Colocation Pricing Models and Cost: What to Expect

If you are planning on including colocation in your business continuity strategy, understanding its pricing models and costs is a must. This guide will help you understand the different ways colocation services are priced and the factors that influence them.

Keep reading to learn your options and the aspects that affect how much colocation services cost.

Pricing Models and Cost Structures

Colocation comes with fixed and variable costs. It is generally grouped in one of three ways depending on your business’s needs.

Let’s take a closer look at what you can expect from every available pricing model.

Triple Net Pricing (NNN)

The triple net pricing model divides your lease into three portions. These include the base price and your pro-rata share of operational expenses along with your critical monthly load consumption and essential load cost.

It is the most transparent pricing model since the client can see how their total charge is calculated according to expenses.

This type of pricing is best suited for large enterprises that are looking for long-term leases. Since the base rent remains the same over long periods, the client ends up paying a lower total cost of ownership over the term of the lease.

The biggest benefit and drawback of triple net pricing is that the customer might have lower-than-expected or higher-than-expected operating costs.

Modified Gross Pricing

In the modified gross pricing model, the base rent will also include the pro-rata share of the client’s operational expenses. In this model, the vendor takes on some of the risks of variable operational expenses while the client gets a fixed price for the year.

However, the client ends up paying a margin fee that the vendor adds to the base rent. This is done to cover losses from variable costs.

Gross Pricing

The gross pricing model in colocation is an all-in lease that includes all of the client’s share in operational expenses. It is typically fixed so the client always knows what they’re paying.

This type of pricing model is perfect for small companies with minimal service requirements since gross pricing will not include additional services or equipment. However, the provider may charge higher prices for utility and taxes to keep their losses from variable costs in check.

Factors That Influence Pricing and Ways to Optimize Costs

1.    Location

The location of the colocation facility is the main factor that influences pricing although it doesn’t directly appear on your bill.

Basically, the more in-demand your facility location is (NYC or LA), the more you’ll have to pay for every aspect of your service. Meanwhile, the more remote your location is, the less you pay. However, remember that location will also affect the security threats you face and how easily you can access the internet and power.

2.    Space and Equipment

Space refers to the amount of data center space and rack space that is being rented from a colocation provider. Equipment refers to the cost of renting additional equipment from the provider.

3.    Power

One way to optimize costs is to ensure the facility has a Power Usage Effectiveness (PUE) closer to 1.0. The lower the PUE, the lower your pricing.

4.    Connectivity and Bandwidth

Connectivity costs involve a one-time setup fee and monthly charges for the internet. These can vary widely depending on the connection type.

On the other hand, bandwidth refers to the amount of data transmitted over a network within a specific timeframe. While higher bandwidth will cost you more, there’s little you can do about it. This is because your applications and workloads will determine how much bandwidth you require.

5.    Compliance and Security

While compliance is mandatory for businesses and colocation providers, it involves costs. Compliance is mainly the responsibility of the provider. It ensures their networks are adhering to industry regulations.

Security costs involve the cost of all the digital and physical systems that keep the clients’ data, network, servers, and other assets safe.

6.    Redundancy and Disaster Recovery

This aspect refers to all the fees charged for backup/disaster recovery systems and their maintenance. It may include the cost of backup generators, cross connections, or running two colocation environments simultaneously.

7.    Setup and Change Fee

This category can include a variety of charges that may add up during setup, upsizing, or downsizing. This is typically a one-time fee and can vary widely depending on the type of deployment.

8.    Level of Support

Depending on the operational requirements, your business might need less or more support services.

Thankfully, colocation providers offer various pricing tiers for them so businesses only pay for what they need. Typically, a tier 4 data center is the most reliable while a tier 1 data center will only offer the bare essentials.

Conclusion

Understanding how your colocation costs are added and the factors that influence them will help you get a better deal from your colocation provider. With these basics out of the way, we hope you can negotiate a better service level agreement for your business.

Related Resources:

Colocation 101: A Complete Guide [What it is, Types, Features, How it Works, Benefits]

Colocation Vs. Dedicated Hosting

Colocation Solutions