The global web hosting industry is constantly growing. As of 2022, the market reached $94.64 billion, with an estimated compound annual growth rate (CAGR) of 20.3% between 2022 and 2023. This makes it an excellent time to get involved in web hosting.
A hosting business can provide value by offering secure servers, top-notch uptime guarantees, and excellent customer support. The key is to identify a profitable niche, differentiate your services, and market effectively to attract and retain customers.
This guide will walk you through how to start a web hosting business. Topics include market research, sourcing equipment for your own web hosting business, registering an EIN, purchasing business insurance, and more.
1. Conduct Web Hosting Market Research
Market research is important to anyone hoping to start a business in reseller hosting. Market research offers insight into your target market, local market saturation, trends in web hosting services, and more.
Some details you might learn through your market research include:
- Driving this growth is rising internet penetration and web usage.
- There were over 4.9 billion internet users worldwide in 2021, up from 4.1 billion in 2019 per Statista.
- Global website traffic is expected to double from 2021 to 2022.
- As more people access the web, demand for hosting services rises.
- .Managed hosting provides more robust services for larger, complex sites.
- Specializing can differentiate a new hosting business. For example, focusing on eco-friendly hosting, specialized software platforms like WordPress, or high-security hosting for sensitive data.
In summary, the hosting industry is expanding rapidly driven by rising global internet usage. While competitive, opportunities exist for niche or specialized new providers. Offering value through services like managed hosting and outstanding customer experiences can enable a startup to gain market share.
2. Analyze the Competition
Understanding the competitive landscape is crucial for any new web hosting provider. Performing thorough competitor analysis can reveal opportunities and help position your business.
Some ways to research local competition as a reseller hosting business, include:
Identify direct competitors, the main established web hosting companies.
Analyze their website content, branding, and publicity to see their positioning.
Study their web traffic growth using SimilarWeb to gauge traction.
Evaluate competitors on key metrics like server uptime, page load speeds, support response times, and customer satisfaction.
Monitoring social media and review sites reveals common complaints and flaws.
For local competitors, visit their physical premises if applicable.
Assess their location, branding, in-store displays, and marketing.
Search online directories like Yelp to see customer feedback.
Thorough competitor research illuminates the competitive landscape and uncovers the best positioning for a new web hosting business to gain market share. Regular monitoring provides insight into industry trends and opportunities.
3. Costs to Start a Web Hosting Business
Starting a web hosting business requires significant upfront investment and ongoing operating expenses. Based on industry research, here are typical costs to estimate.
- Business registration fees – $50-$500 depending on location and business structure
- Website development – $5,000-$15,000 for design and content creation
- Servers and hardware – At minimum $5,000 for basic servers, likely $15,000-$50,000+ for enterprise-grade setup
- Data center colocation fees – Around $1,000 per month for rack space, internet bandwidth, etc. if not using own infrastructure
- Office space – For 10 employees, approx $3,000-$5,000 monthly rent depending on location
- Salaries – 1 technical operations manager ($80,000/year), 1 account manager ($50,000/year), 1 salesperson ($40,000/year), 2 support staff ($35,000 each) = $275,000 annually
- Software licenses – $1,000-$5,000 for critical programs like WHM/cPanel, billing systems, support ticketing platforms
- Legal fees – $3,000+ for lawyer fees to review business structure, contracts, and service terms
- Marketing budget – $20,000-$50,000+ for branding, advertising, SEO to launch
- Misc office equipment – $3,000-5,000 for computers, phones, furnishings
So an estimated $70,000-$150,000+ in start-up costs before launch. Sufficient operating capital must be secured to cover these expenses, inventory, and salaries for 6+ months until revenue ramps up.
- Servers/infrastructure – $5,000-$15,000+ monthly for equipment leases, maintenance, upgrades
- Datacenter fees – $1,000-$5,000 monthly depending on traffic demands
- Staff payroll – Around $23,000 monthly for the initial team above
- Office rent and utilities – $4,000-$8,000 per month
- Software subscriptions – $500-$2,000 monthly
- Marketing and advertising – $5,000+ monthly, higher initially
- Insurance – $2,000-$5,000 monthly
So estimated recurring costs of $40,000-$60,000 per month. Additional customer support staff will be required to scale, increasing personnel costs. Servers and bandwidth need to continually expand to support customer growth.
4. Form a Legal Business Entity
When starting a web hosting business, the legal structure you choose impacts liability, taxes, and ease of management. The main options each have advantages and drawbacks to weigh.
This is the simplest structure where you directly own the business as an individual. Setup only requires registering a business name and obtaining licenses, costing $50-$150 total. Pass-through taxation means avoiding corporate taxes and personally reporting income and losses on your tax return.
