Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

Advertise on LowEndTalk.com
Economics of starting a VPS Host
New on LowEndTalk? Please read our 'Community Rules' by clicking on it in the right menu!

Economics of starting a VPS Host

DriftpeasantDriftpeasant Member
edited April 2013 in General

So if this has been covered in other threads, please forgive me - my search-fu did not find them.

I'm a sysadmin with datacenter experience, and a friend of mine and I were thinking about going into the VPS business. The economics of it, though, seem bad, so I'm hoping someone can correct my math or my assumptions.

Please note, all prices below are in USD:

I've got a quote on colocation for a 20 Amp circuit, a 20Mb/s pipe, and a rack for 700/month at a cheap, but good, colo facility (an ISP around here rents out part of their space as colo - no management, but the power and cooling also serve their core network gear, so it's very reliable).

I can get a dual proc 8-core Opteron box with 64GB of RAM and 8TB of storage for about 4300. I can get a NAS that can backup 3 servers for 4400. PDU for the rack is 350, switch for private networking is 200, a Mikrotik router to handle the traffic is 400, and I'd need a box to run the control panel and handle monitoring for the VMhosts (750).

So:

Capital Expenditure:

3 servers (2 active, 1 hotspare) - 12900
1 NAS (backup) - 4400
Web/monitoring server - 750
Network gear - 600
PDU - 350

Total: 19000

Monthly operating expenses:

Rack/power/internet: 700
SolusVM: 30
WHMCS: 18.95

Total: ~750 (rounding up for easier math)

Presuming I count one "unit" for sale as 256MB RAM/40GB of disk space/1 IPv4 address, that gives me 256 "units" for sale per server per month. Please note I'm assuming some degree of overprovisioning for storage - I'm guessing most people don't use the full 40 - if anyone has any good numbers on this, I'd love to hear them. I'm also counting a 512MB VM as 2 "units" and going with a consistent price increase.

With 2 servers, I have 512 units to sell. That means I need to sell 375 units to break even on operating expenses, leaving me with 137 units to pay for the hardware. This is not counting whatever advertising dollars I'd have to spend to sell completely out.

At that rate ($274/month), I'd pay off my hardware in 70 months, long past its preferred lifespan. If I increase to 5 servers, and don't buy another NAS, I make $1810/month. I'm still at 17 months before I see profit, really. After that it's diminishing returns - about 13 servers and I pay off in 11 months, but I'd need more infrastructure, not to mention the 70k upfront that would cost.

So what am I missing here? Am I buying overly expensive servers? Should I be overprovisioning them? I was assuming sale to full capacity for proc/RAM, but no overprovisioning there.

Please, lowendtalk, give me your wisdom.

Comments

  • @Driftpeasant said: Am I buying overly expensive servers?

    Yes!

    Cheap VPS - VPSDime

  • Okay, so... recommendations, then? I guess we're looking at lower end hardware, and overprovisioning? I come from a bigger iron environment where we very scrupulously DON'T do that, so I may have the wrong mindset...

  • What are the specs of those servers

    Cheap VPS - VPSDime

  • You are also paying too much for the rack. Bargain. Can get much better pricing at good facilities.

    Serving you the best VPS, Web hosting, dedicated servers and more - Cloud Shards | Query Foundry
    We operate the network AS62638 | Available in Syd AU and Dallas, Los Angeles and NYC USA
  • Servers and rack is expensive.

    Discord: robert#8239

  • @Driftpeasant said: So what am I missing here?

    Additional hardware for those "oh crap" moments when your server catches on fire (just kidding but really, backup hardware is always nice).

    Also, is there a hardware raid card included in that? I'm assuming you're going to want raid on this in addition to the redundancy you currently have.

    Don't forget additional overhead (for those rainy day funds).

    @Driftpeasant said: Am I buying overly expensive servers?

    Ehh, I'd have to know exactly what Opteron it is but I'd have to do more research on it than I'd like to at the moment.

    @Driftpeasant said: Should I be overprovisioning them?

    Well, seeming your only overselling your bandwidth, I/O, and CPU. Again depending on the Opteron core CPU could be a killer for you.

    @Driftpeasant said: I was assuming sale to full capacity for proc/RAM, but no overprovisioning there.

    Remember, even if you're not overprovisioning on RAM you'll always be overselling on something.

