with customers is via Social Media. Having a Social Media presence such as a Facebook page or a Twitter account will allow you to interact with your customers directly where you'll receive both positive and negative feedback.
While we as a company and practically every other business in existence strives to ensure that every customer is satisfied, it is not always possible. Negative feedback can be devastating to your business especially via social media, but only if you allow it to. Negative feedback can be actually be positive. How you ask? Simple, you are gaining insight into potential issues that exist in your company that you will now know about and can fix. You'll also be able to communicate to the customer and resolve the issue publicly which shows potential customers that you actually care about your customers and business.
Social Media can also be used to announce new features, upcoming maintenance and service announcements. It keeps your customers in the loop. Everyone knows word of mouth is the most powerful advertising method around, well social media is word of mouth on steroids.
Trey: I love the web hosting business. It is a growth industry, tens of thousands of business and personal websites go online each week and if you can gain part of the market share you are going after you should have a profitable business. Remember to have good communication with your clients and good messaging on your website about what services you offer. If you work hard at starting your web hosting service and follow these guidelines you should do well. Good Luck!
Kaumil: For me, web hosting has been a great business to be in and it will continue to be. Like Trey, I love it and am very passionate about helping developers, individuals and small businesses realize their dreams online. Provided that you take the time to properly implement a strong foundation that is built for growth like we have mentioned, it can be a great business for you as well. We work with thousands of resellers every day to help them achieve success with their web hosting businesses and we can help you do the same. GreenGeeks can be your partner to success in the web hosting business.