I have a confession to make: During the entire 6 years I ran my hosting company, I pretty much stunk at marketing.
I’m embarrassed to admit that my hosting company’s website actually won a contest where the goal was to find a profitable hosting company with a terrible website. (The prize? A website redesign, of course.) Our Adwords strategy was never profitable. I even failed at promoting profitable affiliate programs to our clients, and I never built a list. Frankly, I was awful at anything related to marketing.
But we lined up client after client.
Many of you have asked me how we did this, and my two-word answer is “We listened.” While this is absolutely true, and you should take it to heart, it is time to explore that more in-depth. How exactly did we get customers?
A Different Approach
I approached web hosting from a completely different perspective than most web hosting company owners. Most web hosting companies are interested in volume — that is, selling cookie-cutter solutions to as many clients as possible. This is the most technically efficient strategy. It fits in well with the logical minds of many hosting company owners.
Of course, the customers get marginalized in this situation. Tired of getting stuck in the morass of cheap hosting companies with terrible support, they would appear on forums like Web Hosting Talk, only to get caught up in the next frenzy of “Your first year for $7!” hosting craziness that erupted.
I quickly realized that cheap hosting wasn’t the market for me. Our profits were slim to none, and I was going to have to outsource our support to make any money. Cheap hosting only works with economies of scale. Unfortunately, it’s also what most people think of as “web hosting”, so many new company owners end up going out of business because they can’t make a profit selling hosting for a few dollars a month.
Finding More Profitable Customers
After doing a cost analysis, I realized our most profitable customers were in the $200-$300/month range. They were much harder to come by than the cheap hosting customers, but they also demanded less of our time.
In talking to these more profitable customers, I learned that they had chosen my business because we were pretty much the opposite of most of the “big box” hosting companies. Instead of offering generic “boxes”, we took the time to help them build out custom servers and solutions that suited their needs exactly.
Better yet, as the CEO, I took personal time to ensure they were satisfied — often following up with them a week or so after everything was installed, training my staff to address each customer by name, and even taking customers out to lunch and listening to them.
In other words, my business succeeded because we did the exact opposite of what most thought a company had to do in order to become successful in the web hosting world — offer generic solutions and cut costs.
In talking to other successful web hosting company owners, I learned that the ones with the consistently highest profit margins, the happiest customers, and the happiest staff did the same thing we did: added the personal touch to an industry so sorely needing it.
Taking This Lesson To Your Business
Instead of focusing on flashy websites and cookie-cutter solutions, what can you do to make your business stand out and be more profitable?
- Communicate with your customers frequently. The more often the communication, the better. Even if we were just working on a problem and hadn’t solved it yet, I trained my staff to respond and say we were working on it. This applies to any small business. Don’t be afraid to say “I don’t know, but I’m figuring it out” or “I will have the answer for you soon.” Clients appreciate communication, even when you haven’t solved their problem yet.
- Cherry-pick your customers. I relied on my instincts to help me pick customers. If at all possible, I tried to meet them in person before they ordered. If I couldn’t meet them in person, I’d get on the phone with them. During our first meeting, I felt them out. What were their goals in picking a hosting company? If they couldn’t see past our higher prices, I would tell them frankly, “If low price is your only objective, we’re not the best fit for you. We’re worth more, and here’s why.”
I explained to every potential client that we would make a special effort to make sure they would be 100% satisfied. I had a great track record of closing the sale at those first meetings, because the customers knew they would be well taken care of. Do this at your first meeting with clients, too — if they’re focused on price, remind them of why you are more valuable than a low-cost competitor. If they don’t bite, you should be the one showing them the door. There are plenty more clients out there who are willing to pay more for someone of higher quality.
- Whenever possible, go for the more lucrative contracts. It’s easier to manage 2 customers at $500/month each than 100 customers at $10/month each, and both net you the same amount of revenue. What do you have to offer to drive your customer revenue up?
My company had just 170 customers when we were acquired, but our average revenue per customer was around $425/month. 170 customers seems small, until you add up the numbers and realize just a few more customers would have pushed us over $1,000,000 a year in revenue. Best of all, we were able to service those 170 customers with as few as 4-5 employees. Imagine how many employees we would have needed to service the same amount of revenue with shared hosting: 5,700 $10/month customers!
As a small business owner or entrepreneur, your focus should be on consistently driving more and more value to your customers. Start with a target in mind. For instance, maybe you want $50,000/month in revenue. That’s 1000 customers paying you $50/month, or 100 customers paying you $500/month. What services or products can you offer to your customers so that each one will want to pay you $500/month?
If you don’t know, start taking your target audience out to lunch and asking them those sorts of questions. I guarantee you that every single small business that is in revenue and profitable has some problem or pain point that they would pay $500/month to get rid of. What are those pain points, and how can you make a replicable product or service that you can sell to 100 of them? If you take 10 lawyers or 10 accountants or 10 startup company CEOs out to lunch, they’ll tell you. Then build your company around that.
Stop killing yourself by creating a business that requires thousands of customers to be profitable, and start figuring out where your potential customers’ real pain points are. Then build your company as a solution to their problem. You’ll be making thousands of dollars a month sooner than you expect, and you will be far more sane. The best part? You’ll no longer feel compelled to spend all that money on a flashy website to make your business a success. 🙂
- The intangibles (Seth Godin): “How do you make a sale (to another business or to a consumer) when you cost more?”
- Derek Sivers interviews Tim Ferriss: A must-read. “In most industries, there will be two or three examples of people who do things entirely differently, and I think it’s very worthwhile to examine the methods that they use.”
- Here’s How to Become Rich: Deliver value. Change the world. “What does everybody want? To be more successful! Then why is every hosting provider talking about gigabytes and megabits?”