Both entry-level and large-scale hosting resellers generate steady profits. As of 2024, the reseller profit margins of the former range between 10% and 20% year-on-year. On the other hand, big hosting resellers tend to report wider profit margins in the last quarter of 2024: between 20% and 40%.
Let’s compare the profitability ratios of the two groups of hosting resellers against the following factors:
● Initial investment
● Operational costs
● Revenue potential
● Scalability
● Market reach
Initial Investment
The initial costs of setting up an entry-level reseller hosting company can reach $2,000 as of 2024. The startup costs roughly break down as follows:
● Custom website: $500–$1,000 (one-time)
● Automation tools such as WHMCS or cPanel: $50–$100/month
● Marketing and branding: $200–$500
● Business registration and legal costs: $50–$500
Large-scale Hosting Resellers Have Higher Startup Costs
They usually buy physical servers and build the required infrastructure according to their business model. Here is a possible breakdown of the costs:
● Infrastructure: $500–$5,000/month
● Website: $1,000–$10,000
● Software: $50–$300/month
● Support: $500–$5,000/month
● Marketing: $1,000–$10,000/month
● Legal & Compliance: $500–$3,000
● SSL and Security: $50–$1,000
Simple calculations show that it can cost you up to $50,000 to start a large reseller hosting business in 2024.
Operational Costs
Entry-level resellers have relatively low operational costs. Their most significant monthly expense is the fee to the more prominent hosting provider.Small hosting resellers do not pay for server maintenance, and their monthly power bills are insignificant.
Last but not least, entry-level hosting resellers usually keep up to three officials on the payroll.
BiggerReseller, Lower Per-unit Costs
Large-scale hosting resellers have higher operational costs. First and foremost, their payroll is significant, costing up to $50,000 per month. They also have to pay for 24/7 customer service, which usually costs $20,000 monthly.
High-performance bare-metal servers consume a lot of electricity and require constant maintenance and administration. The cheaper option is to use remote server administration, which costs between $200 and $400 per server per month.
Large-scale hosting resellers reduce operational costs by negotiating bulk discounts with electric utilities and internet providers. Thus, their per-unit cost is lower than that of entry-level resellers.
Revenue Potential
Because entry-level resellers mainly target niche markets, their revenue potential is limited to small online businesses, content creators, and personal websites.
Their profit mainly comes from the difference between the wholesale price they pay for web hosting and their reseller price. Almost all entry-level resellers offer monthly subscription plans in an attempt to build and retain a steady clientele.
More clients, Higher ARPU
Large-scale hosting resellers can afford to offer tailored hosting plans to medium-sized businesses, developers, and other high-end clients. So, their average revenue per user (ARPU) is relatively high.
Whale hosting resellers have the financial resources to offer flexible pricing plans, including unlimited hosting. Thus, their profit margins are also exceptionally high.
Scalability
Entry-level resellers are entirely dependent on the infrastructure of their parent hosting providers, so their scalability options are insignificant.
When they reach a certain number of customers, they can either find a new web hosting wholesaler or become an independent provider.
Large Hosting Providers are More Flexible
Large hosting resellers have more room for scalability, but the vertical scalability of their bare-metal infrastructure can be costly.
However, the opportunities for horizontal scalability are endless. Companies can expand their portfolios with white-label services, outsource customer care, or introduce cloud-based hosting plans.
Market Reach
Large hosting resellers are more flexible, so their market reach is broader than that of medium and small resellers.
As said above, the small players in the field of hosting reselling target small market segments. They are more focused on building a small but sustainable client base, not so much on constantly expanding it.
Let’s Recap
Let’s revisit the profitability comparison between entry-level and big hosting resellers. The former business model seems more suitable for individuals with little free capital to invest.
Small hosting resellers also score better than their much bigger rivals in terms of immediate profitability.
