Adopting Infrastructure as a Service (IaaS) for your SaaS business could dramatically reduce costs, increasing customer lifetime value and helping you achieve or grow profitability.

SaaS profitability is commonly assessed in terms of the ratio between Customer Acquisition Cost (CAC) and customer Lifetime Value (CLV), the rule of thumb being that a CLV > 3x CAC is the sign of a healthy SaaS business.

Clearly then, increasing CLV and reducing CAC leads to greater profitability per customer and a more profitable business.

If you now go and look for insight into how to increase CLV, the emphasis will nearly always be on increasing the revenue per customer through service expansion or clever marketing tricks. But buried in the calculation of CLV is the cost of servicing each customer and, within this, the cost of hosting. This is potentially far easier to control and could mean the difference between positive and negative profitability per customer.

As Dave Key writes in The Imperative to Reduce the Cost of SaaS Service, the opportunity to improve profitability by reducing the cost of servicing customers is often overlooked, meanwhile much attention is paid to customer acquisition and the product’s ability to generate revenue – not that these should be forgotten of course.

Key goes on to say that a core component in service cost reduction is hosting efficiency and that this can be maximised by optimising your choice of platform and vendor to closely match your business’ requirements and capabilities.

The hosting stack and hosting efficiency

Where you decide to operate on the hosting stack directly affects the costs you incur. Higher levels on the stack reflect increased value add, in terms of management and/or development environments, by the vendor and thus greater unit costs. I.e. Platform as a Service (PaaS), with its added development tools, will cost you more than the simpler Infrastructure as a Service (IaaS).

Maximising hosting efficiency isn’t just a case of choosing the platform with the lowest cost per unit of compute, however. While stepping down the stack invariably bestows greater control and lower costs, it also comes with a corresponding administrative burden that must be managed by your devops teams.

If your team is comfortable with, or even desires, greater control over the infrastructure powering your application, moving down the stack is a sound choice. Taking on hosting administration responsibilities that your teams can’t handle, however, could lead to problems with availability or worse, security, and should be avoided.

IaaS – the bottom of the stack

With IaaS, your vendor provisions the resources required to run your application, including compute, storage, networking, etc. Meanwhile, you have the freedom to configure these resources as you wish. Your developers can fine tune IaaS to the needs of your application and its users, all while keeping platform costs to a minimum.

If your devops teams are capable of architecting and orchestrating the underlying resources you need to deliver your application, IaaS will offer you the lowest cost point and make a greater contribution to profitability than other platforms.

Virtual vs. dedicated – the rise of bare metal cloud

The term IaaS frequently describes virtualised service offerings. While assuring you a lower cost point than PaaS solutions, virtual IaaS still incorporates a layer of abstraction, which comes at a cost and leaves some control in the hands of the vendor – machine density for example.

Bare metal cloud, which has been made possible through advances in automated provisioning, is, in a sense, a true IaaS wherein you are provided with the physical, dedicated servers required to build your desired environment.

On a bare metal cloud you have absolute control over every aspect of your hosting efficiency, right down to machine density, and can therefore be sure of optimising cost and profitability.

Conclusion

If you want to maximise the profitability of your SaaS business and your devops teams are up to the challenge, adopt IaaS (or, even better, bare metal cloud) to reduce your hosting costs and the costs of servicing each customer.

By managing your hosting and other costs well, any effort you put into increasing revenue per customer and reducing CAC will be doubly effective.

Becoming a hosting reseller can be a lucrative means of starting a new business or cross-selling to your current customer-base, without the complexities of setting up and fully managing your own infrastructure. By employing your technical hosting knowledge, you can benefit from a recurring income and a long-term relationship with customers.

But like any business, it requires strategic planning and investment before you can offer a compelling and reliable service. Here are five steps to getting started as a hosting reseller that will set you up for success.

1. Select a host

This is possibly the most important step, as the service you offer to your customers will be directly linked with the service your host offers you. You should have a number of questions in mind when searching for a host:

• Do they have a good reputation? Check reviews, Twitter, forums etc.
• Do they have complete ownership and control over their infrastructure? This includes their data centres and network.
• Do they offer customisable server deployments? Whether it be a scalable bare metal cloud or a dedicated server environment, can you completely customise your hardware and software to your requirements?
• Do they offer application support for resellers? Either for leading billing software, control panels or your own systems, you need API integration.
• Do they offer generous discounts for resellers? As you grow your customer-base, do you retain more revenue per acquisition?

2. Choose your hosting package

Traditional reseller hosting involves selling provisioned space on a dedicated server, but cloud environments, where your reseller package and your customers’ packages can be easily scaled, are popular today. Whatever your preference, you should choose and customise your hosting package based on your projection of customer growth, your expectations of customer requirements and your budget. By completely tailoring your server environment through, for instance, the number of cores or the type of hard drive fitted, you can deliver enhanced performance to your customers and gain a competitive advantage.

3. Create your own hosting packages

The hosting packages you offer will again be determined by your expectations of who your customers will be. A key consideration is the pricing strategy you employ. Typically you will not be able to compete solely on price against big hosting companies, so factors such as resource allocation (disk space, bandwidth, databases etc.), the type of hardware and software instances available and quality of support should dictate the prices of your plans.

4. Plan your support system

You need a control panel, plus ticketing and billing software to manage and support your customers. WHMCS, the leading web hosting automation platform, is often the go-to application for handling billing and support, and you may want to choose a hosting provider that have aWHMCS plugin. Whatever you choose, you need to get to grips with your system as it will act as the backbone of your communication with customers.

You also need to plan the logistics of the support you offer, for example, the hours that you provide support (which should be reflected in your pricing) and the arrangement between you and your host regarding how you handle physical hardware issues.

5. Define your terms of service

Every host, including resellers, needs to define terms and conditions of service to prevent illegal, abusive or disruptive activity by customers. For resellers, this needs to be in accordance with the host’s acceptable usage policies. This can always be found on a host’s website, but if you need further guidance or support, you should contact your host to establish your documentation and ensure it is legally sound.

6. Get your hosting business online

Just like any other business, you need to bring your hosting services to market. Of course, this involves creating an eCommerce website or, if web hosting is a natural extension of your current services, adding landing pages and support system functionality to your existing business’ site.

From here, it’s up to you how you approach your marketing strategy, whether you utilise display or search ads, develop an organic content marketing plan or something else.

The key to reseller hosting success is treating it like a business. Whether you provide managed infrastructures or applications services, your customers expect reliability and professionalism. The host you rely on for your reseller service lays down the foundation of this, and that’s why in many respects the initial stage of choosing a host is the most important. Find out about the Redstation Reseller Programme today.

To ensure you hosting reseller business has the support it needs, you might want to consider the world’s leading billing software. If this is something your interested it, don’t hesitiate to download our guide for hosting resellers about ‘How to Get the Best from WHMCS’.