Web hosting profitability: How to fail
The following story is based on actual events. For privacy reasons, some minor details have been changed ...
The hotel conference room in Sydney was packed with local journalists, camera crews, investors, environmental activists and volunteers eagerly awaiting the unveiling of a new initiative by the animal welfare nonprofit to help save the natural habitat of one of the country’s most treasured native animals.
Large screens were mounted in the room and covered with black curtains that were about to be drawn to reveal the new website which was designed to help crowdsource the funding required for this ambitious new campaign.
The engineers were on hand behind the scenes to make sure everything ran smoothly as the spokesperson out front walked the audience through their shiny new digital platform. The home page of the website was ready in the browser and as the curtains were drawn open the cameras starting broadcasting the press conference live on local television. Tens of thousands of viewers in the local region tuned in for this much anticipated announcement that had divided the community in recent years.
At the same time, a major sporting event was taking place on the other side of the planet and the coordinates of a racing yacht were being mapped onto a website every few minutes through a custom application that was communicating via the Google Maps API. This sporting event was being followed by hundreds of thousands of fans around the globe who were leaving thousands of comments on the live blog as the events unfolded.
Meanwhile, back in Sydney the press conference had started well and the presenter was showing off the design and functionality of the new website. As she finished the walk-through of the home page, she gave the cue for the engineers to navigate to the image gallery where photographs of the devastation to the animal’s natural habitat were designed to encourage people to donate to the cause.
As the browser tried to access the image gallery, the thousands of comments on the yacht racing blog overloaded the SQL database on the hosting server and hundreds of websites sharing the resources on that server crashed.
The large screens in the conference room displayed a plain white screen with the words “500 - Internal Server Error” in a large bold font. The presenter fumbled her way through trying to understand what was happening and keep the audience engaged. Viewers across the nation chuckled in embarrassment and changed the channel. Fans of the yacht race took to Twitter to try and get answers and millions of website users around the world were all of a sudden unable to complete their transactions, finish their comments, publish their latest blog post, or submit their enquiry.
The company responsible for keeping these websites online has made a terrible error in judgment. With an eye toward web hosting profitability, they had stacked too many applications onto a shared hosting server and taken a gamble that several of them would not need to scale in use at the same time.
They were wrong and now they were in damage control.
This horror story is just one of many that I’ve been told over the years, and I’m sure if you’ve ever hosted websites for clients you’ve got your own war stories you could share.
Fortunately, these catastrophes are the exception and not the rule. According to Pingdom, the average uptime amongst the world’s top 50 eCommerce websites in 2016 was 99.03 percent.
So let’s avoid the horror stories and explore how you can step up web hosting profitability for your web design business.
But first, why should you consider web hosting profitability at all?
The feast and famine cycle of web hosting profitability
Now is a great time to be in the business of building websites for clients. The internet has been through a growth spurt in the last 10 years and matured into a reliable channel for doing business. The advancements in technology has made the internet a great platform for scaling growth and optimizing profitability.
More and more business owners are moving online and seeking professional help to build websites and market their products and services through search engines and social networks.
However, the rapid growth of online business has presented some unique challenges for web designers, and many of us feel overwhelmed by the sheer volume of work involved in managing projects, meeting client expectations, and keeping an eye on things like web hosting profitability.
Some of these challenges include:
- Scope creep (when the client just wants to add “one more feature”).
- Fixing unexpected bugs in code.
- Wrangling plug-ins that never seem to work as promised out of the box.
- Design revisions (when the client demands their logo needs to be bigger).
- Competing on price.
- Cross-browser compatibility.
- Responsive design.
- Collecting content from clients in a timely fashion.
- Security issues …
And the list goes on.
Perhaps the biggest challenge for a freelancer or web design micro business is managing cash flow through the feast and famine cycle.
The feast and famine cycle is a common term that describes the pattern of winning a client and then delivering on your promise. Typically speaking, while you are delivering on your promise you are not actively filling your pipeline with potential deals, so when you finish the project you need to switch your attention to securing your next client.
You end up spending your time either wondering where your next project is coming from or wondering how you are going to finish the work you have in front of you.
The best way to escape the feast and famine cycle is to build streams of recurring revenue in your business.
