Do you want to start web hosting business?

Do you want to start a web hosting business? Web hosting service allows millions of individuals and organizations to post their web pages or websites onto the Internet. Since the website is the most important component of a company’s portfolio that’s why this business has an immense market. The biggest benefit is that you can start it with very low initial investments.
In case, you don’t know how to start a web hosting company, you will have to do some research and prepare a comprehensive business plan. If you are wondering how to write one then here we are providing you the business plan for a web hosting business startup named ‘Stark Hosting’.

Executive Summary

2.1 The Business

Stark Hosting will be a web hosting startup located in Manhattan, New York. The company will be owned by Elia Karen, a passionate web developer. Being associated with IT industry for the last 6 years, Karen knows everything about how to create a web hosting company.

2.2 Management

The success of a startup heavily depends on its staff and management that’s why Karen has obtained the services of experienced industry experts to join her venture. The main management of the company will comprise of sales executives, technicians and customer representatives.

2.3 Customers

Our customers will be the business owners, organizations and celebrities located across the globe. We will provide all essential services needed to power our customers’ websites for hosting website content by using dedicated servers.

2.4 Business Target

Our target is to balance the initial cost of the startup with earned profits by the end of the first year and to achieve the net profit margin of $10k per month by the end of the first year.

Web Hosting Business Plan - 3 Years Profit Forecast

Company Summary

3.1 Company Owner

Stark Hosting will be owned by Elia Karen, a software graduate from the University of Illinois. She is an adept web developer and has been associated with IT industry for more than 6 years.

3.2 Why the Business is being started

Karen has always been passionate about starting her own business in an IT-related field. She has been thinking about starting a web hosting business since her graduation but due to her limited experience, she waited for 6 years before starting her own venture.

3.3 How the Business will be started

The business will be located in a small office located in the main commercial market of the Downtown Manhattan. In addition to the usual inventory, the company will procure the best ISP in town along with computers, servers and peripherals. The startup summary is as follows:

Web Hosting Business Plan - Startup cost

The detailed start-up requirements are given below:

Start-up Expenses  
Legal $75,500
Consultants $0
Insurance $62,750
Rent $22,500
Research and Development $42,750
Expensed Equipment $42,750
Signs $1,250
TOTAL START-UP EXPENSES $247,500
Start-up Assets $0
Cash Required $322,500
Start-up Inventory $52,625
Other Current Assets $222,500
Long-term Assets $125,000
TOTAL ASSETS $121,875
Total Requirements $245,000
START-UP FUNDING $0
START-UP FUNDING $273,125
Start-up Expenses to Fund $121,875
Start-up Assets to Fund $195,000
TOTAL FUNDING REQUIRED $0
Assets $203,125
Non-cash Assets from Start-up $118,750
Cash Requirements from Start-up $0
Additional Cash Raised $118,750
Cash Balance on Starting Date $121,875
TOTAL ASSETS $0
Liabilities and Capital $0
Liabilities $0
Current Borrowing $0
Long-term Liabilities $0
Accounts Payable (Outstanding Bills) $0
Other Current Liabilities (interest-free) $0
TOTAL LIABILITIES $0
Capital $0
Planned Investment $0
Investor 1 $312,500
Investor 2 $0
Other $0
Additional Investment Requirement $0
TOTAL PLANNED INVESTMENT $695,000
Loss at Start-up (Start-up Expenses) $313,125
TOTAL CAPITAL $221,875
TOTAL CAPITAL AND LIABILITIES $221,875
Total Funding $265,000

Services for customers

You must decide what services will you provide to your customers before thinking about how to start your own web hosting company because the planning of many subsequent components depends on your services.
Shark Hosting will provide all essential services needed to power our customers’ websites for hosting website content by using dedicated servers. We will provide following services:

  • Web hosting services
  • Web building products
  • Email & business features
  • Web applications
  • Security & value-added features
  • Advisory & consultancy services

Marketing Analysis of web hosting business

The most important component of an effective webhosting business plan is its accurate marketing analysis that’s why it is advisable to seek the help of marketing experts. If you are starting this venture on small scale, you can take help from this web hosting business plan sample and carry out a marketing analysis yourself.
For marketing analysis, Karen acquired the services of marketing experts to help her through this phase. Marketing analysis is extremely important because it gives you an idea of your position in the market. Therefore, it must be considered before developing the web hosting marketing plan of your web hosting services business plan.