    Catalyst Host - Pie Approved!
  • @serverian said: What are the specs of those servers

    2x 8-core Opteron 6212
    8x 2TB SATA drives
    64GB RAM

  • BlueVMBlueVM Member
    edited April 2013
    1. Your backing up, very few (almost no) vps hosts do that.
    2. Your servers should cost about $2k, look into E3's there's a reason they're preferred by LEB hosts.
    3. Why are you renting a whole rack for 3 servers?
    4. Why do you have a hotspare... Its great in practice if you have more than 5 servers, but 2? Seems a bit overkillish. I like your planning, but you can cut costs. Have a extra hard disk or two to start with. Its rare anything else will fail.
    BlueVM | 20% Off For Life => Coupon Code: FEBRUARYSPECIAL
  • @HalfEatenPie said: Additional hardware for those "oh crap" moments when your server catches on fire (just kidding but really, backup hardware is always nice).

    Also, is there a hardware raid card included in that? I'm assuming you're going to want raid on this in addition to the redundancy you currently have.

    So, yes, that includes a hotspare server, and it does have hardware RAID.

    @HalfEatenPie said: Remember, even if you're not overprovisioning on RAM you'll always be overselling on something.

    In what way? Because I don't have enough gear? Or just that you have to oversell to be profitable since most users don't max out their LEBs?

  • @BlueVM said: Your backing up, very few (almost no) vps hosts do that.

    Your servers should cost about $2k, look into E3's there's a reason they're preferred by LEB hosts.
    Why are you renting a whole rack for 3 servers?
    Why do you have a hotspare... Its great in practice if you have more than 5 servers, but 2? Seems a bit overkillish. I like your planning, but you can cut costs. Have a extra hard disk or two to start with. Its rare anything else will fail.

    The answers to 1 and 4 are: I'm a datacenter sysadmin. Crap fails, and I want to maintain uptime. With regards to the backups, a) I thought it would be a differentiator in service, and b) if the server goes down, I lose clients. It would seem to me that being able to restore to the hotspare quickly would minimize that loss.

    With regards to 2, again, mindset on my part. I'll look into the E3 series.

    With regards to 3, largely because it wasn't much more expensive than a full rack, and it gave me room for expansion.

  • If it takes you 70 months to make a return on investment, you're doing something wrong.

    http://www.maxshosting.com/
    Unofficial community troll. AMA!

  • serverianserverian Member
    edited April 2013

    If I were you, I'd be going with dual E5 2630 with 128GB RAM. Should be around same price for your single server. It'd be also better to go with a SSD cache for that 8 drive array for this 128GB configuration.

    I'd also suggest you start with minimum hardware.

    Also instead of having a full hot spare server, it'd be better to store backup parts for the most failing things. I.e Raid controller, PSU, Hard drive.

    Cheap VPS - VPSDime

  • @serverian +1

    Start with small budgets and expand according to the demand.Hosting is a very saturated market.So better spend cautiously.

    I am not Rick

  • jarjar Provider

    Most systems don't outright fail. It's usually a drive, controller, or a bad memory stick. If you're aiming for the LEB market you don't go into it with a top quality mindset. That's why you don't aim for LEB. You come here to drop deals and increase interest in your product and generate some word of mouth advertising.

    If you go at it aiming for the moon, charge accordingly.

  • @jarland said: If you go at it aiming for the moon, charge accordingly.

    Do you think, then, there is a market for a higher end low end box? One with a hardware SLA and backups? At a more premium price?

  • @Driftpeasant said: At a more premium price?

    Well, LowEndBox/Talk has a max price range of 7 dollars a month. If you can get all that to fit within your business plan then by all means go for it.

    Catalyst Host - Pie Approved!
  • @Driftpeasant whatever maybe all limits here at 7$. So,you can calculate accordingly

    I am not Rick

  • jarjar Provider

    Do you think, then, there is a market for a higher end low end box? One with a hardware SLA and backups? At a more premium price?

    Typically lowendbox is about low resource and low cost. You can do low resource at high cost with a good infrastructure. If you're not budget shopping as a provider, you can pull off prices that aren't targeting budget clients. You can even set aside a few spots for budget promos. That's pretty much what we do. You just have to set your sights outside of LEB and use LEB as one of many resources.

