How To Set Up the Backend of Your Web Hosting Business
 by: Eric Holmlund

What is a backend?

I’m sure many business people and “scholars” have much better definitions of this than me, but I like to think of it as the guts of the business that make things run behind the scenes. When I think of a backend as it pertains to web hosting, I consider the following elements:

    * Billing system
    * Order processing
    * Support system
    * Accounting and recordkeeping

Billing system

As you contemplate your billing system, the first piece of information you should look at is what types of payments are you going to accept. Hopefully, you’ve already outlined this in your business plan. Will you take Paypal, or will you accept credit cards through your own merchant account, or will you accept checks and money orders by mail? Accepting payments by mail significantly complicates your business, so I would suggest not accepting payments by mail, or if you do—only accept annual term payments.

The easiest payment system to implement, and my recommendation, is to use a third-party payment processor such as Paypal or 2Checkout. These third-party payment processors allow you to accept credit cards, debit cards, and e-checks securely through their web-based system. They also allow you to create automatically recurring billing, which is the most powerful billing tool that all resellers should implement. Rather than having to bill your customers each term (month, quarter, etc), the third party payment processor will automatically bill your customer on their due date, based on the terms of the subscription that you created. In other words, if you create a $10/month subscription, it will automatically charge your customer $10 on the day they sign up, and then it will charge them $10 on the same day of each subsequent month. This is a huge timesaver, by automating the billing process you can eliminate the need to bill your customers at all.

If you do wish to send your customers a formal bill, or if you aren’t using automatically recurring payments, there are several software programs that can help automate the process for you. The ones specifically designed for web hosting that I would recommend are WHMautopilot, Lpanel, and Modernbill. There dozens of other billing programs available, but I recommend those ones because they also have auto-setup scripts and various client-management features built in to them, which we will discuss next.

Order processing

This part of your backend can basically be broken down into two options: manual processing, or automated processing. Manual processing is pretty much self-explanatory. Your customer places an order and pays using one of your available payment methods. When you receive the order and payment, you go into your Web Host Manager (WHM) and set up the client’s account, and then send them a welcome email with the pertinent information. Using this method there are a few different ways you can set up your order form to collect the information you need. The most important piece of information you need is the domain name. If you use only Paypal as a payment processor, Paypal has a form tool which will allow you to collect up to two form fields along with each order.

For example, you could set up your form so that the customer types in their domain name and username along with their order. When you receive the order confirmation from Paypal, this information will be included. Another method is to simply use a form mail script. This is easily implanted using a two-part order form. In the first part, they type in their applicable information and click "submit", thus emailing you the form. When they click submit, they are then redirected by the form mail script to your payment page. The third method is to use a shopping cart application which integrates the collection of data and payment processing. The advantage of manual order processing is it can help reduce the possibility of fraud and abuse because each order is screened by you as you process it.

Automated order processing saves a lot of time for the reseller, and also creates a smooth ordering process for the customer. Automation is a huge key to building a successful online business, and this is one form of automation that I would highly recommend. An automated order processing program collects the pertinent data from your customer, directs them through their online payment, and then interacts with your web server to set up the account and then sends out a welcome email to your customer.

The programs I would recommend are WHMautopilot, Lpanel, and Modernbill. I am certain there are several other equally viable software programs available as well. The risk of automated order processing is the potential for fraud, and abusers such as spammers signing undetected. However, I would say the benefits of automated order processing typically outweigh the risks. If a customer on the other side of the world orders at 3:00AM, they don’t have to wait for you to wake up and check your email. Your program will go to work for you and set up the account. On top of performing all of these tasks, it also creates a nice customer database which can be used for billing and a number of client administration tasks such as suspending accounts, performing server checks, etc. Just make sure you manually review each order after it has been set up. This will help catch fraudulent customers before they have a chance to run their malicious activities (like spamming) on your server.

Support system

Your solution for a support system depends largely on your own aptitude and preference. If you are familiar with the web hosting platform (such as cPanel) and with basic server administration tasks, you may wish to support your customers yourself. This is especially true while your business is in the startup phase with only a few customers, or if you intend to keep your customer base small. If you choose not to be your own support tech, there are a few alternatives. The obvious one is you could hire a support tech to work for you. While this is often the most ideal situation, most startups can not afford to hire an additional person initially.

A more affordable solution may be to outsource your technical support to a company who specializes in providing support for web hosting companies. Many outsourcing companies are located in technologically advanced areas in low-cost countries such as India. Outsourcing to an overseas company can be a very cost-efficient solution, but can also result in additional problems and challenges so you want to make sure you adequately research your solution before making any commitments. Outsourcing companies typically offer one or more pricing solutions including per-ticket, per-customer, per-server, flat fee per month, or per representative hired.

