I thought I would share the way we come up with our pricing at powerMonster.net. It may prove helpful to others getting started in the business.

First of all, you want to do the research. You want to research your immediate competitors as well as the "big guys." Not so much as to match their pricing, but to see what the trends are, what is being offered at each price point and to find areas where you can differentiate your service over your competitors.

One piece of advice that I can’t emphasize strongly enough is Do not plan to compete on pricing alone!

Especially if you’re just starting out, you don’t have the purchasing power to compete at that level and you generally you don’t have the finances to operate at a loss until you do.

So here’s how we price our plans at powerMonster.net.

First you have to gather up all of your monthly expenses on a per server basis. Many use total monthly expenses because their server costs may vary from server to server, but our server expenses are pretty consistent among the providers we use. You’ll want to include any possible future expenses that you will be incurring in the near future to prevent having to increase your pricing.

Things you’ll want to think about are:

• total cost of each server
• cost of any licenses on a per-server basis (OS if Windows, control panel, script installers, site builders, LiteSpeed, etc)
• cost of business expenses (divided by the number of servers you deploy) you need to maintain your business (billing software, CC processing, support software, flash tutorials, phone numbers, PO Box for business address, office rent, business licensing (divided by 12), business mobile phone accounts, etc)
• cost of server administration and support staff per server (either outsourced or in-house staff salaries)
• cost of any other staffing needs (even if you don’t have them currently. Think towards the future.)
• cost of advertising/marketing divided by number of servers you deploy (even if you don’t do this right away)
• cost of any other expenses you will have running your business on a per-server basis

Once you are done you should have the total cost of running your business on a per-server basis and can now start to think about your individual plans you want to offer. This is the number you need to bring in each month per server to break even and operate in the black.

When creating plans, you’ll want to think about the following things:

• how many different plans to offer
• how much disk space and bandwidth to offer per plan (need to consider server specs)
• maximum number of accounts per server regardless of package plan (need to consider server specs)
• what features (domains, databases, ftp accounts, email accounts, etc) you plan to offer at each plan level

When determining how many different plans to offer, remember you should always have at least 3 plans (a small plan, a standard plan, and a high-end plan). Less than that doesn’t give your clients much choice or any room to grow and much more than that, you can confuse your clients with too many options.

Now that you have your plans designed, you next need to figure out how much profit you’d like to generate on a per-server basis. You can either use a percentage of cost or a flat rate.

Now take your total cost of each server and add it to your profit margin you determined in the last step. This is how much revenue you need to bring in each month to be profitable.

Now you can start to figure out the pricing of each plan. We always base our finances on the lowest plan that we offer. This way when we sell any mid-level or high-end plans, they just increase our profit margin rather than the low-end plan cutting into our profit margin. We also use base our profit margin off yearly sales rather than monthly, so that if someone opts for monthly billing, we are increasing our profit margin rather than cutting into it with yearly billing.

To figure the price of your low-end plan, take the total cost + profit margin per server , multiply it by 12 (to get yearly cost) and divide that by the max number of low-end accounts you plan to host on the server. The result is what you would bill for one year of your low-end plan.

For example, if our total cost of our server is $500 per month and we wanted to make a 100% profit ($500), the total for each server is $1000 per month. We would multiply that by 12 to get $12000 per server. If we limit the number of low-end accounts to 200, we would then take the $12000 and divide it by 200 and get $60 per account. That’s what we need to price our low-end plans per year.

To get our monthly price for that same plan, you will divide the yearly price by 12 and then add a percentage like 20%, 30%, or 40%.

Using our example above, $60/12=$5/mo, but we want to give the yearly clients a discount, so we multiply that $5 by 40% and add the result to $5 we get $7/mo for our low-end plan.

Now we need to figure out how many plans we need to sell to get to our break-even point. If each of our low-end plans are $60/year and our total cost (minus profit margin) is $500 x 12 months = $6000 divided by $60/year = 100 which is the minimum number of low-end accounts we need to break even on a per-server basis.

Now you will repeat the process with your mid- and high-end plans. Because you won’t be able to put as many of these accounts on the server along with your low-end accounts, they will naturally price higher.

Now remember all of your financial predictions and goals are based on your low-end plan and your goal is first to reach your break-even number and then to proceed to your profit-margin number. But by basing your finances off the low-end plans, any accounts you sell at the mid- or high-end levels will bring you to your break-even and profit-margin numbers that much quicker.

Also as a marketing tip, I would highlight your mid-level plan so as to direct your customers to that plan as your standard offering. That way they have a place to go if that is more than what they want and a place to go if they need more resources. Also by highlighting this plan, you could end up reaching your goals quicker as buyers tend to follow this type of marketing.

I know there are many other ways to come up with plan pricing, but this has worked for us.

If you have any questions, please reply below!

What is the minimum speed to run your own web server to host a website.

Would 1 Mbps upload speed be enough for a web server to host multiple websites?

Would you have any use/need for a service that acted as a hosting continuity service. It would include back-up solutions, website/server monitoring, SMS alerts to customers (could be broken down by server), mass email functionality, temporary live-chat workforce, … all in one ?

Just reading how many people use twitter and such for updating customers. While I think that is fine and easy to use I am not sure about the long term brand/marketing implications. I would not want prospective customers to see me broadcasting about problems/downtime.

If someone already does this type of service all in one feel free to post the link here.

Look forward to your feedback.