A partnership splits ownership between 2 or more individuals. This helps raise investment capital and combines complementary skillsets. A partnership agreement outlines profit/loss distribution and member roles and rights. You must file a partnership certificate with your state for $50-$500.
Taxation passes through to members. However, just like sole proprietors, partners assume full unlimited liability. The actions of one partner legally implicate the rest, risking everyone’s assets. The shared liability makes partnerships an unstable choice for web hosting businesses open to expensive lawsuits.
Limited Liability Company (LLC)
LLCs limit owner liability and allow pass-through taxation without corporate taxation if structured as a sole member LLC. Multi-member LLCs offer liability protection and flexibility for web hosting co-owners to divvy up ownership stakes, voting rights, and cash distributions in an operating agreement.
LLC setup does cost more around $500-$1500 including state registration fees but limits legal exposure. Unless engaged in misconduct, LLC owners are only liable up to their investment stake for any legal judgments.
Registering as a state corporation creates a legal entity separate from its owners. “C-corps” face double taxation – once at the corporate rate and again when distributing dividends. Formal requirements like annual meetings and reporting add complexity not suitable for smaller web hosting companies. Overall LLCs provide the best mix of liability protection, pass-through taxation, and ease of management for most hosting providers.
5. Register Your Business For Taxes
An Employer Identification Number (EIN) is a unique 9-digit number that identifies your business to the IRS and state tax authorities. All web hosting businesses need an EIN to handle key tax duties like paying payroll taxes, opening business bank accounts, and filing tax returns.
You can easily apply for an EIN for free from the IRS in minutes:
First, go to the IRS EIN Assistant and answer a few short questions about your business structure and ownership.
Next, you’ll be asked for information like your name, address, Social Security number, and business name and address.
After submitting, you’ll instantly receive your EIN at no cost. The entire online application process takes less than 15 minutes.
Once you have your EIN, make sure to register with your state taxation department for sales tax collection permissions and reporting.
Having an EIN establishes your web hosting business as a legal tax entity. It provides credibility with partners and allows entering necessary contracts and agreements. Some key uses include:
- Paying employees and contractors and reporting payroll taxes
- Opening a business bank account and applying for financing/loans
- Filing quarterly and annual business tax returns
- Registering a domain name in your business name
- Establishing business credit to make large purchases
Obtaining an EIN only takes a few minutes online. It unlocks essential capabilities for your hosting business like payroll, banking, and taxes. Along with sales tax registration, an EIN legitimizes your business and enables growth. Don’t wait to apply through the quick and free IRS process.
6. Setup Your Accounting
Managing finances is critical for any web hosting business.
With many transactions like customer billing, infrastructure costs, and payroll, using accounting software like QuickBooks can automate tracking income and expenses. This saves significant time on bookkeeping and simplifies tax preparation.
Software like QuickBooks seamlessly syncs with bank and credit card accounts to log transactions and generate financial reports. Features like invoicing, profit/loss statements, and cash flow projections provide real-time visibility. Cloud-based access enables securely managing finances anywhere.
Hire an Accountant
While programs like QuickBooks streamline much financial management, partnering with an accountant still provides significant value. They can handle tasks like:
- Setting up QuickBooks and training on best practices
- Performing monthly reconciliations to identify discrepancies
- Preparing and filing quarterly sales tax returns
- Compiling documentation for annual tax filing
- Providing audit support if ever IRS-reviewed
Expect to pay an accountant around $1,000-$3,000 annually for basic bookkeeping assistance, plus $500-$2,000 for year-end tax preparation. More complex needs incur higher costs but save substantially on potential IRS penalties from errors.
Open a Business Bank Account
Separating personal and business finances is crucial. Mixing expenditures invites IRS scrutiny and headaches unwinding things later. Open a dedicated business checking account to pay hosting expenses, employee payroll, and accept customer payments.
Apply for a Business Credit Card
Secure a business credit card for larger purchases. As a new entity, expect starter limits around $1,000-$5,000. However, diligent repayment and reliable revenue will enable higher limits over time. Avoid the risk and confusion of mingling personal and business spending.
7. Obtain Licenses and Permits
Before launching, web hosting companies must register for several critical licenses and permits. Find federal license requirements through the U.S. Small Business Administration. The SBA offers a local search tool for state requirements.
- Business License: Nearly all states require obtaining a general business license to legally operate. Fees are typically $50-$100 annually.
- Fictitious Name Filing: If using a DBA (“doing business as”) name different than your legal business name, register it via a fictitious business name filing.
- Domain Name Registration: Your hosting business needs an official domain name for its website and email. Register your chosen domain with ICANN-accredited registrars like GoDaddy or Namecheap for around $12-$15 annually.
- Business Insurance: Obtain general liability insurance covering costs if customers sue for property damage or injuries somehow tied to your business.