  • Personally, If I was you, I prefer to start my business by renting a dedicated servers in one provider and start selling vps.
    As the time goes, I will increase my dedicated servers until there are enough capital to rent my own rack in a datacenter.
    For me, a small amount of "Rolling money" is better than a huge startup.
    I can spend the rest of capital for hiring some good marketer and 3 or 4 technical support. So the sales and management will run automatically, and I can focusing in developing business plan. :)

    "I Always Happy ! The Secret Is, When Something Bad Happens, I Always Yell : Eeee... Macarena !!" :D

  • @serverian said: If I were you, I'd be going with dual E5 2630 with 128GB RAM. Should be around same price for your single server.

    Last purchase I averaged about $6k per server, 2x e5-2620, 128gb, lsi 9271 cachecade and cachevault, 12 1tb 7.2k sas and 2 ssd with 2u 12 bay case and 2 bay for the ssd in the back of chassis, so they are cheaper overall than e3's, but still a big nut to swallow at once.

    I did use E3's for a time as that was what cashflow allowed, and with a big goose egg for starting and nothing but expense, they are probably a better idea

    @RobertClarke said: Servers and rack is expensive.

    Less than I pay per rack or per server, and I know I make profit every month, so @Driftpeasant isn't out of line really

    @Driftpeasant I don't want to hand feed you, you are a big boy, but from one die hard AMD fan to another, look at Intel, it's just more profitable at the current time.

    Hostigation High Resource Hosting - SolusVM KVM VPS / Proxmox OpenVZ VPS- Low Cost Comodo SSL Certificates
  • @miTgiB said: Last purchase I averaged about $6k per server, 2x e5-2620, 128gb, lsi 9271 cachecade and cachevault, 12 1tb 7.2k sas and 2 ssd with 2u 12 bay case and 2 bay for the ssd in the back of chassis, so they are cheaper overall than e3's, but still a big nut to swallow at once.

    Classy. I'm allergic to nuts.

    P.S. That's a lie.

    Catalyst Host - Pie Approved!
  • @HalfEatenPie said: P.S. That's a lie.

    Just like the cake!

    Hostigation High Resource Hosting - SolusVM KVM VPS / Proxmox OpenVZ VPS- Low Cost Comodo SSL Certificates
  • As you can see, it is not profitable to do it "right". If you want to save, try not going for a full rack, but for half or quarter, if your colo provides that. If you really want to go the unmanaged low end route, you can leave the backup and hotspare and HA out, if something breaks then your TOS cover you. Not the best attitude, but that will get you more profit.

    If you however want to continue with this setup, which as I can read seems to be quite fine, something I would set up ass well, you might need to look at a different customer base, one which is willing to pay for the features you would be providing.

    Quis custodiet ipsos custodes?
    https://raymii.org - https://cipherli.st
  • @Raymii said: s you can see, it is not profitable to do it "right". If you want to save, try not going for a full rack, but for half or quarter, if your colo provides that. If you really want to go the unmanaged low end route, you can leave the backup and hotspare and HA out, if something breaks then your TOS cover you. Not the best attitude, but that will get you more profit.

    If you however want to continue with this setup, which as I can read seems to be quite fine, something I would set up ass well, you might need to look at a different customer base, one which is willing to pay for the features you would be providing.

    ass well
    image
    image
    :)

    You are dreaming. | And it's a nightmare. | THE SECRET THREAD | THE TRUTH | HAVES YOU SEEN THIS YURA?
    „Homo homini rattus.“ | It's not nightmare, it's reality, but it's still nightmare.

  • @Janevski said: ass well

    OMG I just ROFL. Tooo funny.

    (Mostly because he has done it in more than one thread and I had about the same thought from it)

    No hard feelings.

    Cheers!

    Have an Allwinner H3 device? Android? Check out H3Droid! | Lichee Pi Zero - The 6$ SBC | #SYSarm - Get It! | Atomic Pi - $35 x86 SBC
    21+ Years IT Experience in Linux/Windows Hosting, Administration and Development Services

  • @miTgiB said: @RobertClarke said: Servers and rack is expensive.

    Less than I pay per rack or per server, and I know I make profit every month, so @Driftpeasant isn't out of line really

    Agreed, there are plenty of colo offers that look more attractively priced, but when you start asking for any kind of power to the rack the price jumps up quickly.

Sign In or Register to comment.