5.1 Market Trends

The Web Hosting Industry is growing at an extremely rapid pace as compared to other industries. The biggest reason behind its expansion is the rapidly growing eCommerce market and the accompanying focus on using websites as marketing tools. Every business needs a website to show its brand or portfolio that’s why it needs the services of web hosting providers to put its website on the internet. That’s why, as the number of businesses continues to increase, the number of web hosting providers also increases. It is estimated that web hosting industry’s global market will reach up to $144 billion by 2020.

5.2 Marketing Segmentation

We will target global entrepreneurs market, especially the companies based in New York which are easier to reach and target. Our experts have identified the following type of target audience which can become our future consumers:

Web Hosting Business Plan - Market Segmentation

The detailed marketing segmentation of our target audience is as follows:

5.2.1 Corporate Sector:

The biggest consumer of our services will be the corporate sector located across the globe. The corporate sector includes product manufacturers and distributors, real estate owners, hotels, restaurants and food companies, IT and software development firms, branding and advertising agencies. These companies and businesses need web hosting services for displaying their websites on the internet. Web sites are the most effective marketing tools for nearly every business out there, that’s why all companies pay significant attention to developing them.

5.2.2 Institutions & Organizations:

Our second target group comprises of institutions and organizations located worldwide including government and public-sector organizations, schools, colleges and universities, political parties, religious and sports organizations, and non-profit organizations. These organizations will also need our services for putting up their websites on the internet.

5.2.3 Celebrities & Individuals:

Our third target group consists of all celebrities including actors, media persons, sportsmen, authors, bloggers and other people who need a website for promoting themselves.
The detailed market analysis of our potential customers is given in the following table:

Market Analysis
Potential Customers Growth YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 CAGR
Corporate Sector 48% 22,334 32,344 43,665 52,544 66,432 10.00%
Institutions & Organizations 18% 11,433 13,344 16,553 18,745 20,545 13.43%
Customers & Individuals 34% 18,322 19,455 20,655 22,867 24,433 15.32%
Total 100% 52,089 65,143 80,873 94,156 111,410 9.54%

5.3 Business Target

  • To achieve the net profit margin of $10k/month by first year, $15k by second year, and $25k by third year
  • To balance the initial cost of the startup with earned profits by the end of the first year

5.4 Product Pricing

Product pricing is one of the most important factors in deciding the strategy for any business. After considering the market demands, we have priced all our products in the similar ranges as of our competitors. Our hosting packages start at $2.00/ month and prices vary with the type of servers and bandwidth capacity.

Strategy

Like marketing analysis, sales strategy is also an important component of a web hosting business plan as it determines how the business will grow.

6.1 Competitive Analysis

We have a lot of competitors, but none of them provides as high-quality services in the same price as provided by us. Our competitive advantage lies in the power and dedication of our team which comprises of industry experts and experienced individuals.

6.2 Sales Strategy

  • We will advertise our business in relevant business magazines, newspapers, TV stations, and social media.
  • We will use digital marketing strategies, SEO and SEM practices for promoting our company.
  • We will offer a 20% discount on our services for the first three months of our launch.
  • We will ensure at least a 20% increase in website traffic each month and will ensure at least an 80% conversion rate, i.e. to turn 80% of our website visitors into our customers.

6.3 Sales Monthly

Web Hosting Business Plan - Sales Monthly

6.4 Sales Yearly

Web Hosting Business Plan - Sales Yearly

6.5 Sales Forecast

Web Hosting Business Plan - Unit Sales

Sales Forecast      
Unit Sales Year 1 Year 2 Year 3
Web hosting services 187,330 260,320 258,240
Web building products 802,370 815,430 823,540
Security, email & business features 539,320 770230 1,002,310
Web applications 265,450 322,390 393,320
Advisory & consultancy services 1,435,320 1,250,430 1,762,450
TOTAL UNIT SALES 3,229,790 3,418,800 4,239,860
Unit Prices Year 1 Year 2 Year 3
Web hosting services $140.00 $150.00 $160.00
Web building products $600.00 $800.00 $1,000.00
Security, email & business features $700.00 $800.00 $900.00
Web applications $650.00 $750.00 $850.00
Advisory & consultancy services $140.00 $120.00 $100.00
Sales
Web hosting services $214,800 $274,000 $333,200
Web building products $120,050 $194,500 $268,500
Security, email & business features $50,110 $71,600 $93,000
Web applications $139,350 $194,600 $249,850
Advisory & consultancy services $62,350 $72,300 $82,250
TOTAL SALES
Direct Unit Costs Year 1 Year 2 Year 3
Web hosting services $0.70 $0.80 $0.90
Web building products $0.40 $0.45 $0.50
Security, email & business features $0.30 $0.35 $0.40
Web applications $3.00 $3.50 $4.00
Advisory & consultancy services $0.70 $0.75 $0.80
Direct Cost of Sales
Web hosting services $98,300 $183,000 $267,700
Web building products $66,600 $119,900 $173,200
Security, email & business features $17,900 $35,000 $52,100
Web applications $19,400 $67,600 $115,800
Advisory & consultancy services $27,700 $69,200 $110,700
Subtotal Direct Cost of Sales $294,100 $699,400 $1,104,700

