Server colocation is an excellent option for businesses who want to streamline server operations. By leasing space in a data center, companies can outsource power and bandwidth costs, while keeping full control over hardware and data. The cost savings in power and networking alone can be worth moving your servers offsite, but there are other expenses to consider as well.

This guide outlines the costs of colocation and helps you better understand how data centers price colocation.

12 Colocation Pricing Considerations Before Selecting a Provider

1. Hardware – You Pick, Buy and Deploy

With colocation hosting, you are not leasing a dedicated server. You are deploying your own equipment, so you need to buy hardware. As opposed to leasing, that might seem expensive as you are making a one-time upfront purchase. However, there is no monthly fee afterward, like with dedicated servers. Above all, you have full control and select all hardware components.

Prices vary greatly; entry-level servers start as low as $600. However, it would be reasonable to opt for more powerful configuarations that cost $1000+. On top of that, you may need to pay for OS licenses. Using open-source solutions like CentOS reduces costs.

Many colocation providers offer hardware-as-a-service in conjunction with colocation. You get the equipment you need without any upfront expenses. If you need the equipment as a long-term investment, look for a lease-to-own agreement. At the end of the contract term, the equipment belongs to you.

When owning equipment, it is also a good idea to have a backup for components that fail occasionally. Essential backup components are hard drives and memory.

2. Rack Capacity – Colocation Costs Per Rack

Colocation pricing is greatly determined by the required physical space rented. Physical space is measured either in rack units (U) or per square foot. One U is equivalent to 1.75 inches in height and may cost $50 – $300 per month.

For example, each 19-inch wide component is designed to fit in a certain number of rack units. Most servers take up one to four rack units of space. Usually, colocation providers set a minimum of a ¼ rack of space. Some may set a 1U minimum, but selling a single U is rare nowadays.

When evaluating a colocation provider, consider square footage, cabinet capacity, and power (KW) availability per rack. Costs will rise if a private cage or suite is required.

Another consideration  is that racks come in different sizes. If you are unsure of the type of rack your equipment needs, opt for the standard 42U rack. If standard dimensions don’t work for you, most providers accept custom orders. You pick the dimensions and power capacity. This will increase costs but provides full control over your deployment.

3. Colo Electrical Power Costs – Don’t Skip Redundant Power

The reliability and cost of electricity is a significant consideration for your hosting costs. There are several different billing methods. Per-unit billing costs a certain amount per kilowatt (or per kilovolt-amp). You may be charged for a committed amount, with an extra fee for any usage over that amount. Alternatively, you may pay a metered fee for data center power usage. Different providers have different service levels and power costs.

High-quality colocation providers offer redundancy or A/B power. Some offer it at an additional charge, while others include it by default and roll it into your costs. Redundancy costs little but gives you peace of mind. To avoid potential downtime, opt for a colocation provider that offers risk management.

Finally, consider the needs of your business against the cost of electricity and maximum uptime. If you expect to see massive fluctuations in electrical usage during the life of your contract, let the vendor know upfront. Some providers offer modular pricing that will adjust costs to anticipated usage over time.

4. Setup Fees – Do You Want to Outsource?

server racks and a colo support center

Standard colocation Service Level Agreements (SLAs) assume that you will deploy equipment yourself. However, providers offer remote hands onsite and hardware deployment.

You can ship the equipment, and the vendor will deploy it. That’s the so-called Rack and Stack service. They will charge you a one-time setup fee for the service. This is a good option if you do not have enough IT staff. Another reason might be that the location is so far away that the costs of sending your IT team exceed the costs of outsourcing. Deployment may cost from $500 to $3,000 depending on whether you outsource this task or not.

5. Remote Hands – Onsite Troubleshooting

Colocation rates typically do not include support. It is up to your IT team to deploy, set up, and manage hardware. However, many vendors offer a range of managed services for an additional fee.

Those may include changing malfunctioning hardware, monitoring, management, patching, DNS, and SSL management, among others. Vendors will charge by the hour for remote hands.

There are many benefits to having managed services. However, that increases costs and moves you towards a managed hosting solution.

6. Interconnectivity – Make Your Own Bandwidth Blend

The main benefit of colocating is the ability to connect directly to an Internet Service Provider (ISP). Your main office may be in an area limited to a 50 Mbps connection. Data centers contract directly with the ISP to get hundreds or thousands of megabits per second. They also invest in high-end fiber optic cables for maximum interconnectivity. Their scale and expertise help achieve a better price than in-house networks.

The data center itself usually has multiple redundant ISP connections. When leasing racks at a carrier-neutral data center, you can opt to create your own bandwidth blend. That means if one internet provider goes down, you can transfer your critical workloads to a different provider and maintain service.

