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Question for lowendtalk/box providers: What's your margin?
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Question for lowendtalk/box providers: What's your margin?

ditlevditlev Member, Top Host, Host Rep
edited March 2021 in General

Hi Guys,
Quick question/poll - what's your gross margin?

Like, when you sell a $5-10 VM to an end user/business, what's your profit in % as defined here: https://www.omnicalculator.com/finance/margin

Are you willing to share?

:)
D

What is your Margin?
  1. My margin is44 votes
    1. 5-10%
      22.73%
    2. 10-20%
      11.36%
    3. 20-30%
        4.55%
    4. 30-40%
      22.73%
    5. It's complicated / I am not sure
      38.64%
«1

Comments

  • what's your margin then?

  • ditlevditlev Member, Top Host, Host Rep
    edited March 2021

    @notarobo said:
    what's your margin then?

    Happy to share!
    Though, for software it is easy. Our gross margin using the calculator linked would be +90%. But that is because all of our cost are in staff/salary. So that would not hit the gross margin.
    Our NET margin, ie. EBITDA of OnApp as a company would be +20%.

    Thanked by 2notarobo Daniel15
  • ditlevditlev Member, Top Host, Host Rep
    edited March 2021

    Another interesting point would be here: https://www.sec.gov/Archives/edgar/data/1582961/000119312521055798/d898181ds1.htm
    The very recent S1 from Digital Ocean. They claim to be at +50% margins, though I haven't been going through their depreciation/amortisation principles.

    EDIT: It seems they are spreading out the cost of a server over 5years. That is quite aggressive, when I ran UK2Group we only did 3years for servers, but more for network/DC infrastructure.
    All that will help push up the Gross Margin of Digital Ocean.

  • @ditlev said: when you sell a $5-10 VM to an end user/business

    $7

  • 1000%

  • I think there should be another option for negative profit margin. Don’t believe me? Take a look at the offer section 😅

  • @seriesn said:
    I think there should be another option for negative profit margin. Don’t believe me? Take a look at the offer section 😅

    It's also possible that some of the hosts you think aren't sustainable are in fact sustainable. I don't claim to be an expert but I imagine renting/buying 5-10~ year old e5 servers isn't as expensive as the ryzen servers you offer.

    Another factor which I am more certain of is the costs for support. (Or wages in general) Recently, we are starting to see a lot more Indian providers in the low-end communities. Indian education has been trying its best to get a slice of the "IT" pie in recent years. The average Indian sysadmin/software engineer etc. is not that great, but they are getting better. And they are dirt cheap.

    https://www.payscale.com/research/IN/Job=Systems_Administrator/Salary
    https://www.payscale.com/research/US/Job=System_Administrator,_Computer_/_Network/Salary

    The average salary reported on payscale for sysadmins in India is 5.5k USD vs 61k in US. I imagine that for hosts with smaller client bases, it's possible their support costs more than hardware/licensing etc. But in countries like India, it's the opposite. Support is really, really cheap. Obviously I don't work in any of these low end providers, but I do suspect some of them hire remote support/sysadmins from poor countries and that's how they save on costs. They could hire Indians, Chinese, south americans, east europeans, southeast asians etc.

  • I would say that the resellers are making more profits than the hosts from they are renting their servers.

    Thanked by 1ditlev
  • @smallbibi said:

    @seriesn said:
    I think there should be another option for negative profit margin. Don’t believe me? Take a look at the offer section 😅

    It's also possible that some of the hosts you think aren't sustainable are in fact sustainable. I don't claim to be an expert but I imagine renting/buying 5-10~ year old e5 servers isn't as expensive as the ryzen servers you offer.

    Another factor which I am more certain of is the costs for support. (Or wages in general) Recently, we are starting to see a lot more Indian providers in the low-end communities. Indian education has been trying its best to get a slice of the "IT" pie in recent years. The average Indian sysadmin/software engineer etc. is not that great, but they are getting better. And they are dirt cheap.

    https://www.payscale.com/research/IN/Job=Systems_Administrator/Salary
    https://www.payscale.com/research/US/Job=System_Administrator,_Computer_/_Network/Salary

    The average salary reported on payscale for sysadmins in India is 5.5k USD vs 61k in US. I imagine that for hosts with smaller client bases, it's possible their support costs more than hardware/licensing etc. But in countries like India, it's the opposite. Support is really, really cheap. Obviously I don't work in any of these low end providers, but I do suspect some of them hire remote support/sysadmins from poor countries and that's how they save on costs. They could hire Indians, Chinese, south americans, east europeans, southeast asians etc.