Personnel plan

You must also decide what staff will you need to run your company before thinking about how to start a web hosting business because it will allow you to make accurate financial estimations.

7.1 Company Staff

Karen will act as the General Manager of the company and will initially hire following people:

  • 1 Accountant to maintain financial and other records
  • 2 Sales Executives responsible to market and discover new ventures
  • 3 Technicians to operate the servers and other machines
  • 2 Managing Assistants to manage the company’s official website and social media pages
  • 4 Customer Representatives to interact with customers and record their orders

7.2 Average Salary of Employees

 Personnel Plan      
Year 1 Year 2 Year 3
Accountant $85,000 $95,000 $105,000
Sales Executives $85,000 $92,000 $109,000
Technicians $35,000 $42,000 $59,000
Managing Assistants $60,000 $63,300 $70,000
Customer Representatives $63,300 $70,000 $76,700
Total Salaries $243,300 $267,300 $314,700

Financial Plan

The success of a business heavily depends on its accurate financial analysis so make sure to pay special attention to your financial plan while developing the business plan for web hosting company.

8.1 Important Assumptions

 General Assumptions      
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 10.00% 11.00% 12.00%
Long-term Interest Rate 10.00% 10.00% 10.00%
Tax Rate 26.42% 27.76% 28.12%
Other 0 0 0

8.2 Brake-even Analysis

Web Hosting Business Plan - Brake-even Analysis

 Brake-Even Analysis  
Monthly Units Break-even 5530
Monthly Revenue Break-even $159,740
Assumptions:
Average Per-Unit Revenue $260.87
Average Per-Unit Variable Cost $0.89
Estimated Monthly Fixed Cost $196,410

8.3 Projected Profit and Loss

 Pro Forma Profit And Loss      
Year 1 Year 2 Year 3
Sales $309,069 $385,934 $462,799
Direct Cost of Sales $15,100 $19,153 $23,206
Other $0 $0 $0
TOTAL COST OF SALES $15,100 $19,153 $23,206
Gross Margin $293,969 $366,781 $439,593
Gross Margin % 94.98% 94.72% 94.46%
Expenses
Payroll $138,036 $162,898 $187,760
Sales and Marketing and Other Expenses $1,850 $2,000 $2,150
Depreciation $2,070 $2,070 $2,070
Leased Equipment $0 $0 $0
Utilities $4,000 $4,250 $4,500
Insurance $1,800 $1,800 $1,800
Rent $6,500 $7,000 $7,500
Payroll Taxes $34,510 $40,726 $46,942
Other $0 $0 $0
Total Operating Expenses $188,766 $220,744 $252,722
Profit Before Interest and Taxes $105,205 $146,040 $186,875
EBITDA $107,275 $148,110 $188,945
Interest Expense $0 $0 $0
Taxes Incurred $26,838 $37,315 $47,792
Net Profit $78,367 $108,725 $139,083
Net Profit/Sales 30.00% 39.32% 48.64%

8.3.1 Profit Monthly

Web Hosting Business Plan - PROFIT MONTHLY

8.3.2 Profit Yearly

Web Hosting Business Plan - PROFIT YEARLY

8.3.3 Gross Margin Monthly

Web Hosting Business Plan - GROSS MARGIN MONTHLY

8.3.4 Gross Margin Yearly

Web Hosting Business Plan - GROSS MARGIN YEARLY

8.4 Projected Cash Flow

Web Hosting Business Plan - Projected Cash Flow Diagram

 Pro Forma Cash Flow      
Cash Received Year 1 Year 2 Year 3
Cash from Operations
Cash Sales $40,124 $45,046 $50,068
Cash from Receivables $7,023 $8,610 $9,297
SUBTOTAL CASH FROM OPERATIONS $47,143 $53,651 $59,359
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0
New Long-term Liabilities $0 $0 $0
Sales of Other Current Assets $0 $0 $0
Sales of Long-term Assets $0 $0 $0
New Investment Received $0 $0 $0
SUBTOTAL CASH RECEIVED $47,143 $53,651 $55,359
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $21,647 $24,204 $26,951
Bill Payments $13,539 $15,385 $170,631
SUBTOTAL SPENT ON OPERATIONS $35,296 $39,549 $43,582
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $0 $0 $0
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $0 $0 $0
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
SUBTOTAL CASH SPENT $35,296 $35,489 $43,882
Net Cash Flow $11,551 $13,167 $15,683
Cash Balance $21,823 $22,381 $28,239