- Utility Permits: If constructing your data center infrastructure, obtain permits for bringing in electricity, internet cables, phone lines, and other utilities.
- Fire Safety Permit: If locating computer servers onsite rather than a leased data center, obtain a permit for having so much electronic equipment.
- Food Service Permit: If providing snacks, drinks, or meals for employees, get appropriate food service permits from your local health department.
- Zoning Approvals: Confirm your office or data center location complies with zoning ordinances for permitted property uses. Technical operations like server hosting are prohibited in some residential or industrial zones. Zoning certification shows you’ve verified compliance.
Adhering to all required licenses and permits protects your web hosting business and proves you are committed to safely and legally operating. Display certificates prominently in your office space and on your website to build customer trust.
8. Get Business Insurance
Carrying proper insurance is crucial to limit a web hosting business’s financial risks. Without coverage, just one significant lawsuit or disaster could bankrupt the company.
Some scenarios that could financially ruin an uninsured hosting provider:
- A major outage from a server failure results in massive customer losses and a class action lawsuit seeking millions in restitution.
- A fire destroys your data center and equipment. Rebuilding and replacing infrastructure without insurance would require immense cost.
- Your business is held liable when a customer’s insecure site spreads malware that damages thousands of computers.
General liability insurance helps cover legal judgments so these situations don’t sink the business. Policies start around $500-$1500 annually based on revenue and coverage limits.
Cyber liability insurance is also essential to cover hacks, breaches, and digital threats. Expect premiums of $1200+ per year.
The process of obtaining business insurance involves:
- Research providers like The Hartford and request quotes.
- Choosing a policy with sufficient coverage limits for your needs and risk tolerance.
- Completing the insurer’s application detailing your business operations, revenue, payroll, etc.
- Paying required premiums monthly, quarterly, or annually.
- Receiving proof of insurance documentation from the provider.
- Displaying insurance certificates on your website and office to build trust.
Adequate insurance reduces the existential threat lawsuits and disasters pose to your web hosting business. The peace of mind and financial protection make insurance a wise investment that can save your company.
9. Create an Office Space
Having a professional office space lends legitimacy when meeting clients and investors. It also improves productivity compared to working from home. Options for a hosting business include:
Working from a home office minimizes costs, with no rent or commute. However, it looks less credible to customers. Zoning laws may also prohibit customer-facing uses. While feasible when starting, most web hosting firms will soon need a proper office. Expect costs of a few hundred dollars for basic office furniture and supplies.
Coworking spaces like WeWork provide an office environment with amenities like meeting rooms, snacks, and networking events. They offer flexibility to upgrade offices as you grow. Average monthly costs range from $200-$500 per desk in a shared space or $1000-$3000 for a private office.
If also operating a web design agency, a retail office space could allow walk-in customers. Storefront visibility in a high-traffic area can boost marketing. However, long-term leases and remodeling costs are high. Expect $2000-$8000 monthly for 1,000-3,000 square feet.
Leasing office space in a business park or office tower conveys professionalism for a hosting company expecting investor and client visits. With office configurations available for teams of all sizes, it also supports growth. Average monthly per-desk rates are $400-$1200.
10. Source Your Equipment
Launching a web hosting company requires significant investment in servers and hardware infrastructure. New entrepreneurs have options to buy, lease, or rent the necessary equipment:
Top-of-the-line servers and networking gear can be purchased new from vendors like Dell, HPE, and Cisco. Buying the latest models ensures optimal performance and support. However, costs are high, easily $50,000 for enterprise-grade infrastructure.
To save substantially on costs, used servers and hardware can be purchased for 30-50%+ less than new. eBay, Craigslist, and liquidation sites like Liquidation sell quality refurbished gear. Be sure to benchmark specs and test thoroughly before purchase.
Rather than a large upfront capital investment, servers, and hardware can be rented every month. Providers like ServerSupplyoffer short-term server rentals starting around $150/month. This enables scaling up gradually as customer demand grows. However, long-term costs may exceed buying over time.
Leasing through vendors provides access to cutting-edge hardware via yearly contracts. Rather than owning equipment, you pay a fixed monthly fee for usage, maintenance, and upgrades. Companies like Agility Lease provide attractive flexible terms for startups.
11. Establish Your Brand Assets
Creating a distinctive brand is crucial for any new web hosting company to stand out and attract customers in a competitive market. Developing professional branding assets conveys credibility and consistency.
Get a Business Phone Number
Having a dedicated business phone line instead of just a personal cell phone makes your company seem reputable and established. Services like RingCentral provide toll-free and local numbers with customizable greetings and routing to mobile devices for as little as $30/month.
Design a Logo
A unique, memorable logo also goes a long way in building brand recognition. Consider creative logo styles that illustrate your positioning, like an abstract cloud icon for a hosting provider emphasizing security. Logo design sites like Looka make it easy to generate customized options for around $50-$150.