Lastly, you may have Amazon Cloud infrastructure you need to connect with. If so, search for a data center that serves as an official Amazon AWS Direct Connect edge location. Amazon handpicks data centers and provides premium services.

city skyline representing uptime standards

7. Speed and Latency – Application Specific

Speed is a measure of how fast the signals travel through a network. It can also refer to the time it takes for a server to respond to a query. As the cost of fiber networking decreases, hosts achieve ever-faster speeds. Look for transfer rates, measured in Gbps. Usually, you will see numbers like 10Gbps (10 gigabits per second) or 100 Gbps (100 gigabits per second). These are a measure of how fast data travels across the network.

A second speed factor is server response time in milliseconds (ms). This measures the time between a request and a server reply. 50 milliseconds is a fast response time, 70ms is good, and anything over 200ms might lag noticeably. This factor is also determined by geo-location. Data travels fast, but the further you are from the server, the longer it takes to respond. For example, 70 milliseconds is a good response time for cross-continent points of communication. However, such speeds are below par for close points of communication.

In the end, server response time requirements can differ significantly between different use cases. Consider whether your deployment needs the lowest possible latency. If not, you can get away with higher server response times.

8. Colocation Bandwidth Pricing – Burstable Billing

Bandwidth is a measure of the volume of data that transmits over a network. Depending on your use case, bandwidth needs might be significant. Colocation providers work with clients to determine their bandwidth needs before signing a lease.

Most colocation agreements bill the 95th percentile in a given month. Providers also call this burstable billing. Burstable billing is calculated by measuring peak usage during a five-minute sampling. Vendors ignore the top 5% of peak usage. The other 95% is the usage threshold. In other words, vendors expect your usage will be at or below that amount 95% of the time. As a result, most networks are over-provisioned, and clients can exceed the set amount without advanced planning.

9. Location – Disaster-Free

Location can profoundly affect the cost of hosting. For example, real estate prices impact every data center’s expenses, which are passed along to clients. A data center in an urban area is more expensive than one in a rural area due to several factors.

A data center may charge more for convenience if they are in a central location, near an airport or easily accessed. Another factor is the cost of travel. You may get a great price on a colocation host that is halfway across the state. That might work if you can arrange a service contract with the vendor to manage your equipment. However, if employees are required onsite, the travel costs might offset savings.

Urban data centers tend to offer more carriers onsite and provide far more significant and cheaper connectivity. However, that makes the facility more desirable and may drive up costs. On the other hand, in rural data centers, you may spend less overall for colocation but more in connectivity. For end-clients, this means a balancing act between location, connectivity, and price.

Finally, location can be a significant factor in Disaster Recovery if you are looking for a colocation provider that is less prone to natural disasters. Natural disasters such as floods, tornados, hurricanes, lightning strikes, and fires seem to be quite common nowadays. However, many locations are less prone to natural disasters. Good data centers go the extra mile to protect the facility even if such disasters occur. You can expect higher fees at a disaster-free data center. But it’s worth the expense if you are looking for a Disaster Recovery site for your backups.

Before choosing a colocation provider, ask detailed questions in the Request for Proposal (RFP). Verify if there was a natural disaster in the last ten years. If yes, determine if there was downtime due to the incident.

10. Facilities and Operations – Day-to-Day Costs

Each colocation vendor has its own day-to-day operating costs. Facilities and operations costs are rolled into a monthly rate and generally cover things like critical environment equipment, facility upkeep and repair, and critical infrastructure.

Other benefits that will enhance your experience are onsite parking, office space, conference rooms, food and beverage services, etc. Some vendors offer such commodities as standard, others charge, while low-end facilities do not provide them at all.

11. Compliance

Compliance refers to special data-handling requirements. For example, some data centers are HIPAA compliant, which is required for a medical company. Such facilities may be more sought after and thus more expensive.

Just bear in mind that if a data center is HIPAA compliant doesn’t necessarily mean that your deployment will be too. You need to make sure that you manage equipment in line with HIPAA regulations.

12. Security

You should get a sense for the level of security included with the colocation fee. Security is critical for the data center. In today’s market, 24/7 video surveillance, a perimeter fence, key card access, mantraps, biometric scans, and many more security features should come as standard.

The Final Word: Colocation Data Center Pricing Factors

The most important takeaway is that colocation hosting should match your businesses needs. Take a few minutes to learn about your provider and how they operate their data center.

Remember, many of the costs of colocation hosting are clear and transparent, like power rates and lease fees. Other considerations are less obvious, like the risk of potential downtime and high latency. Pay special attention to the provider’s Service Level Agreement (SLA). Every service guaranteed is listed in the SLA, including uptime guarantees.