Web hosting profitability is the most obvious recurring revenue stream you have at your disposal. It’s something your clients need and they will look to you as their trusted advisor to give them the best solution.
Hosting websites for clients
With the right knowledge and support in place, hosting websites for clients can be a lucrative part of your business and help to fill the gaps between project work. It can also be a technical minefield and can bring your business to its knees if things go wrong.
In this guide, we will explore the different types of hosting products available on the market and outline the pros and cons of each to help you make an informed decision and keep your business profitable.
Specifically, we’re going to look at the differences between the three main hosting services available on the market:shared web hosting (free domain included with the purchase of an annual plan), VPS hosting and dedicated hosting. We’ll also touch on an alternative hybrid hosting product that offers the ability to scale and the ease of use to maintain your profits.
The hosting lifecycle
Shared hosting plans
Shared hosting is the most basic type of hosting you can get. The term “shared” means that your site is actually sharing server resources with many other sites. This shared hosting setup has definite pros and cons, and because it is one of the most common types of hosting plans, it is important to understand these pros and cons.
In the next few sections, we will look at the pros and cons of shared hosting as they relate to cost, performance, security and support. You will find that shared hosting is a great, affordable solution for launching a new website but might not be the right solution for a high-traffic site.
Shared hosting costs
The No. 1 benefit to shared hosting is that it is the most affordable hosting product available, with solid potential for web hosting profitability. This is great if you want to get a website launched without much initial investment. Shared hosting is ideal for clients who are testing a minimum viable product or trying out a new idea.
Addon domains
Some shared hosting plans also allow you to host multiple sites, called “addon domains,” with a single hosting account. This can provide even more toward web hosting profitability since you can host multiple sites for the same cost as hosting a single site.
Many business owners, including new web designers and developers, start off by hosting multiple sites on a single shared hosting plan because it is cost-effective. While it sometimes makes sense early on to host multiple sites or “addon domains” with a single shared hosting account, this is not a smart long-term solution, for both performance and security reasons, which we will explore below.
Pro tip: When pricing hosting for projects, it is best to think of using a single shared hosting account for a single site, even if the plan allows for hosting multiple domains.
Adding client sites to shared hosting
If you are launching a website for a client, you can take two different approaches to purchasing shared hosting plans.
The first approach is to have your client purchase a hosting plan in their name and pay for hosting costs directly. If you take this approach, check to see if the hosting company offers an affiliate program so you can still make some recurring income from the client signing up for hosting.
Is your client using GoDaddy hosting? Sign up for GoDaddy Pro to get delegated access to their account, and earn rewards when your clients buy GoDaddy products.
The second option is for you or your business to purchase the hosting and then charge the client for the hosting at a marked up price, which yields more web hosting profitability.
What about support?
If your client is paying the hosting company directly, you need to educate your client that any support inquiries need to be directed to the hosting company. If you are billing the client for the hosting, then you will be responsible for supporting their hosting. (The upside of providing support is that you can generally charge more and boost web hosting probability.)
The No. 1 takeaway from shared hosting plans is that they are the most affordable type of plan.
You have hundreds, if not thousands, of other sites running on the same server, using the same resources. But while this is affordable, it is not always the best approach from a performance or security perspective, and we will look at those aspects of shared hosting next.
Shared hosting performance
While shared hosting is the most affordable option, it is not the best performing of the hosting options. There is a fixed amount of resources shared across all websites on the server. If all accounts on a shared hosting server try to use their maximum resource allocations at once, there would not be enough resources to go around.
Bandwidth and RAM (memory), in particular, are common constraints for shared hosting plans. Loading a basic website does not take up a lot of resources, but other activities, like eCommerce transactions or processing and analyzing large amounts of data, can take up a lot of resources.
If high-performance dedicated resources are important for the websites you’re hosting, then a shared hosting plan is not the right solution.
If the websites you’re hosting don’t require a lot of resources, or if you’re leveraging caching or optimization plugins on a content management systems like WordPress, then shared hosting might be enough to fit your needs.
Shared hosting security
Security is another area of potential concern when it comes to shared hosting plans. There are three major risks to consider:
- Downtime caused by attacks on the server.
- Hacked addon domains.
- Sharing IP addresses with bad websites.