Print Business Cards
Business cards featuring the logo are vital for networking and sales meetings. Expect to exchange cards regularly at conferences, trade shows, or even just hosting meetups. Sites like Vistaprint offer affordable, high-quality card printing with design templates.
Buy a Domain Name
A domain name matching your brand name cements your identity online. For example, YourCompany.com feels more established than a random domain. When purchasing from registrars like Namecheap, prioritize short, simple domains consisting of your brand name.
Design a Website
An eye-catching, modern website that represents your visual branding is expected in this digital age. Anyone can easily build a site themselves using drag-and-drop platforms like Wix with SEO optimization features built-in. For more complex designs, professional web developers can be hired affordably on sites like Fiverr starting at just $500.
12. Join Associations and Groups
Joining local professional associations, meetups, and online groups provides invaluable connections when starting a web hosting company. Surrounding yourself with others in the industry gives access to advice, partners, and new business opportunities.
Look for a local chapter of industry associations like the Internet Service Providers Association (ISPA) which advocates for hosting providers on policy issues. The ISPA offers conferences, training, research, and networking events to help new companies get established.
Your local Chamber of Commerce likely has committees or networking events for tech professionals to exchange ideas and leads. These facilitate meeting fellow entrepreneurs and learning best practices.
Attending regional hosting and cloud computing conferences allows for connecting face-to-face with key industry figures and potential partners. Exhibiting or sponsoring establishes your brand presence.
Meetup features countless tech meetups in most major cities on specialized topics like server management, DevOps, cybersecurity, and more. Consistently participating can build valuable personal connections leading to referrals.
Relevant Facebook groups like Web Hosting, Web Design and Development, and Web Hosting Services & Domain Marketing enable crowdsourcing advice on everything from data center contractors to marketing tactics from thousands of experienced peers.
13. How to Market a Web Hosting Business
Effective marketing is imperative if you want to own your own hosting business. Marketing helps a hosting service acquire customers in a competitive market. While referrals from satisfied clients are hugely impactful, you must also execute promotional initiatives to build awareness and demand.
Leverage your personal and professional network when launching. Offer free hosting credits to colleagues to get testimonials. Run promotions for connections to try your services and spread the word that you offer services as a web host manager. Word-of-mouth marketing from those who know and trust you sparks growth.
Digital marketing efforts should take priority given the tech-savvy target customer base. Useful tactics include:
- Search engine optimization to rank highly for relevant hosting keywords. Provide helpful blogs/content that brands you as an authority.
- Pay-per-click ads through Google Ads and Bing Ads targeting those searching for hosting services. Test different keywords and landing pages.
- Facebook and Instagram ads to reach engaged local audiences. Target business owners with helpful content and limited-time discount offers.
- Launching social media channels on YouTube, Twitter, and LinkedIn to publish tutorials, thought leadership content, and interact with potential customers.
- Email marketing to contacts segmented by location, package type, and account history to personalize communication. Send promotions and helpful tips.
- Affiliate partnerships with related companies to cross-promote services and share revenues from customer referrals.
Traditional marketing can augment digital efforts:
- Print mailers to businesses advertising your services and a free trial. Target companies likely need robust hosting.
- Local newspaper ads touting your competitive differentiators like support response time or 100% uptime guarantee.
- Radio spots briefly explain your services and current promotions. Useful for raising local awareness.
- Billboards on high-traffic roads viewing your office or data center. Brand awareness starts with visibility.
- Attending local business expos and conventions to network and promote offerings.
With both digital marketing and selective traditional tactics, new hosting providers can effectively attract customers, showcase expertise, and build a powerful brand.
14. Focus on the Customer
Providing exceptional customer service is crucial for any web hosting company to retain clients and generate referrals in a crowded market. With so many competing options, your support experience becomes a key differentiator. Some ways to support customers as a web hosting manager include:
- Offering 24/7 support availability reassures customers their issues will be quickly resolved during website outages or server problems.
- Providing multiple contact options like phone, live chat, and email ensures convenient accessibility.
- Investing in comprehensive staff training enables accurate troubleshooting and empathetic interactions.
- Customers will appreciate agents who truly listen and understand their needs.
- Measuring customer satisfaction via surveys and reviews identifies areas for improvement.
- Being transparent about ongoing issues while providing frequent updates demonstrates accountability. Customers will have faith you’re actively working to restore service.
- Compensating for downtime with credits or refunds shows you value customers first, not just profits. This generates immense goodwill and positive word-of-mouth.
- Surprising and delighting customers also earns loyalty.
Providing an outstanding customer experience takes continuous effort but pays dividends for web hosting providers. Customers are your best promoters when you meet their needs empathetically. Excellent service deserves referrals.