    I don't know if this is the case, but some countries have huge subsidies or discount for the technology sector and for earning foreign exchange. This has enabled them to operate at loss.

  • I don't know if this is the case, but some countries have huge subsidies or discount for the technology sector and for earning foreign exchange. This has enabled them to operate at loss.

    I know there are subsidies for things like software licensing and "business" laptops for SMEs. There may be other subsidies that outright subsidize a percentage of your operating costs. Only someone who is from the regions mentioned would know for sure.

  • seriesnseriesn Member
    edited March 2021

    @smallbibi said:

    @seriesn said:
    I think there should be another option for negative profit margin. Don’t believe me? Take a look at the offer section 😅

    It's also possible that some of the hosts you think aren't sustainable are in fact sustainable. I don't claim to be an expert but I imagine renting/buying 5-10~ year old e5 servers isn't as expensive as the ryzen servers you offer.

    Another factor which I am more certain of is the costs for support. (Or wages in general) Recently, we are starting to see a lot more Indian providers in the low-end communities. Indian education has been trying its best to get a slice of the "IT" pie in recent years. The average Indian sysadmin/software engineer etc. is not that great, but they are getting better. And they are dirt cheap.

    https://www.payscale.com/research/IN/Job=Systems_Administrator/Salary
    https://www.payscale.com/research/US/Job=System_Administrator,_Computer_/_Network/Salary

    The average salary reported on payscale for sysadmins in India is 5.5k USD vs 61k in US. I imagine that for hosts with smaller client bases, it's possible their support costs more than hardware/licensing etc. But in countries like India, it's the opposite. Support is really, really cheap. Obviously I don't work in any of these low end providers, but I do suspect some of them hire remote support/sysadmins from poor countries and that's how they save on costs. They could hire Indians, Chinese, south americans, east europeans, southeast asians etc.

    There’s a reason why we see so many Deadpool’s here, because most never does this math before hand.

    So that’s where an extra bit of analysis comes handy.

    Business profit = Total income - (Cost of good + Operational cost)

    Basic/standard operating cost that are almost constant, no matter where you are:

    • Processor fee: Which is around 5-12% per transaction.
    • Cost of IP: ~0.30/month/IP (even if you own your range, there’s an annual fee to maintain).
    • Cost of software stack= +-$10-12/month per server.
    • If you are legitimate business and you actually made profit, tax on that profit.
    • Salary of the owner (your ideal one man shop still gotta eat).

    I will use RAM as the limiting factor, since that usually is.
    I am also assuming there’s no hardware overselling in place.

    Let’s assume, you are able to score a major deal with a vendor and got yourself a sweet deal on the HW, or running on HW from gandpas era, or “dead stock” Where your cost per 1GB ram before either of the above expenses are around $0.50/month. Now remind you, that is assuming you got the cheapest, most awesome deal you could find on colo, power and running on 100% cogent.

    Add cost of IP on top of that.

    That business religiously promotes $12/year deal with the above 1GB ram spec.

    PayPal with micro transactions fees takes away ~0.65 in fees.

    Your gross income on that sale is $11.35 or approximately $0.94/month. Cost of IP and basic hw subtracted, a “far stretch” would be, ~$0.14/customer.

    Let’s say you had a beefy hw with 256 GB a ram and cram all those into one box (Oh god!), with a server at its full capacity, you are bringing home $35/month.

    Alright. That’s not bad! $35/month in some of the low income content isn’t bad!

    Hold on!
    An average college grad in India with a super basic job brings in $250/month (I am talking about call center type of job).

    So even if you were an one man shop, running all on your own and assuming you aren’t around 24/7 (right?), just to bring home a minimum wage, you need at least 7 full nodes with approximately 1500 or more active paying customers.

    All those assuming you are offering piss poor hw, shit to no customer support and actually continue to manage to keep and attract more customers, despite the above 2.

    ——-
    My above example doesn’t even include the cost of additional support staff, cost of home internet and rent (for home) or cost of living.

    I have tried my best to dumb it down but the above example is probably your best case scenario.

    So what happens? Provider starts running Ponzi scheme. Next sale to pay for the first one and so on, till one day, they are at the edge.

  • ditlevditlev Member, Top Host, Host Rep
    edited March 2021

    All good points - I guess I was being fairly focused on the part that are pretty much alike for all of you/us: Cost of infrastructure+management tools.
    As soon as you have to take all costs into account the calculation gets hairy as they are very different depending on the type of business you run, the segments you address and required service levels that applies.