Let’s start with downtime. Hosting providers like GoDaddy have systems in place to prevent hacked websites from affecting others on the same server. However, if a hacker or bot tries to take down another site by overwhelming the available resources and crashing the entire shared hosting server, then all sites will be affected. (This sort of downtime is usually resolved quickly, but for business-critical websites like online stores, any downtime is significant.)
Hacked addon domains are another risk. Addon domains all share the same hosting account and aren’t isolated from each other. So, if one of your addon domains gets hacked, there is a risk that your other sites on the same shared hosting account could be more easily hacked as well. (For this reason, it is generally a good idea to put each website on its own shared hosting account.)
Shared IP addresses are the third major risk. Websites on shared hosting accounts typically share an IP address with other accounts on the same server. Since an IP address is supposed to be a unique identifier, sharing an IP address makes it difficult for some internet services to tell your site apart from another site.
Let’s imagine that someone was sending spam from an account with the same shared IP address as your client’s website. Mail services might mark any email sent from that IP address as spam. If a site gets banned or blocked for offensive content and shares an IP address with your client’s site, then their emails may be blocked or banned as well.
Let’s close out our discussion of shared hosting security on a positive note. While shared hosting does provide some security risks, hosting providers know that these risks exist and do everything they can to mitigate them. If something does happen, it’s the host’s responsibility to fix the problem. As you upgrade to more powerful hosting plans, some of this convenience disappears — you usually have to implement and maintain more and more of these security measures yourself.
Overall, shared hosting plans have inherent security risks that come from sharing a physical server or IP address with many other sites. On the upside, the responsibility for server-level security maintenance and response falls on the hosting provider to solve — not you.
Many security issues arise because of the website and not the hosting account.
Stay vigilant. Follow website security best practices and proactively monitor for threats.
Shared hosting support and maintenance
Most shared hosting plans come with 24/7 support. If anything happens with your hosting account, or if you just have questions about how to use your hosting features, you should receive quick and helpful responses to your questions.
Keep in mind that hosting providers offer support for the hosting service. Don’t expect support for the software you’ve installed, like a WordPress site, themes or plugins.
As a web professional, it’s your job to know the difference between a problem with a website and a problem with the hosting.
The “invisible” support of shared hosting quietly performs maintenance tasks and fixes things that you might never know about. As you progress to more powerful hosting plans, however, you will need to know more about these administrative tasks.
With VPS plans and Dedicated hosting plans, you’ll need to run regular maintenance on your server, and monitor things like system resources. You might even need to manually reboot your server or individual services if something goes wrong. With shared hosting, all of this is monitored and addressed without you needing to contact support or do anything at all.
Shared hosting could be an ideal solution if you’re just starting to host websites for clients.
Just avoid the temptation of stacking all of your client’s sites on one shared hosting account and hoping nothing goes wrong. Inevitably something will go wrong. Keep each client on their own hosting account.
Once you’re established yourself and you’re ready to scale up your hosting business, you might want to look at upgrading to a Virtual Private Server (VPS).
VPS hosting plans
VPS (Virtual Private Server) hosting plans are the most common step up from shared hosting plans. As with shared hosting, multiple VPS accounts are usually running on a single physical server. Unlike shared hosting, however, a VPS comes with dedicated resources that can be adjusted to meet your needs, including web hosting profitability.
The “virtual” in VPS means that it looks and feels like you have a server all to yourself.
VPS hosting is more powerful than shared hosting, and you have more access to the configuration and inner workings of the server. In the next few sections, we will look at the pros and cons of VPS plans, as they relate to web hosting profitability, performance, security, and support.
VPS costs
VPS hosting plans cost more than shared hosting, which can cut into web hosting profitability. You can expect to pay anywhere from 2x to 10x the price of a shared hosting plan. The primary reason for the increased price is that you are getting a more powerful product, with resources like RAM and CPU power dedicated exclusively to your hosting account and not shared with any other customers.
Hosting providers usually provide several different levels of VPS plans. (GoDaddy offers four options.) You usually pay more for additional disk space (storage), RAM (memory), and CPU cores (processing power). Other features might include dedicated IP addresses and unlimited bandwidth.
When assessing which VPS plan to pick, you need to determine exactly how much RAM or CPU usage you need.
