How Reselling Hosting Is A Great Agency Growth Hack
Hosting your customers’ websites yourself seems to be an opportunity to convert one time projects into a constant stream of revenue. If you are thinking about it: Don’t do it. Reselling hosting is much safer and a great growth hack, especially for agencies that have more time than money.
It’s the moment of truth: The project handoff. It probably is the last chance for you convert a one-time customer into a long-term client, generating a steady revenue stream for your business. Especially in web design follow-up contracts are very popular. And if you offer a maintenance or support service, hosting will most probably be one of its components.
Over the years I have seen many agencies that either host their customers’ websites themselves or use root servers that need manual configuration and maintenance. And don’t get me wrong: These agencies definitely had the resources and expertise to do so. But, should a web design agency really focus on configuring and maintaining servers? From a business perspective the answer has to be “No”.
Hosting Customer Websites Yourself Is Dangerous
There is good reason why there are companies dedicated to doing nothing else but offering web hosting services: Providing fast, secure and stable servers is difficult. And for everyone who is not a hosting company it’s also dangerous. As an agency, you should not worry about uptimes, reachability, updating servers etc. You already have enough on your plate supporting your customers, ensuring their success and acquiring new projects.
As you know, most hosting companies offer so called Service Level Agreements (SLAs) regulating all the aforementioned points and guaranteeing a specific quality of their hosting and support. If you host yourself or don’t have such an agreement, you are at risk of being held responsible for downtimes, server problems etc.
Transfer as much liability as possible to your hosting provider
Managed hosting providers will offer you a plethora of services including updates for the important software packages of your server (for example PHP and MySQL) but also updates for your CMS and sometimes even managed backup solutions, performance optimization and development tools.
Managed WordPress hosting companies for example offer managed servers and updates for WordPress, WordPress plugins and WordPress themes. The hosting provider will basically cover the whole maintenance process for you.
If possible, you should outsource as many service tasks to your hosting provider as possible. This will not only reduce your agency’s liability but also save a lot of manual work, time and money. If your hosting provider does not offer the corresponding services, you should definitely do some research.
Reselling Hosting as A Growth Hack for Small and Mid-Sized Design Agencies
Now let’s jump into the really interesting part of the article and talk about revenue. Reselling hosting, instead of doing it yourself, is a very easy way to generate reliable monthly recurring revenue (MRR).
An example: you built an online shop using WordPress and the WooCommerce plugin set and were able to close a follow-up maintenance contract. The service you provide includes WordPress, plugin and theme updates for the following year. Let’s say the contract states that you will need two hours a month for those tasks and every hour is billable with €65.
At the end of the year you’ll have earned €1,560 in MRR, €130 each month. If you pay your hosting provider to update your client’s website for you, you will probably pay around €30 a month for the hosting and the update service. That way you will generate €1,200 a year, literally doing nothing.
And let’s say you did not only close one, but ten identical WordPress maintenance contracts. This leaves you with a steady €1,000 MRR.
Managing Servers Is Expensive
If you hosted these website yourself, you’d not only lose up to two working hours per contract but would also have to add the running costs for a functioning hosting infrastructure.
For this example let’s calculate with 100 theoretical WordPress websites:For this example let’s calculate with 100 theoretical WordPress websites:
MRR reselling hosting: + €10,000/m
Lease for the server: – €150/m50%
system adminstrator: – €2,500/m
MRR – hosting costs: + €7,350/m
As you can see you will lose 2,650€ MRR, if you decide to host your customers’ websites yourself.
Over a whole year you will lose €31,800 of your €120,000, just by hosting the websites yourself. And that’s not even all of it.
Because in this scenario you must provide the WordPress maintenance services yourself. That results in 2*12*100 working hours that your agency will have to spend on updating WordPress websites. This will result in opportunity costs of €156,000 each year (given that you bill the hours with the aforementioned €65). And that is even more than your 100 WordPress maintenance contracts will generate in one year.
As you can see reselling hosting services makes much more sense than hosting websites yourself. Not only can you drastically reduce your agency’s liability towards your customers, you also have much more resources to spend on your core business––which is creating great web projects for your clients.
In case you already are hosting your clients’ websites, you probably want to gradually migrate your projects to a hosting provider with a good reselling program.
The Three Things You Need for A Successful Reseller Project
To set up a working “reselling machine” you will need three things:
- A hosting provider that offers bulk discount and/or an affiliate program
- An optimized handoff process
- Excellent communication channels with your hosting provider
1) Reselling Programs
In order to generate revenue with reselling web hosting you don’t need an official reseller or white label program. Basically all you need is bulk discount. Just include web hosting in a service or maintenance fee, which you then sell to your customers. In this scenario, you will of course have to manage the billing process.
If you don’t want to bill too many customers yourself, you can also profit from your web hoster’s affiliate program (if he offers one, which he definitely should). This will however take a bit more effort from your side, since you have to convince your customers to trust another company.
Being an affiliate will also result in less revenue, depending on the affiliate system your hosting provider offers. If that system is based on one time commissions, you also won’t be able to generate a constant and stable revenue stream.
2) Handoff Process
What you basically need to do is to utilize the handoff process as an up-selling opportunity. If the project you hand off was successful, the preconditions for closing an additional deal will be quite good. Your clients trust you and know that you sell them quality work.
From my experience the matter of additional support and services arises at some point before the actual handoff. If you can (and want and see that your client needs such services) you can bring it up as early as in the project’s original paperwork.
I closed most of my follow-up contracts after the first few feedback cycles or in the final pitch, where I also presented my recommendations for hosting services, e-mail providers, web designer colleagues etc.
Make sure to have some kind of document ready that explains which services your client will and will not need and which of them you can provide after the initial project has officially ended.
3) Communication with Your Hosting Provider
Reselling hosting is a scenario with a longer chain of communication as if you were hosting your client projects yourself.
Therefore the response time of your provider is absolutely crucial. If you can, try to sign a service level agreement (SLA) that guarantees you a certain response time and support availability but also regulates downtime limits and of course compensation in case of a contract breach.
Also make sure that you yourself have a plan in case of a support emergency so that you are able to react fast and efficiently.
Wrapping up: Professionally Managed Hosting Can Be A Growth Hack for Your Agency
As you can see, managed hosting––if done properly––saves time, money and even generates a constant stream of recurring revenue for your agency. Hosting your customers’ websites yourself on the other hand always means additional costs and much time spent on issues that are not your agency’s core competence. Additionally, an own hosting server means much more liability towards your customers’ websites.
Especially as an agency executive you should focus on acquiring new clients, sharpening your agency’s profile and leading your company into the future. So, if you are indeed facing the decision whether or not to also manage your customers’ hosting: Think twice, do the math and keep your eyes open for a hosting provider that not only offers you special discounts but also additional tools that help you streamline your agency’s processes.
If you are currently hosting your customers’ websites yourself, I’d say: Carefully assess whether or not reselling hosting is the better option. Because remember that you are probably losing time and money with your agency-owned hosting server.
Reselling hosting can be a great growth hack, especially for smaller and mid-sized agencies that have more time than money. And a “reselling machine” can even help you streamline your sales and production processes if your hosting company offers enough professional webdesign and development tools.