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As someone who has been in the web hosting industry for years, specifically WordPress hosting, it made me think. If people understand the economics of web hosting companies and how they really work, will their expectations change? Or will they still go after cheap Word Press hosting providers?

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There are many myths and misconceptions about web hosting and it's really hard to know the truth. Most inexpensive Word Press hosting companies rarely share or never share behind-the-scenes information with their customers about how their system works or what is really included in the $ 5 monthly bundle. But if you take some time and read the policy and every fine detail, you will know that there is no such thing as unlimited bandwidth or disk space, because it is simply not possible.

Today I will talk about how web hosting companies work, why some are charging very expensive prices and how they are actually earning their money. Some answers may surprise you.

Break the web hosting industry

Host companies are mostly like other companies, with gross profit limiting the number of people they can hire among other things. Below I will detail some of the costs and expenses that a typical hosting company has.

Average cost of goods sold (30%)

For most hosting companies, the average cost of goods sold (servers in data centres) is about 30%. This leaves 70% of every dollar they bring in to pay employee wages and everything else.

Marketing expenses (10% estimate)

If the company is still trying to grow (and hopefully it will be), another 10% or so will go towards marketing expenses. After all, the hosting cost of a client is actually one of the highest costs.

If you go on a pay-per-click (PPC) path, a bid on a keyword like "web hosting" can cost up to $ 20 per click with Google ads. This can vary depending on the number of impressions, how much you want to be shown to appear at the top of the page, and for how long. If you are a venture capital funded company, you may not care, but if you are a start-up or seeding company, then this requires being creative.

CPC "Web Hosting"

Due to all the competition, trying to rank organic with the SEO for the term "web hosting" might take years. We're definitely a fan of the organic approach along with content marketing, but it's a long-term game that requires consistency and patience.

You will also need to be willing to pay thousands of dollars to create evergreen content that will compete in this place. A well-written technical article of at least 2,500 words can easily cost $ 1500. Trying to outsource cheap content to places like I Writer simply won't work. You will need to spend some time looking for freelance writers and experts in their work and employment. This can take months or sometimes years.

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The cost of getting a client in hosting is actually one of the highest costs.

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So marketing and COGS (servers and infrastructure) alone mean that only 60% of every dollar a hosting company brings is available to pay salaries and all other expenses.

Number crunching

Suppose you decide to go with cheap WordPress hosting and you pay them $ 10 a month ($ 120 a year). They've been told by their marketing version that they're great, they have 24/7 support, and phone support, and you expect the experience to be like most of the other companies you do business with. You can call GEICO, Anthem, AT&T or Verizon and they're not amazing but they finally fix things in your fight with them.

The difference is that you don't pay them as little as $ 10 a month, and support agents don't cost them almost, because solving a problem with your cell phone bill can be solved by someone who earns $ 40,000 annually, and doesn't require a software engineer.

Let's take a look at the numbers in a nutshell. If you pay the host $ 10 a month ($ 120 a year), and a good system administrator costs $ 100,000 a year including benefits, how many clients only need to cover this employee?

The answer may surprise you. It's not 833, because 833 x $ 120 = ~ $ 100,000. This assumes that the company does not have any cost for goods sold or marketing, but remember that the host company in this example has a 30% COGS, a 10% marketing budget, and thus only 60 cents of every fetch dollar available for employee payment.

Using the above assumptions, the real answer can be found with some simple math.

$ 100,000 = X * 120 * 0.6

$ 100,000 = 72x

1,389 = X

 By solving X above, we find it roughly equal to 1,400 customers. So, for every 1,400 customers for $ 10 a month, a hosting company can afford to hire a system administrator who already knows what they're doing. Or think about it this way, if 1,389 clients pay $ 10 a month each ($ 120 a year), equivalent to $ 166,680 in annual revenue and after 30% of the cost of service (servers) and marketing at 10%, The company is left with $ 100,000 to cover the cost of the salary, including benefits.

For every 1,400 customers at a cost of $ 10 a month, the hosting company can hire a system administrator. 💻

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But how does the system administrator, the type that can fix any crazy hosting problem that arises, handle about 1,400 technical problems for clients? The answer is that they cannot.

This doesn't even represent the fact that real businesses have other costs of using their gross profit minus marketing, for things like:

Founding payment or levels c

Rent and staff

Bandwidth costs and hosting infrastructure (Premium Layer Network)

Develop complex analyses of records handling, receiving, and processing (flexible)

Transaction email services

CDN integrations

Support and ticketing systems like Interco.

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