In some cases, you might need more of one resource, like RAM, and not as much of another, like disk space. This is largely dependent on the type of websites you’ll be hosting.
Sub-accounts on VPS
Most VPS hosting plans allow you to create sub-accounts. Each of these sub-accounts operates like a shared hosting account. So, if you decide to provide hosting (and hosting support) to your customers, you can set up each customer with a separate account of their own.
Unlike addon domains in a shared hosting account, these VPS sub-accounts are isolated from each other, each with their own configuration and set of credentials.
It’s not uncommon to have a variety of VPS accounts configured for different use cases, and assigning clients to a sub-account on the VPS that they’re best suited for.
VPS performance
Performance improvement is one of the main reasons people upgrade from shared hosting to a VPS. With shared hosting, you share resources with every other shared hosting account on the server. With VPS, these resources are exclusive to your account.
If you’re hosting high-traffic or resource-intensive sites, you should use a VPS.
If you’re hosting a website that experiences spikes in web traffic, your VPS will be able to absorb the load. (Somewhere between 2GB and 6GB of RAM will likely provide enough to handle a fairly high-traffic site.)
If you’re hosting a website that processes a lot of data or makes heavy use of applications installed on the server, the dedicated CPU and RAM will keep everything running quickly.
VPS plans also grant more access to server configuration. This allows you to make further optimizations particular to the types of sites you’re hosting. This may involve adding certain caching methods, making database optimizations, or even changing the software running on the VPS.
Lastly, most hosting providers will let you easily upgrade or downgrade to larger or smaller plans without affecting your site or requiring major migrations, allowing you to increase and decrease resources as needed.
VPS security
The security of a VPS account depends largely on three factors:
- Security measures handled by your hosting provider.
- Account-level security measures managed by you.
- The level of security on the websites you’re hosting.
Major VPS hosting providers like GoDaddy have security measures in place to protect their servers. These might include firewalls, security monitoring, or proactive mitigation and recovery from certain types of hacks or attacks. It is also possible that these services are available for an extra fee, depending on your host.
It is also possible, depending on your VPS plan, to manage various security measures yourself, though it will never be at the same level as a Dedicated server. (More on that in a moment.) You might be able to install anti-malware software, for example, but it’s unlikely that you’ll be able manage firewall settings or directly control port usage yourself.
If you require specific security measures, or if you have any questions about the level of security provided with VPS plans, check with the hosting provider. Be aware of what security measures they’re responsible for, and know what you need to monitor and address yourself.
Unless you are a security expert, it is a good idea to invest in additional security coverage for your VPS accounts.
VPS support and maintenance
VPS support levels vary depending on your hosting provider and specific VPS plan. An “unmanaged” VPS plan, for example, might not provide much help in terms of support. However, most VPS accounts today are what are called “managed” VPS. They come with the same level of support you would get with a shared hosting account. Some VPS providers might also provide different levels of support depending on the plan you choose (e.g. Managed versus Fully Managed).
The other important consideration with a VPS is how much of the typical server maintenance you have to do on your own, and how much the hosting provider will do for you. Check to see which tasks you’re responsible for, and which tasks will be taken care of for you.
In general, hosting providers assume that if you choose a VPS account, you likely know more about managing a hosting account than if you choose a shared hosting plan.
Nonetheless, you should still expect 24/7 support with your hosting account if you choose a managed VPS plan.
If you choose an unmanaged VPS account, be prepared to install and manage certain software or services on your own without much help from your hosting provider. This environment is meant to give you a more “dedicated” account, which might or might not be what you want. If this is not what you want, make sure that your VPS account comes with the software and managed services you need.
You have more control with a VPS, but there are still limits to what you can do.
Since VPS accounts do not usually come with complete root or admin-level access to your server, you might need to contact support to have them perform some tasks for you. For example, it may be possible to open up a certain port or tweak firewall settings. If you regularly need to make changes to your VPS that require this root or admin-level access to your server, then a VPS might not be the right choice.
Since several VPS accounts run on a server, some access and configuration capabilities are restricted. If the level of access a VPS provides is not enough to make the performance optimizations you need, then a dedicated hosting plan is the better option.