    Though, most of LEB/LET is based around the +/- $5 /GB/mo mark. Some a bit lower, others higher. And I am guessing that the gross margin on that is 5-20% once hardware/colo/bw/power is paid/depreciated. And possibly even less if you are leasing dedicated servers. Am I way off?

    Oh, and I think there is a large portion of providers who never actually does the maths, or who falls into the ‘Ponzi Scheme’ that @seriesn describes above.

    Others do a great job at upselling higher-margin products incl. backups, control panels etc.

    Thanked by 1seriesn
  • deankdeank Member, Troll

    You are basically asking how their sex lives are at random strangers.... on a road to a grade 9 school.

    Thanked by 2ditlev seriesn
  • ditlevditlev Member, Top Host, Host Rep

    @deank said:
    You are basically asking how their sex lives are at random strangers.... on a road to a grade 9 school.

    LOL

  • @deank said:
    You are basically asking how their sex lives are at random strangers.... on a road to a grade 9 school.

    I do the Sex 10 times a day bro. Palmela and Handelina are my go to bro.

  • NoCommentNoComment Member
    edited March 2021

    @seriesn said: So what happens? Provider starts running Ponzi scheme. Next sale to pay for the first one and so on, till one day, they are at the edge.

    You're mostly right, and it is a tight ship these guys are running but it's not as bad as the examples you've given. With 2+GB plans, these guys pay less on IPs. The smallest plans are usually just there to pay their bills. It definitely is possible to get ram for less than $0.50/month too. During black friday/christmas there was a provider who did $15/year on a 2 GB plan and they sold a lot of it in many locations. It was also e5 v4 cpus I believe, so only around 5 years old.

    Then you also have some colocrossing hosts who have been running for a long time now. It probably is possible to get better deals than $0.50/GB ram if you rent at scale with colocrossing.

    @ditlev said: Though, most of LEB/LET is based around the +/- $5 /GB/mo mark. Some a bit lower, others higher.

    Unfortunately, $5/GB/mo is somewhat expensive imo. We have been spoilt by some of the better hosts around here. If I could get a 1 GB vps at nexusbytes for $3.20/month or $3.50 at buyvm, why would I/anyone pay $5/month anywhere else especially in this low-end market? They would only do so if they have very niche requirements eg. location

    Thanked by 1seriesn
  • seriesnseriesn Member
    edited March 2021

    Not going to argue on this as obviously everyone has their own things. Some runs hosting as a side gig. Some offers safe heaven for spammers. End of the day, how does one pay their bill is their own business and not mine.

    But, here's a but, if you take time reading some of the folks that you mentione and their offer thread or even customer experience, you can clearly see how in most and almost in every cases, the customer is told to f off and they should just accept shitty service because it is cheap. Or they should not expect any support because they just ran a promo and overwhelmed by the sales.

    Imagine you walk into a restaurant where the food is super cheap. Horrible quality. But at the same time, they throw the food at you for you to catch and eat, instead of serving it. Person behind the register gives you attitude, as if they are doing you a favor by taking your money. God. I should stop going to Mcdonald's.

    One can easily read the reps tone, where they not only sound burnt out but you can almost sense the frustrations in their responses.

  • deankdeank Member, Troll

    @Ladydoc had a margin of 25 cents per account.

    Take that in.

  • ditlevditlev Member, Top Host, Host Rep

    @smallbibi said:

    @ditlev said: Though, most of LEB/LET is based around the +/- $5 /GB/mo mark. Some a bit lower, others higher.

    Unfortunately, $5/GB/mo is somewhat expensive imo. We have been spoilt by some of the better hosts around here. If I could get a 1 GB vps at nexusbytes for $3.20/month or $3.50 at buyvm, why would I/anyone pay $5/month anywhere else especially in this low-end market? They would only do so if they have very niche requirements eg. location

    I guess, if price is ALL that matters then you are right. Though, I’ve hung out here enough to know that the first thing you see after a new offer goes life is a bunch of benchmarks being posted from buyers. So I guess that while price is important, performance does matter as well, no?

  • deankdeank Member, Troll

    Lowend customers want the world for a price of a single peanut.

    Don't take them too seriously. Those people are just a stepping stone to the bigger pool.

    Thanked by 1seriesn
  • NoCommentNoComment Member
    edited March 2021

    @ditlev said:
    I guess, if price is ALL that matters then you are right. Though, I’ve hung out here enough to know that the first thing you see after a new offer goes life is a bunch of benchmarks being posted from buyers. So I guess that while price is important, performance does matter as well, no?