There are also other creative support solutions available. One solution I’ve seen work with success is creating a community forum where customers can help each other, guided by more experienced moderators and administrators. A host can offer free hosting to moderators in exchange for their help in running the forum. Other forms of bartering have been done successfully as well. For example you could provide free hosting in exchange for 5 hours a month of answering trouble tickets in your helpdesk.

As for the support options themselves, again hopefully you’ve outlined this in your business plan (see http://www.howtosellhosting.com). Are you offering email only, or a helpdesk, live chat, or telephone? Email and telephone are self-explanatory; if you’re even considering starting your own business I’m sure you know to use email and the telephone. Live chat is a nice option if you decide to use it, however you need to be diligent in being available or it could be counteractive. Have you ever seen a site that offers live chat, but the operator is never available during business hours? I think it shows a lack of professionalism, and I rarely buy from such companies. On the other hand, if you run it properly it can be a valuable tool that helps you get customers problems resolved in one chat session rather than a back-and-forth email or support ticket conversation. To run live chat you could simply post your IM screen name (handle) for one of the popular IM platforms such as AIM, MSN, or Yahoo. The other method would be to use a web-based chat client from a free download, or on a subscription basis from a chat provider.

Regardless of whether you offer any other methods of support, the one method I will strongly suggest is an online helpdesk where customers can submit trouble tickets. There are several free helpdesks available, as well as more powerful applications available for purchase. The helpdesks I would recommend are Kayako or Perldesk, both available on a monthly or yearly subscription. Some client management programs such as Lpanel also have a functional helpdesk integrated into them. It is best to choose a helpdesk that supports email piping. In other words, you can send an email to [email protected] and it automatically opens a helpdesk ticket. Then when you answer the ticket, it also sends an email reply to the client, who can then reply from within their helpdesk account or by replying to the email.

Accounting and recordkeeping

This side of the business can easily be overlooked by enthusiastic startups, and is often the less-favorable task for creative entrepreneurs. However, a solid accounting and recordkeeping system is essential to the long-term survival of your business. If you use an automated system such as WHMautopilot, Lpanel, or Modernbill, it will automatically keep track of much of your financial information which is a useful tool and database.

However; regardless of whether you use one of those programs, I would suggest keeping an offline record of your customers and financials. This could be done through an accounting application like Quicken, or with a customized database in Access, or using a simple spreadsheet (which is my preferred method) in a program like Excel. I personally prefer Excel for its simplicity. Your records should include the following information at a minimum:

    * Customer name
    * Domain name
    * Billing Due date
    * Subscription ID number
    * Price
    * Size of plan
    * Email address

In addition to your customer information, it is good to keep track of your overall finances using at a minimum a general ledger and P&L (profit and loss) statement. These documents are much simpler than you may think; in fact if you know how to balance your checkbook you’re almost there. Your general ledger is basically a list of all the expenses and revenues for the month. Again this can be a simple Excel spreadsheet.

Your expenses would include any expense related to the business such as your reseller account, advertising costs, support costs, Paypal or merchant fees, etc.

Your revenues are the money that you receive from your hosting clients.

You can then add up your expenses and revenues for the month, and if your revenues exceed your expenses, you made a profit! A P&L statement simply summarizes the information from your general ledger in a format used by most businesses to gain a good overview of a company’s financials in one page. I’m not going to give you an Accounting 101 class here in this e-course because you can easily find a lot of information about P&L’s and accounting on the web.

If you’ve done your accounting each month, your taxes should be a breeze, especially if you remain a sole proprietor with no employees. All you need to do is take the information from your year-end P&L statement and fill out a schedule C (profit or loss from a business). NOTE: This is NOT official tax advice. I am not an accountant, and you should consult your tax adviser before filing your tax return.

Regarding business status, the simplest type of business with the least amount of paperwork is a sole proprietorship. Another way to simplify your business and paperwork is to avoid having any employees. You can avoid hiring employees by only using help on a contractual basis (in other words they are a contractor vs. an employee). There are several restrictions in this regard (you can’t set a contractor’s hours, etc.), so it would be best to do some serious research and/or consult an attorney before making any contractual or employment arrangements.

About The Author

Eric Holmlund operates several successful online businesses, and uses the flexibility of working at home to spend time travelling, working in the ministry (http://www.prayway.com), and having fun with his wife and kids in beautiful Colorado. Be sure to check out his full e-course on setting up a web hosting business at http://www.howtosellhosting.com