If a VPS does not prove to perform or is not customizable enough for your needs, then you will want to look at a dedicated hosting plan as the next option up from a VPS in terms of potential performance and customizability. If your site does not get high traffic or require intense processing power, a VPS is probably more than you need from a performance standpoint.
In summary, a VPS is a more flexible and powerful option as you begin to scale up your hosting business, however it will require a more advanced skill level to administer and manage, so be prepared for the learning curve.
Now let’s take a look at the big shot of hosting plans: a dedicated server.
Dedicated hosting plans
Dedicated hosting is the most advanced type of standard hosting you can get. With a dedicated server you have a physical machine entirely to yourself, an important consideration to measure web hosting profitability.
Dedicated hosting is sometimes referred to as “bare rack hosting” since it basically gives you access to a server, and nothing else. Dedicated hosting is preferable when you want to install and control all of the software, services, and security measures for a hosting account all on your own.
When choosing a dedicated hosting plan, you usually get more options over the specific type of hardware used for your plan along with the actual allocations you get. Over the next few sections, we will look at some of the pros and cons of dedicated hosting to help you access when it is the right solution for your project.
Dedicated hosting costs
When you look at web hosting profitability, dedicated hosting plans cost more than VPS and shared hosting. You can often spend up to several hundred dollars per month for dedicated hosting plans. There are no other customers sharing the hardware, so the cost of maintaining the server falls entirely on you.
The price difference between different levels of dedicated hosting plans usually reflects how the server is configured. This includes the type of CPU, the number of CPUs, the amount of RAM, and the amount of disk space you need. (As you probably expect, having an entire server to yourself means the level of available resources is much higher than on a VPS.)
Be prepared for much higher costs with dedicated hosting plans.
Pricing is also determined by the level of server management offered by the hosting provider. “Managed” or “fully managed” dedicated hosting plans typically included software, services, and support bundled into the price. For “unmanaged” dedicated hosting plans, you might also need a budget set aside to hire a server administrator to manage the server for you, and a budget for server software licenses like WHM or cPanel.
Dedicated hosting performance
Performance is the major advantage for dedicated hosting, as opposed to web hosting profitability. You’re getting more powerful hardware and exclusive access to all resources on the server. But it’s not just the hardware and resources that lead to better performance. The real performance gains are often in the configuration of this hardware and additional services and software layered on top of it.
The level of access you have on a dedicated server lets you make optimizations that aren’t possible on VPS or shared hosting.
To fully benefit from these gains you either need to make the optimizations yourself or hire a server administrator to do it for you. This isn’t a one-off fix, either. Optimization usually includes several different steps and, oftentimes, ongoing monitoring with occasional adjustments made over time.
If you are looking for the best performance possible, and have the budget and time to invest in setting things up, a dedicated hosting plan might be the right solution for you. However, to make the most of the dedicated hosting performance, you or someone on your team need to know what they are doing.
Dedicated hosting security
When it comes to a dedicated server, security is a double-edged sword. On the one hand, a properly configured server can be incredibly secure. On the other hand, if security isn’t handled properly, a dedicated server can end up less secure than even a shared hosting account.
The benefit of dedicated hosting is that your account is isolated from other hosting accounts. (It’s running on a standalone machine.)
While this can help prevent other sites from affecting yours, you do have to take extra security precautions if you are using a dedicated hosting account to host multiple sites on a single server. You will want to follow industry best practices for making sure that those accounts are properly isolated from one another so an attack against one does not detrimentally affect other accounts on the server.
Dedicated servers are tailored to users who are familiar with server management. So if you’re not using a managed service with your dedicated server, the burden falls on you to implement important security measures like firewalls, permissions, monitoring services, and more.
When considering an unmanaged dedicated hosting plan, make sure to consult with the hosting provider and a third-party security expert. And as with all hosting plans, an insecure website can open security holes unrelated to the server setup itself.
Dedicated hosting support and maintenance
Dedicated hosting plans have become a common solution for hosting high-traffic sites or complex web applications. The people responsible for managing these sites and apps aren’t all server administrators. That’s why managed plans are common options for dedicated hosting.
For example, GoDaddy’s managed and fully managed plans for dedicated servers include additional security features, backups, software patching, server monitoring, migrations, and support.
