Server Colocation Pricing: The Ultimate Guide

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Colocation Pricing

Key Takeaways

  • Server colocation is increasingly essential due to the growing reliance on efficient and secure IT infrastructure.
  • The colocation industry has shifted to flexible pricing due to technological advances and increased competition.
  • Colocation eliminates the capital expense of building data centers.
  • Major pricing determinants include rack space, power consumption, bandwidth needs, and additional managed services.
  • Location significantly affects colocation costs, with prices varying based on local real estate, energy costs, and regulatory environments.
  • Colocation pricing typically follows per rack, per kW, or flat rate per circuit models.
  • Effective negotiation tactics with providers can yield better pricing and service terms.
  • Shift towards usage-based pricing models, reflecting trends similar to cloud computing.
  • Organizations must regularly assess colocation needs, stay informed on industry trends, and maintain flexibility.

Today’s digital age runs on technology. Businesses rely on it to drive their operations. Server colocation has emerged as a crucial solution for organizations. They seek efficient and reliable infrastructure management.

The demand for colocation services has grown a lot. Businesses of all sizes outsource their IT infrastructure needs. This lets them focus on their core skills. It also ensures their IT is secure, high-performing, and scalable.

In recent years, the pricing of server colocation has changed a lot. At first, it was seen as a high-cost option. But, the industry has shifted to more competitive and flexible prices. Also, there are advances in technology. And there is a growing need for affordable solutions. These solutions must align with the changing needs of businesses.

Businesses rely more on digital tech. They need efficient data management. So, server colocation has become vital. We will delve into server colocation details as we explore this topic. We will also cover its advantages and examine the factors shaping its price in modern business.

Table of Contents

  1. Key Takeaways
  2. Understanding Server Colocation
    1. Benefits of Opting for Server Colocation
  3. Comprehensive Breakdown of Colocation Pricing
    1. 2U Server
    2. Rack Space
    3. Power Usage
    4. Bandwidth
    5. Influence on Overall Pricing
  4. Factors Influencing Colocation Pricing
    1. Geographic Location of Data Centers
    2. The Impact of Local Regulations and Energy Costs
    3. Demand and Supply Dynamics in the Colocation Market
  5. Pricing Models Explained
    1. Flat Rate Pricing vs. Metered Pricing
    2. Choosing the Right Pricing Model for Your Business Needs
  6. How to Negotiate the Best Colocation Deal
    1. Tips For Negotiating with Colocation Providers
    2. Common Pitfalls to Avoid During Negotiations
  7. Cost Optimization Strategies
    1. Best Practices for Reducing Colocation Costs
    2. How to Leverage Economies of Scale
  8. What Applications Are Best Suited For Colocation?
    1. Custom Hardware Requirements
    2. Focus On Hardware Investment
    3. Large Scale Deployments
  9. Conclusion
  10. FAQs

Understanding Server Colocation

Understanding Server Colocation

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Server colocation is a service where Businesses can place their servers and networking equipment in a third-party data center. They do this instead of housing them in their facilities.

It is like renting a secure home for your servers. Instead of keeping them in your office, you place them in a specialized facility to keep them safe and running smoothly. This facility provides everything your servers need. It has power, cooling, and internet. It’s like having a professional landlord for your servers.

Benefits of Opting for Server Colocation

Benefits of Opting for Server Colocation

Let’s discuss the benefits of server colocation;