    What I meant to say is that there's reputable providers who are known to provide good service and are highly unlikely to deadpool. If you could pick between reputable providers that sell $3+/GB or the big names eg. digitalocean/vultr etc. (who also sell $5/GB) or a relatively unknown provider on LET, the choice is obvious.

    And let's get real here. Most LET users don't need performance. They just like to see nice numbers on their benchmarks

    Thanked by 1seriesn
  • verovero Member, Host Rep

    I'm sure some providers could really share some ways to earn a bit extra or just mention their margins, but this could be considered as bragging and users may start to consider if their services are really worth the cost.

    Many of us can still accept Apple with their sale margins as they are still kinda unique, but when I see my phone carrier reporting big increase in net profit, and prices have literally doubled in two years, I'm not very happy and start looking around (I understand that there may be other products and clients which earned them that money, but still).

    On one hand good earnings should mean that your provider's business is sustainable, but on the other - they are most likely robbing you. If not you, you could be the next. Yet if they operate at a loss - it's even worse. These are the two main reasons, IMO, why providers aren't eager to share their financial reports here.

  • lentrolentro Member, Host Rep

    @ditlev said: performance does matter as well, no?

    @seriesn literally has the best performing VPSes at $38.40/GB/yr (normal prices, not specials). HostHatch sold 2GB RAM VPSes during Black Friday at $15/yr ($0.625), and they are amazing, and he sold 16GB RAM VPSes for $60/yr ($0.3125/GB/mo).

    The market has really changed, anything not close to $1/GB/mo of RAM + a decent CPU + SSD won't be considered by low end buyers, meanwhile RAM costs ~$4/GB, so it is really a thin margin ecosystem.

  • raindog308raindog308 Administrator, Veteran

    @ditlev said: That is quite aggressive

    Usually though don't companies want to depreciate faster, so they get more benefit up front?

    I'm sure they could support whichever schedule they use if they actually do that. Maybe they do run stuff for 5 years - compute-optimized is obviously newer, then it rolls to the standard offering once they put a new gen in place.

    Good grief...we're discussing depreciation schedules on LET.

  • raindog308raindog308 Administrator, Veteran

    @vero said: Many of us can still accept Apple with their sale margins as they are still kinda unique, but when I see my phone carrier reporting big increase in net profit, and prices have literally doubled in two years, I'm not very happy and start looking around (I understand that there may be other products and clients which earned them that money, but still).

    Those are two radically different businesses, though. Manufacturers are always going to have higher margins than infrastructure providers. GM makes more per car than a car dealer, etc.

    @seriesn said: Not going to argue on this as obviously everyone has their own things. Some runs hosting as a side gig.

    That's the challenge in hosting. The barriers to entry are incredibly low - lower than many criminal enterprises even. For $20, you can start a hosting company and unlike a physical enterprise like a restaurant or hotel, the quality of what's behind the service is completely hidden from the consumer.

    There's always some kid who'll go into it thinking that making $5/month is enough...and then it's a flat global marketplace as well so you're competing against people for whom making $5/mo is a lot more significant.

  • verovero Member, Host Rep

    @raindog308 said:
    Those are two radically different businesses, though. Manufacturers are always going to have higher margins than infrastructure providers. GM makes more per car than a car dealer, etc.

    Could not quite agree, but if would you call Amazon, Google and Alibaba manufacturers (producers, creators, IDK), then let it be.

    ...and then it's a flat global marketplace as well so you're competing against people for whom making $5/mo is a lot more significant.

    And it's wonderful because of that - you wouldn't get any similar experience running a restaurant.

  • raindog308raindog308 Administrator, Veteran

    @vero said: Could not quite agree, but if would you call Amazon, Google and Alibaba manufacturers (producers, creators, IDK), then let it be.

    You said Apple, who is a manufacturer.

  • verovero Member, Host Rep

    @raindog308 said:
    You said Apple, who is a manufacturer.

    I think Apple does not manufacture anything. They just use other companies (like Foxconn) for that. And profit margins of these manufactures are no match for those of Apple.

  • raindog308raindog308 Administrator, Veteran

    @vero said: I think Apple does not manufacture anything. They just use other companies (like Foxconn) for that. And profit margins of these manufactures are no match for those of Apple.

    Well that's true for many manufacturers in the strict sense. But regardless, Apple is the initial seller of the finished product, so it's irrelevant whether they own the factory or not.

  • Nobody in his right mind would share this. If its too much, people will call you a rip-off or expensive. Too little and you will lose credibility and reliability in the eyes of others.

    Thanked by 1vero
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