So how do you know which plan to go for? Know your requirements, such as those for web hosting profitability, and capabilities beforehand. Make sure you understand exactly what you need, and compare it with what’s offered. (If you’re not sure, contact your hosting provider and ask for guidance.)
Let’s say you’re working with someone who knows how to configure and manage a server. You might not need to contact support very often, and they might prefer root-level command line access over the web interface that comes with a managed plan.
If you have someone on your team who can manage a dedicated server, that’s great. If not, use a managed or fully managed plan, or opt for a VPS.
Let’s talk web hosting profitability
As we mentioned at the beginning of this guide, building websites for clients can be a feast-and-famine type of business. One of the challenges of running a small web design shop is managing the cash flow between projects, and you’re constantly juggling “doing the work” with trying to “get more work.”
Offering hosting services to your clients is a great way to fill the gaps with recurring revenue from web hosting profitability, and there are a couple ways to approach it: you can own the hosting accounts and charge a margin on top, or you can let the client own the account, and you charge for support and management services.
In either case, make sure you protect your profit margins and charge for your time. You’re a professional providing valuable services to your clients. That’s why they’ve hired you. Regardless of what type of hosting they’re on, you’re still doing some level of work.
Which hosting plan is the right fit for your clients?
Let’s recap the three most common types of hosting covered in this guide: shared hosting, VPS hosting, and dedicated hosting.
Shared hosting has a low cost and is going to give you the best profit margins, but it will restrict you in terms of how you can scale your hosting business. Performance wise an OK fit for the most basic of websites, but it can’t keep up with resource-heavy websites that get a lot of traffic or do a lot of heavy lifting (e.g. eCommerce).
VPS hosting is a better-performing solution, but it’s going to cost significantly more and require a lot more expertise (i.e. more of your time) to run effectively versus shared hosting.
Dedicated hosting is the most expensive and most complicated to manage. It’s also the most powerful. It’s a good fit for major websites or web applications, but it’s usually more than what an average website needs.
Managed dedicated hosting is going to give you the best performance, but the high cost and increased complexity will squeeze your profit margins and consume your time.
So, which one is right for your clients? To determine the answer, you need to know:
- The resource requirements of your client’s site.
- What they’ll manage vs. what you’ll manage.
- Their monthly budget for website expenses (including hosting and your services).
Pro tip: Roll your hosting support services into a larger maintenance plan to boost your revenue and build a stronger client relationship.
Unless you’re working on a massive website or web application, chances are dedicated hosting will be overkill for your client — and cut into web hosting profitability. So we can remove that from the list of options.
If your client has a tight budget and a very simple website, then shared hosting might work. But it doesn’t take much to start feeling the resource bottleneck, especially during hours of peak traffic when the servers are under heavy load.
You could put your clients on a VPS hosting plan, but then you’re stuck dealing with more complicated management tasks. To protect your margin, you’ll either need to up your price or invest time in learning how to manage a VPS. (Time that’s then taken away from other, likely more profitable work.)
Wouldn’t it be great if there was a sweet spot between the two options? Something that was as easy to use as shared hosting, but with the performance of a VPS?
That’s where the hybrid solution comes in.
Web Hosting Plus is the sweet spot for web hosting profitability.
It’s a special type of hosting plan exclusively from GoDaddy. Web Hosting Plus combines the dedicated resources and performance of a VPS (or dedicated server, for higher plans) with the easy-to-use cPanel interface of shared hosting, all at a great price.
GoDaddy designed Web Hosting Plus for web professionals who need powerful hosting, but aren’t interested in learning server management. GoDaddy takes care of all the performance, security, and support.
And that’s where this all comes together. With Web Hosting Plus added to the mix, you’ve got an ideal setup for providing hosting services to your clients that fit their budget while also protecting your profits:
- Own the business hosting account yourself? Add a margin and charge for it.
- Client owns the account? Manage it via GoDaddy Pro and charge for your time.
- Work on your client’s site without worrying about performance or resource limits.
- GoDaddy will handle the security, support, and server optimization.
So whether you’re building a business site with WordPress, an online store with Magento, or a custom CMS of your own design, Web Hosting Plus will let you get it up and running while saving you from the burden of server administration.
Sound good?
Give it a try: Sign up for GoDaddy Web Hosting Plus.