  • No need to Build a Data Center: Building an on-premises data center is expensive. It requires finding a suitable facility. Then, adding backup power and cooling. And make sure it’s secure. Colocation eliminates these upfront capital costs.
  • Access to Superior Infrastructure: Data centers have robust power backups. They also have advanced cooling and high-bandwidth internet. Replicating this level of infrastructure in-house is difficult for most companies.
  • Improved Security and Compliance: Data centers have strict physical security. They use biometric access controls and have round-the-clock surveillance. They also adhere to industry standards for data security and privacy compliance. Colocation involves other security considerations like data encryption, network security, and compliance with industry regulations.
  • High Availability and Redundancy: Top data centers have backup power and internet connections. They also have backup systems. These things ensure they have the most uptime. This level of redundancy is hard to achieve with on-premises servers.
  • Scalability On-Demand: As a company’s needs change, the company can quickly request more rack space or power from the colocation provider. This scalability is more difficult with dedicated servers.
  • Reduced IT Overhead: With colocation, companies can outsource tasks. These include facility management, hardware maintenance, and infrastructure upgrades. They outsource them to the data center staff. Internal IT teams can focus on higher-value activities.
  • Potential Tax Benefits: Colocation’s operating expenses can sometimes have tax benefits. They have them compared to the capital expenses of building a private data center.
  • Geographic Flexibility: Companies can choose a data center anywhere. They do this to be near their users. They do it to follow data rules. They also do it to ensure business continuity after disasters.
  • Energy Efficiency: Modern data centers utilize energy-efficient cooling systems and hardware. This can mean lower operating costs. It is compared to running servers in an office building.

Comprehensive Breakdown of Colocation Pricing

Comprehensive Breakdown of Colocation Pricing

Credits: Freepik

Various factors determine colocation pricing. The main parts are rack space, power usage, and bandwidth. There are also extra services, like security, compliance, and support.

Let’s break down how each of these factors influences the overall pricing.

2U Server

A 2U server colocation plan offers 3.5 inches of rack space. It includes set power, cooling, and bandwidth to meet server needs. In a 2U plan, key factors include security, support level, and scalability.

You need to see if they are enough and can handle business growth. These plans balance the need for security, reliability, and cost-effectiveness. They are suitable for businesses that want to manage their IT well.

Rack Space

Rack space is a fundamental factor in colocation pricing. The more space your equipment requires, the higher the cost. Colocation facilities typically offer space in cabinets or cages. Pricing is based on the space leased, usually measured in racks or cabinets. Larger organizations may lease an entire private cage suite.

Space is also measured in rack units (RU). A rack unit equals 1.75 inches. A standard 42U rack is 73.5 inches high. It can hold many combinations of server and networking gear. When planning, count the needed rack units. Allow space for future expansion.

Power Usage

Power is a significant cost factor in colocation pricing. The cost includes electricity for IT equipment and HVAC to keep servers cool. Power costs depend on the facility’s location and the market it operates. Redundancy in power supply also impacts pricing.

Colocation providers typically charge for power based on your equipment’s needs. This is usually measured in kilowatts (kW). The average price for colocation services was $163.44 per kW. This was primarily in North American data center markets.


Bandwidth requirements also influence colocation pricing. The more bandwidth you need, the higher the cost. Providers are moving away from traditional fixed and burstable bandwidth models. So, understand the pricing in detail.

Dedicated internet access (DIA) and IP transit are two standard connectivity options in colocation. DIA provides fixed bandwidth and service level agreements. IP Transit offers a well-peered ISP network for better connectivity and pricing.

Influence on Overall Pricing

The combination of these factors determines the overall colocation pricing. Providers typically offer three primary pricing models:

  • Per Rack: A flat monthly fee for each rack used.
  • Per KW: Pricing is based on the required power, measured in kilowatts.
  • Flat Rate Per Circuit: A flat monthly fee for each circuit provided to your allocated space.

When comparing colocation providers, consider all variables to ensure an apples-to-apples comparison. Location, data center quality, and support services can significantly impact pricing.

Colocation pricing is a complex mix of rack space, power usage, bandwidth, and additional services. Understanding these factors is crucial. They influence pricing. Consider them when selecting a colocation provider that meets your business needs and budget.

Read also: Managed Hosting vs Unmanaged Hosting: The Best Pick for 2024

Factors Influencing Colocation Pricing

Factors Influencing Colocation Pricing

Regarding colocation pricing, several factors are crucial in determining the overall costs. Knowing these factors can help businesses make intelligent choices. It can also help them optimize their colocation investments. Here are some key elements that influence colocation pricing:

Geographic Location of Data Centers

Geographic Location of Data Centers

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The geographic location of a data center is a significant factor that affects colocation pricing. Data centers in big cities or tech hubs tend to have higher costs. This is due to real estate prices, construction expenses, and competition for skilled labor.

