In my last blog post I discussed the gigantic opportunity banging on the door of most webhosts that they ignore while spending their precious time and resources competing for low value clients.
My perspective is simple, focus on e-commerce webhosting where the lifetime revenue per client could easily be $5,000 or more, versus $150 for the average lifetime value of a $5 per month shared customer. Although my idea doesn’t stop at e-commerce, it’s truly about webhosts focusing on higher value/higher margin products in general.
So in my last post I said there are two principal steps to going after the higher end customers and we’ll be focusing on step 1 in this post:
1. Good service delivered on good hardware, consistently.
When it comes to e-commerce hosting, good service received consistently is the key and the only thing that can screw it up is putting it on bad hardware. At the last Parallels conference during one of the keynotes, they spoke about putting 15,000 clients on a single box. Obviously this would be done at the very low end, where some hosts are charging $2 per month for their accounts. However I think that when you look at the performance of a box it’s not the number of accounts that matter but the number of dollars generated per server per month.
In my example here of a mass market host putting 15,000 people on a box at $2 per month, they’re generating $30,000 per month per server. What’s not being discussed is the marketing expense to find 15,000 shared hosting customers. Let’s just say for argument’s sake that you could find customers at a cost of $30 per client acquisition (which I believe is probably low), then in order to fill up your box your client aquisition costs are $450,000 in order to earn your $30,000 per month in revenue.
Take the same box and put 600 e-commerce customers on this box, paying an average of $50 per month to generate your same $30,000 in revenue. However your client acquisition costs may seem higher on paper at $200 each, it only takes $120,000 to fill up this box and generate your $30,000 per month.
In this scenario your e-commerce client acquisition costs are 27% of the costs for traditional low end shared hosting and your customer will tend to last 4 times as long. It’s hard to beat the math on this, on top of all that you only have 600 customers to support instead of 15,000.
So spending more for good hardware, proper backups, redundant connections, and all the trimmings as well as proper US locally based well trained support may seem like an extravagence webhosts can no longer afford, but I argue they’re looking at it the wrong way. Done properly it’s an extravagence you can’t afford to skip.
