How to Set Prices & Storage Plans and Calculate Profits for Your Online Backup Service

Two of the most common questions I am asked by new Online Backup Service Providers are, “How much should I charge,” and “How much storage space should I offer?” The answers have huge impact on profitability and marketability, and have been among the most difficult to answer – until now.

If you dissect the questions you find that they have something important in common – the cost of storage space, broken down by gigabyte. To answer them both, we need to know how much each gigabyte costs us, per month. Then, just like any retailer with inventory, we can figure out how to price it.

First let’s convert ALL our business costs into costs per gig per month, capital expenses first. These are the costs of hardware, equipment and software that is sold on a one-time-fee, perpetual license basis like Remote Backup Systems’ RBackup. Add up all these costs and divide by the number of months over which you want to amortize them. Often, this is also the length of time you expect your hardware to last before you have to replace it. It’s just a convenient figure.

Thirty six months is a good place to start. So, divide all your capital expenses by thirty-six. This gives you their cost per month. Now add up all your monthly expenses, like rent, hosting charges, bandwidth and utilities. Add in your monthly capital expenses and you will have your total monthly expenses.

Now, here’s the part most people miss. Divide your total monthly expenses by your total amount of storage space in gigabytes. Brilliant, yes? This gives you your monthly cost per gigabyte.

It’s really a little more complicated than this, but this is good start. We didn’t take into account your startup loans or expenses, marketing, and a few other expenses. Be sure you consider ALL your expenses. It’s a good idea to consult your accountant.

Now that you know how much your inventory actually costs, you can start working out how much you can charge, and you can project your profit.

I’ve written a little online calculator to help with all this. It will calculate your cost per gigabyte, your monthly expenses, your amortized capital expenses, your capital payoff (in months), and it will project your profit by both a number of clients and your storage capacity. The calculator takes into account a base price per month, and a base storage quota, and automatically accounts for the different prices of under-quota storage and over-quota storage.

My calculator is in spreadsheet format, so you can easily test many combinations of base prices, quotas, amortization, over-quota prices, and storage space allocation. It assumes the most common online backup business model of charging one price for an account that includes a fixed amount of storage space (base quota), and an additional charge per gigabyte above the base quota.

How would you like to double the amount of storage space you have to sell in the next 30 seconds?

My calculator does not take data compression into account. Remember that online backup software from Remote Backup Systems compresses data, sometimes as much as 90%. So when you are doing calculations that include the NATIVE size of the data, calculate the server-side data size as half (just to be safe) the size of the client-side data. So, 10 GB of customer data will usually become 5 GB of data on your server.

Many online backup services charge by the NATIVE file size, simply because that’s what customers know, and it is impossible to predict how much a file will compress. RBS software always displays totals to the client as native file size, not compressed. So, in many cases, you can adjust for file compression simply by doubling the amount of storage space you have available when you enter it in the calculator.

I wish you success!

Rob Cosgrove is the CEO of Remote Backup Systems at http://remote-backup.com. He founded the Online Backup industry in 1987.