For instance, colocation facilities in cities like New York, San Francisco, or London usually cost more. They cost more than those in less crowded areas. However, businesses may choose these locations to be near their target markets or to meet regulations.

The Impact of Local Regulations and Energy Costs

Local regulations and energy costs can significantly influence colocation pricing. Laws about the environment, zoning, and taxes can impact data center costs. They affect both construction and operation.

Additionally, energy costs play a crucial role in colocation pricing. Data centers use a lot of energy. The cost of electricity can vary significantly by location. These areas have abundant and cheap energy from hydroelectric or renewable energy sources. They may offer more competitive colocation pricing than regions with higher energy costs.

Demand and Supply Dynamics in the Colocation Market

The demand and supply dynamics of the colocation market can also impact colocation pricing. Providers may charge high prices in areas with high demand for colocation and few data centers. They do this because of the scarcity of available resources.

In contrast, providers may offer lower prices in regions with fewer colocation facilities or lower demand. They do this to attract and keep customers. Competition among colocation providers in a market can also influence pricing.

Also read Factors to Consider in Colocation Decision-Making.

Pricing Models Explained

Pricing Models Explained

Credits: Freepik

When pricing your products or services, there are two main approaches: flat rate and metered pricing. Each model has advantages and disadvantages; the right choice depends on your business needs and target audience.

Flat Rate Pricing vs. Metered Pricing

Flat rate pricing involves charging a fixed amount for a product or service, regardless of usage. This model is simple, transparent, and easy for customers to understand. It’s often used in subscription-based SaaS (Software as a Service) models. Customers pay a monthly or annual fee to access all the features.

On the other hand, metered pricing, also known as usage-based pricing, charges customers based on their actual usage of the product or service. This model is more flexible and allows customers to only pay for what they need.

It’s commonly used in SaaS pricing models where customers are charged based on factors such as the number of users, transactions, or data usage. The following table highlights their comparison summary.

Pricing Models Explained

Choosing the Right Pricing Model for Your Business Needs

When choosing a pricing model for your business, consider the following factors:

  • Target Audience: Understand your customers’ needs and preferences. Flat rates may appeal to customers who value simplicity and predictability. Metered pricing may be better for customers with varying usage needs.
  • Product or Service: Consider the nature of your product or service. Flat rates are better for products with a fixed set of features. Metered prices are better for products with variable usage.
  • Competitive Landscape: It is essential. Analyze your competitors’ prices and how they fit your target audience. Consider whether you want to follow the industry standard or differentiate yourself with a unique pricing approach.
  • Profitability: Evaluate the potential impact of each pricing model on your business’s profitability. Consider cost structure, revenue goals, and profit margins.
  • Scalability: Choose a pricing model that can accommodate future growth and changes in your business. Ensure the model is flexible enough to adapt to changing market conditions and customer needs.

Read also:Cloud vs Colocation: Best Data Storage Option for Businesses in 2024

How to Negotiate the Best Colocation Deal

How to Negotiate the Best Colocation Deal

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Negotiating the right colocation pricing deal is crucial for businesses. It helps them cut their IT costs and ensure they get the needed services. Companies can secure good terms and avoid pitfalls by using effective negotiation strategies. They do this by considering key factors.

Tips For Negotiating with Colocation Providers

Let’s discuss some tips:

  • Understand your requirements. Before entering negotiations, thoroughly assess your current and future colocation needs. This includes rack space, power use, bandwidth, and extra services. This will help you identify the most suitable providers and negotiate effectively.
  • Research and compare providers. Get quotes from many colocation providers in your desired location. Compare their offerings, prices, and terms. This will help you find points for negotiation and competitive rates.
  • Increase your bargaining power. Factors like your deployment’s size, contract length, and the provider’s occupancy levels can give you power. Use this to your advantage during negotiations.
  • Negotiate bundled packages. Many providers offer bundles with rack space, power, bandwidth, and extra services. Negotiate these packages as a whole to secure better overall pricing.
  • Discuss scalability and flexibility. Make sure the provider can fit your future growth plans. Do this by negotiating scalability options and flexible terms for adjusting resources.
  • Negotiate Service Level Agreements (SLAs). They outline the provider’s promises on uptime, performance, and support. Negotiate favorable SLAs with clear penalties for non-compliance.
  • Consider long-term contracts. Providers may offer better pricing for them. This is because it ensures a steady revenue stream for them. However, weigh the potential savings against the risk of being locked into a long-term agreement.

Also read: Host vs Server: What These Are & How They Differ.

Common Pitfalls to Avoid During Negotiations

Let’s discuss some common pitfalls.

  • Overlooking Hidden Costs: Be aware of potential ones. They include cross-connect fees, remote hands charges, and fees for extra services not in the base package.
  • Failing to Account for Future Growth: Don’t underestimate your future colocation needs. Negotiate terms for scalability and resource expansion. This will avoid costly migrations or penalties for exceeding agreed-upon limits.
  • Redundancy and Uptime Requirements: Cost is essential, but don’t compromise. Downtime can hurt your business.
  • Avoid Rushed Decision-Making: Take your time with a colocation deal. First, thoroughly evaluate all options and negotiate good terms.

Cost Optimization Strategies

Cost Optimization Strategies

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Today’s business is competitive. Organizations must cut colocation costs to get the most from their IT investments. By using cost optimization strategies, businesses can cut their colocation expenses. They can do this while ensuring they get the services they need.

Best Practices for Reducing Colocation Costs

  • Check your resources. Assess what you need now and in the future. This avoids over- or under-provisioning. Adjusting your colocation resources can cut waste. These resources include rack space, power, and bandwidth.
  • Use energy efficiency. Do things like virtualization. Also, decommission idle servers and optimize rack airflow. These measures can significantly reduce power consumption and associated costs.
  • Consolidation and high-density deployments can help. They minimize needed rack space and cut colocation costs.
  • Monitor your resource usage often. Work with your colocation provider to optimize your deployment. This can involve adjusting power allocation, resizing bandwidth, or scaling resources up or down as needed.
  • Consider negotiating longer-term contracts with your colocation provider. Many providers offer discounted rates for extended commitments, as it provides them with a steady revenue stream.
  • Use colocation marketplaces. They help you compare and negotiate deals with many providers. This can secure better rates.

How to Leverage Economies of Scale

Economies of scale play a significant role in reducing colocation costs. By deploying more colocation, you can often negotiate better prices with providers.

  • Providers may offer volume discounts for buying more rack space, power, or bandwidth.
  • You need colocation services in many places. Providers may offer lower prices for a single, extensive deployment across their facilities.
  • Consider forming partnerships or consortiums. They are with other businesses. They can help you negotiate better colocation deals. You do this by leveraging combined purchasing power.
  • Colocation providers have an incentive to prefer larger deployments. They generate more revenue. Providers may offer incentives or discounts to secure these more significant contracts.

What Applications Are Best Suited For Colocation?

What Applications Are Best Suited For Colocation?

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Colocation is a great option for many types of businesses. It offers a lot of flexibility and control over hardware. Here are some key applications where colocation shines.

Custom Hardware Requirements

Businesses with unique server and network needs benefit from colocation. It allows them to build and manage their servers. This is often better than renting. Colocation can be cheaper when hardware needs are specific. You get to pick every component of your server. This control ensures the server meets the exact needs of the project.

Focus On Hardware Investment

For some businesses, owning hardware makes sense. Investing in server hardware can be more cost-effective over time. It’s a good option for businesses with steady cash flow. Once the hardware is bought, there are no rental fees. This can save money in the long run. Colocation offers a place to house this hardware securely.

Large Scale Deployments

Big projects often need many servers. Renting many servers can be expensive. Buying hardware for large-scale deployments can save money. Colocation is ideal for these situations. It offers a secure, reliable space for your servers. This makes it easier to manage large deployments.

