Pause before you offer hosting services…

Written by: Karl Sakas

For many agencies, selling web hosting services seems deceptively easy. If you built a website, you can easily upsell hosting on your existing account. Your developers are building sites on a service they’re familiar with. And you’re getting $20-100 a month in recurring revenue for the forseeable future.

Minimal overhead, recurring revenue—a perfect way to expand your agency’s services, right? Yet reality is rarely that simple.

Offering hosting without a strategy behind it is a recipe for getting urgent, unpaid phone calls from hosting clients—often late at night when you’d rather be sleeping.

You face a three-pronged expectations management problem:

  1. When you provide a service—and bill clients for it every month—they expect you to fix it when it doesn’t work. That’s reasonable.
  2. Clients are used to getting free tech support when they call their other technical providers, like their internet provider or cell phone provider. That’s normal.
  3. Hosting clients are often clients where you no longer have a current agency services relationship. This makes it hard to get paid for this one-off work.

Let’s look at the problem, and then how you might be able to make it work.

What NOT to do: Make it up as you go

One of my clients used to provide web hosting services, to clients using the agency’s legacy proprietary CMS. They billed those legacy clients for a monthly combo fee that covered the CMS license and hosting.

One of their “favorite” clients was fond of sending Monday morning promos to his eCommerce site’s email list—which would bring down his site while also taking-out other sites on the same server… including the agency’s own site and its self-hosted project management system. This meant that the other clients couldn’t submit trouble tickets to report their outage, which led to them calling.

This meant the account managers were dealing with keeping everyone updated, while the project manager worked with the sysadmin to fix things. Meanwhile, almost none of this work was billable to clients, in part because it wasn’t always clear whose fault it was.

The eCommerce client refused to upgrade to dedicated hosting, while the agency tried to “make do”—until yet another outage. They eventually fired him as a client, solving the problem a lot later than I’d have recommended.

Bonus: Don’t do email hosting, either

The same goes for email hosting—don’t do it. Let clients pay for G Suite (formerly known as Google Apps) instead.

As an agency PM, one of my clients was not particularly tech savvy. I hadn’t worked with him on the original project a few years earlier, but he still used our email hosting.

He’d occasionally call us with all kinds of technical problems that had nothing to do with the service we provided—which were annoying but also not worth invoicing for the quarter-hour here, quarter-hour there.

My favorite was when he called to say his email wasn’t working—and it turned out to be an internet outage at his office.

4 success factors for agency-run web hosting

Not scared away yet? When agencies do succeed at hosting services, I see four success factors:

1) They have a process for handling support calls that doesn’t require expensive account managers. Typically, this involves using a support ticketing system that doesn’t include incoming phone calls, or calls that go to an admin “overhead” employee who makes less than the account services team members.

2) They have a process to get paid for non-hosting problems that come up in hosting support calls. Typically, this is part of the hosting contract—once the agency establishes the problem isn’t related to the hosting itself, the client approves paying for help… or the call ends.

3) They have a sysadmin or other experienced technical person to keep things running smoothly. This might be a part-time sysadmin or 1-2 developers who can handle bringing things back when there’s an outage. As a PM, I eventually got access to reset a particular client’s virtual machine, which meant we could often avoid paying $85/hour to—and waiting for—our freelance sysadmin.

4) They require clients to pay the agency for ongoing CMS updates. Especially with shared hosting, security loopholes mean one site can affect other sites. Smart agencies provide hosting that includes security patches and other CMS updates—with additional budget if a particular update breaks something else on the site.

This also assumes that offering hosting services doesn’t devalue your strategy work, in my Think, Teach, Do agency services framework. You want clients to see you as a strategic partner, not the cable company.

Applying this at your agency

Thinking of providing hosting for the recurring revenue? Run the numbers on what it would take to do a good job, particularly around the labor required to provide tech support. Be sure to enlist someone who knows what they’re doing—for instance, Mark Berka has compiled some interesting web hosting statistics.

Providing hosting services and it’s hurting? Make a plan to transition people to their own hosting—it’s easier to charge them for extra help when they pay someone else for hosting (although if you’ve recommended a service that proves to be flakey, this can still hurt your reputation).

Doing hosting and it’s working great? Congrats—you’re in rare company! Enjoy the profits.

Question: What’s your experience at providing hosting services at your agency?

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