Making a Profit
Will my new ISP make a profit?
No.
Probably not.
Depends.
It is unrealistic to expect to make a profit, let
alone break even, until a regular paying customer base has been built up.
This could take anything from a few weeks to over a year.
Planning to make a profit as soon as possible is usually high on every
new ISPs agenda but how to get to that position seems to be one of great
mystery and highly dependant on several factors. It all depends on
getting those paying users and convincing them to pay for your service
even if it is more expensive than competing ISPs.
And how should you define what a profit is? Simply an excess of income
or outgoings and other associated costs? This is where the equation can get
nice and complicated. Some startup ISPs would consider their business a
success if they could just cover their bills. Often this may not include
actually earning a salary from the business. Where it does then the required
salary figure and be adjusted as needed to show a profit or loss. Sometimes,
(most times!) with a startup ISP there may be no concept of any salary at
low income times.
Some points worth considering:
How many paying customers you can get over one month, 3 months etc.
This is not so easy to estimate and many startup ISPs find it real
difficult to establish enough paying customers to break even within a few
months let alone make any sort of profit. When there were few ISPs in
New Zealand it was a providers market with a regular growing internet
user base. Now with many more ISPs in the marketplace and profit margins
being really thin it is much more difficult to get those elusive paying
users.
What geographical area are you covering? This will often parallel a
Telecom free dial area since users of your service will want to make a
local call to connect. It is a certain fact that users needing to make a
toll call will immediately move to a local ISP if and when one is available.
So do not depend on attracting any meaningful numbers of dial up users from
outside you local dial area. Even if you do eventually get some of these users
then expect them to go away sometime soon.
Some simple research into the population figures of the area you
are servicing will be worthwhile.
It should not be too difficult to figure out if there is
the population base to support your ISP operation.
For example, in Auckland it is
estimated there are about 10,000 internet users out of a total population
of just over 1 million, giving a figure of 1 in every 100 people who use
the internet. This figure may be biased somewhat since the larger population
areas such as greater Auckland will have many businesses with a large
proportion of their employees having access to email and perhaps the World
Wide Web. This may not be the case in areas with fewer large employers where
the user ratio could be as low as 1 in every 200 or 300 of the population.
The good news is that more and more people are becoming aware of the internet
especially now that many schools and colleges are connected and including
juse of the internet in their teaching activities.
Business users. This really covers any type of organisation that could be
a potential customer. Anything that is not an individual, private or home
user. If there is any chance whatsoever of attracting _any_ business users
then make every effort to do so. This should be a main research topic when
planning your ISP business.
What you charge a business for the services you provide is an interesting
issue. They will expect to be treated fairly when compared to the prices
you are charging for individual accounts. It may be possible to sell them
a block of user accounts and allow some discount or if they need a full
time internet connection then realistically price what you need to
charge considering the bandwidth and other resources you pay for that they
will need. Take care not to overcharge to a point where it is cheaper for
them to connect via some longer distance link (eg Telecom Digital Data
Services) to an ISP in some other area.
Most businesses are more concerned with getting a reliable and well
supported supported internet connection so generally are prepared to pay
for this service.
The good news is that income from a business will be much more stable and
easier to collect when compared to dealing with home user accounts.
A good base of such business accounts will mean a quicker move to that
'making a profit' point in your ISP business.
The competition will be other ISPs or organisations offering internet
services to the same customer base you will be targetting. The real rub here
is that where there are already ISPs covering the same customer base that
you intend to then the pricing will become a major competing issue.
Already many ISPs have had to slice profit margins down to a marginal level
just to be able to survive.
So take a good look at what these other ISPs are offering, how they are
pricing their various service options and read in nz newsgroups what
existing users of these services think of their ISP.
The costs versus income juggling act.
Yes, this is where it all comes down to. Profit is that happy situation
where income is greater than expenditure. This comes down to what you pay for
your internet connection, telephone costs, and all other essentials that
your service needs to survive. The other side is the income from the people
and companies and whoever else that use your internet service.
Many startup ISPs need to cut the expenditure to the essential minimum while
going through the phase of building up the income earning customer base.
This is the time that profit is a wish and where basic business survival
is the greatest concern.
These pages designed and maintained by the KC webmaster. If you have any
queries or comments about the KC World Wide Web pages or other services
please
contact us .
Page owner: <dgd@kcbbs.gen.nz>
Last modified: 13 February 1997.