Colocation is best for businesses with unique hardware needs, those looking to invest in their hardware, and projects requiring many servers. It provides flexibility, control, and potential cost savings.

Also read Different Types of Servers: Understanding Server Types for Enhanced Functionality.


Today’s digital landscape is evolving rapidly. Server colocation is a compelling solution for businesses. It offers efficient and scalable IT infrastructure management.

Embracing server colocation should fit your organization’s needs. It should match its goals and IT plan. Careful evaluation and cost optimization unlock colocation’s power. They let businesses focus on their strengths. And, they let businesses benefit from top-notch infrastructure and future-proof scalability.

RedSwitches is a leading colocation provider. We offer expertise and guidance to help businesses navigate colocation effectively. Cutting colocation costs can unlock this solution’s full potential. So contact Redswitches for more information.


Q. What is server colocation?

Server colocation is a service. Businesses can rent server and hardware space at a third-party data center. Companies place their equipment in a colocation facility instead of on-premises. They do this to benefit from economies of scale, advanced infrastructure, more bandwidth, and lower latency.

Q. How is server colocation pricing determined?

Colocation pricing depends on many factors. These include rack space, power use, bandwidth, and extra services like tech support, security, and backups. Depending on the provider, pricing models can vary from a flat fee to metered billing.

Q. What are the different types of rack spaces available in colocation pricing?

Colocation facilities usually offer many rack space sizes. These sizes accommodate different needs. They include full cabinets (42U), half cabinets (around 20U), and quarter cabinets (around 10U). The choice of rack space will depend on the size and number of servers a business needs to house.

Q. Can I scale my server colocation setup as my company grows?

Yes, one of the advantages of server colocation is scalability. Most colocation providers offer flexible arrangements. They let businesses increase their space and resources as their needs grow. It’s essential to discuss scalability options with providers before entering into a contract.

Q. Are there any hidden costs in server colocation?

Apart from the direct costs for rack space, power, and bandwidth, there may be extra fees that are only sometimes upfront. These include installation fees, cross-connect fees, or charges for using too much. Always ask for a detailed breakdown of costs and understand the terms of your contract to avoid unexpected expenses.

Q. What is 1U colocation, and how much does it typically cost?

1U colocation refers to renting one rack space unit in a data center, where “U” (unit) equals 1.75 inches in height. The cost of 1U colocation varies depending on factors like internet connectivity, amount of power, and additional services like redundant power. Colocation pricing guides from various providers can offer more specific details.

Q. Can I get colocation hosting for a single server, and what are the typical considerations?

Yes, single server colocation is ideal for businesses hosting a 1U or 2U server. Key considerations include the data center’s tier level (Tier 3 or Tier 4 for higher redundancy), IP address allocation, and specific requirements like cross connections and redundant power to ensure reliability, especially in areas prone to natural disasters.

Q. What are the benefits of choosing a full rack colocation plan over a half rack or single server colocation?

Full rack colocation offers more space (typically 42U), allowing for greater scalability and flexibility in managing server hardware and data center services. It is more cost-effective for larger setups due to lower colocation costs per unit and allows managing the operating system and HVAC system more efficiently. Businesses can also benefit from fully redundant power and internet connectivity, enhancing uptime and performance.

Q. How do I get the best deal on colocation pricing?

Request colocation quotes from several colo providers to compare services and pricing to get the best deal. Consider the service cost charged per U or based on the average bandwidth usage, and check if the colocation environment offers managed colocation, which might affect pricing. Many colocation providers offer bundled services that can also help lower overall costs.

Q. What should I consider when choosing a colocation data center in areas prone to natural disasters?

In disaster-prone areas, ensure that the colocation data center is built to be fully redundant with backup power and cross-connections to safeguard against failures. Check if the data center is a Tier 3 or Tier 4 facility, indicating higher infrastructure reliability. Additionally, find out how efficiently the data center manages real estate and power, and contact us for an evaluation from one of our experts to ensure your business needs are adequately met.

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