One area of my business which I am keen to grow is the hosting side. Hosting is a very easy market to enter as evidenced by the shear number of people doing it. You can set up the business within days and once set up, the profitability can be very high. The difficult part is attracting customers. There are literally thousands of companies offering web hosting, why should anyone pick you?
This is why buying an established hosting company is a good way to instantly increase revenue. I have bought five small hosting companies in the last seven years. My standard practise for this is to buy the company at a low cost and then within two years, triple the income. I have done this a few times already and in April I bought another one so this time I thought it would be useful to document how I do it.
In April I bought an American based company for £900 which had an annual income of around £1,300.
The previous owner had a VPS running, hosting all of his customers' sites. This was an old system and had a monthly cost. Immediately we moved the customers' sites over to my existing infrastructure. I have an unlimited hosting package and so this immediately reduced the hosting costs to, essentially, zero.
I moved each of the customers into my own billing software, away from the existing, aged software package that the previous owner was using. This didn't save any money but will save me a lot of time and effort in the longer term as I will not need to learn a new system.
I also integrated the new business into my existing help desk system. Again, no money saved but time / effort saved by not having to manage another, separate piece of software.
- Two hours to build a new web site (the existing one required too much work)
- Two hours to transfer the hosting accounts to my systems
- One hour setting up help desk, e-mail systems etc.
- Five hours transferring customers to the new finance system
I was interested in buying the business for a number of reasons. Firstly, it being so cheap I knew that I would be able to recoup the initial purchase price by the end of the year (eight months).
The company was based in the US and most customers were American or Canadian. Usually I would merge the business into my existing hosting brand but as this was US-focussed, I decided to create a brand new web site on an existing .com domain that I already owned. Moving US customers over to a UK brand may cause some confusion or worry and that would risk them jumping ship and moving to a different provider. This did cause some additional work but I now have a US branded site which can be used for other international acquisitions in the future.
Improved customer experience
This is the area where I excel and traditionally other hosting companies fail. Their customer support is usually slow, awful or both. As part of the transition I organised a joint e-mail, with the previous owner, to all customers. As well as letting them know about the transfer, I also highlighted some improvements that they would immediately benefit from. These included:
- A new, faster hosting platform
- An increase in account limits, giving them a huge increase in disk space allowance and e-mail storage space
- Spam filter
Moving the customers over to my server from the existing one immediately gave all of their sites a boost in speed. My system also has an excellent e-mail spam filter. The old system did not have any filtering at all so they were constantly bombarded with junk messages. The increase in disk space also meant that they could store more e-mails for longer. The old system only provided e-mail accounts with 100MB of space.
I was keen to highlight these three obvious and demonstrable benefits in a bid to win their trust - a key step in ensuring that they remain customers for the next eight months, allowing me to recoup my initial outlay.
I also mentioned in the e-mail that we had a new web site, were rebranding and that we would be using a new finance system. These do not necessarily provide them with any benefit but it is key to point out so that they recognise our e-mails and invoices when they arrive.
After 12 months
Within the first 12 months I make a concerted effort to ensure that customer service is excellent and fast. I want customers to know that we can be relied on to help them with any issues. This further increases trust and gives them more sticking power - they are less likely to leave for another provider.
Eight months after buying the business I will have recouped what I paid for the business in the first place, after that it is all profit so I am willing to increase the prices and risk losing a few customers.
My plan is to increase each service by just over three times the existing cost. That seems like a big jump but fortunately the existing charges are very low. Combined with the poor service and outdated platform that the customers were used to, they will be so pleased with all of the improvements, the additional cost will be worth it to most. Of course I expect some people to leave but even so, my year two profits should be three times what they would have been otherwise.
All of the customers are long-standing ones and so are fairly self-sufficient. If I have received more than 10 support queries since I took over, I would be surprised - the business essentially runs itself. Of the interactions that I have had with customers, one was very insightful:
Whilst initially quite grumpy, the customer changed tack after being bombarded with kindness from me and thanked me for all of my help -
That small comment put a smile on my face and reassured me that I am doing the right thing - buy cheap, significantly improve service and increase profits.
Even though the current income is around £1,300 a year if I can triple that, without a lot of work on my part, that's a good size income for minimal effort. The hunt is now on for other, similar hosting businesses that I can try and turn around!