The market is hot for new web-hosting companies! According to Forrester Research, revenues in the U.S. are expected to reach $19.8 billion in 2004. Learn from expert Dan Forootan, founder of EZ Publishing, as he explains the secrets to running a lucrative hosting business.

The hosting industry is one of the few profitable sectors of the Internet. As such, large corporations such as Dell, Yahoo, Hewlett Packard and Microsoft are offering web-hosting services. You, too, can join this highly profitable business and reap the financial awards -- but only if you do it right.

To build a successful web-hosting company, I offer the following three time-tested and proven rules:

1. Focus on offering high-quality services in a tiered pricing schedule.

2. Leverage an automated infrastructure to create self-sufficient customers.

3. Maximize intelligent marketing opportunities.

1. Focus on providing high-quality services in a tiered pricing schedule.

You get what you pay for. You can offer the lowest prices around, but if you don't offer high-quality services, your customers won't stick around long! Quality is key to maintaining a loyal customer base, and loyal customers provide that steady, reliable source of revenue. On average, each customer you acquire will generate an excess of $200.00 per year. Multiply that by 50 customers, and you can see how quickly the dollars add up!  So what can you offer?

First Things First: Platform Selection

The services you're capable of offering will be, in part, dependant upon the platform you select. There are basically two platforms that hosting companies can opt for: Microsoft NT/2000 and Unix (i.e. Linux Red Hat). 

Hosting with the Microsoft NT platform is generally expensive. Microsoft has high licensing costs and makes automated options (which we'll discuss in a moment) difficult to set up.

I suggest you opt for Linux Red Hat. It's an open-source platform, so there are no licensing fees. Besides its relatively minimal initial cost to you, the Linux hosting platform can be fully automated, which, as you'll soon see, will provide a huge benefit to your customers and save you money down the line.

Offer a Variety of Hosting Packages

Before setting up your hosting packages, create a list of all the features you wish to offer. All your packages should provide the most basic features:

• e-mail accounts

• forwarding accounts

• auto responders

You can then vary your packages by offering:

•  A variety of disk-space sizes

• POP3 e-mail accounts

• Other specialty platforms such as ASP, JSP, or PHP

Also consider bandwidth. The average bandwidth usage for sites is approximately 200 MB per month. Many hosts offer unlimited data transfer, realizing that most clients won't use more than 100–300 MB per month.

I generally recommend the following packages:

• Small package for personal use

• Small package for businesses

• Medium package for businesses

• Large package for businesses

• Specialty package for ASP users

• Specialty package for JSP users

• E-commerce package (includes shopping-cart system)

Offer Tiered Pricing

Once you've developed your packages, offer tiered pricing based on the features each package offers. Most new web-hosting companies try to outdo the competition by offering the lowest prices around. This is often a huge mistake. As I mentioned earlier, the best approach is to offer great service, not incredibly low prices. Although the general cost to you for each account may be as low as $2.00 per month, offering services at prices way below the competition will not allow you to make a profit. On the other hand, you also don't want to charge too much. Companies such as Verio are able to provide hosting services at high prices because their large marketing budgets have resulted in high brand recognition. If you're new to the industry and your prices are too high, you may find it challenging to attract customers.

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