8.5 Projected Balance Sheet

 Pro Forma Balance Sheet      
Assets Year 1 Year 2 Year 3
Current Assets
Cash $184,666 $218,525 $252,384
Accounts Receivable $12,613 $14,493 $16,373
Inventory $2,980 $3,450 $3,920
Other Current Assets $1,000 $1,000 $1,000
TOTAL CURRENT ASSETS $201,259 $237,468 $273,677
Long-term Assets
Long-term Assets $10,000 $10,000 $10,000
Accumulated Depreciation $12,420 $14,490 $16,560
TOTAL LONG-TERM ASSETS $980 $610 $240
TOTAL ASSETS $198,839 $232,978 $267,117
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $9,482 $10,792 $12,102
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
SUBTOTAL CURRENT LIABILITIES $9,482 $10,792 $12,102
Long-term Liabilities $0 $0 $0
TOTAL LIABILITIES $9,482 $10,792 $12,102
Paid-in Capital $30,000 $30,000 $30,000
Retained Earnings $48,651 $72,636 $96,621
Earnings $100,709 $119,555 $138,401
TOTAL CAPITAL $189,360 $222,190 $255,020
TOTAL LIABILITIES AND CAPITAL $198,839 $232,978 $267,117
Net Worth $182,060 $226,240 $270,420

8.6 Business Ratios

 Ratio Analysis        
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 4.35% 30.82% 63.29% 4.00%
Percent of Total Assets
Accounts Receivable 5.61% 4.71% 3.81% 9.70%
Inventory 1.85% 1.82% 1.79% 9.80%
Other Current Assets 1.75% 2.02% 2.29% 27.40%
Total Current Assets 138.53% 150.99% 163.45% 54.60%
Long-term Assets -9.47% -21.01% -32.55% 58.40%
TOTAL ASSETS 100.00% 100.00% 100.00% 100.00%
Current Liabilities 4.68% 3.04% 2.76% 27.30%
Long-term Liabilities 0.00% 0.00% 0.00% 25.80%
Total Liabilities 4.68% 3.04% 2.76% 54.10%
NET WORTH 99.32% 101.04% 102.76% 44.90%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 94.18% 93.85% 93.52% 0.00%
Selling, General & Administrative Expenses 74.29% 71.83% 69.37% 65.20%
Advertising Expenses 2.06% 1.11% 0.28% 1.40%
Profit Before Interest and Taxes 26.47% 29.30% 32.13% 2.86%
Main Ratios
Current 25.86 29.39 32.92 1.63
Quick 25.4 28.88 32.36 0.84
Total Debt to Total Assets 2.68% 1.04% 0.76% 67.10%
Pre-tax Return on Net Worth 66.83% 71.26% 75.69% 4.40%
Pre-tax Return on Assets 64.88% 69.75% 74.62% 9.00%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 19.20% 21.16% 23.12% N.A.
Return on Equity 47.79% 50.53% 53.27% N.A.
Activity Ratios
Accounts Receivable Turnover 4.56 4.56 4.56 N.A.
Collection Days 92 99 106 N.A.
Inventory Turnover 19.7 22.55 25.4 N.A.
Accounts Payable Turnover 14.17 14.67 15.17 N.A.
Payment Days 27 27 27 N.A.
Total Asset Turnover 1.84 1.55 1.26 N.A.
Debt Ratios
Debt to Net Worth 0 -0.02 -0.04 N.A.
Current Liab. to Liab. 1 1 1 N.A.
Liquidity Ratios
Net Working Capital $120,943 $140,664 $160,385 N.A.
Interest Coverage 0 0 0 N.A.
Additional Ratios
Assets to Sales 0.45 0.48 0.51 N.A.
Current Debt/Total Assets 4% 3% 2% N.A.
Acid Test 23.66 27.01 30.36 N.A.
Sales/Net Worth 1.68 1.29 0.9 N.A.
Dividend Payout 0 0 0 N.A.

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