The 10% “rule” for infrastructure costs

I was reading GigaOM the other day, specifically Google’s 2006 Money Shot, $10 billion in revenues, and his quote from Google’s earning release caught my eye:

Other cost of revenues, which is comprised primarily of data center operational expenses, as well as credit card processing charges, increased to $307 million, or 10% of revenues, in the fourth quarter of 2006, compared to $223 million, or 8% of revenues, in the third quarter.

A common rule of thumb I tell people is to target their performance goals in application design and coding so that their infrastructure (not including people) is ≤10% of an application’s revenue.

Meaning if you’re making $1.2 million dollars a year off of an online application, then you should be in area of spending $120,000/year or $10,000/month on servers, storage and bandwidth.

And from the other way around, if you’re spending $10,000 a month on these same things, then you know where to push your revenue to.

This is of course a general rule of thumb, and really applies to applications (not say more fundamental hosting or infrastructure products), and applications that consume more bandwidth and storage then usual can push this up.

But it’s nice to see that Google is around there.

2 responses to “The 10% “rule” for infrastructure costs”

  1. Does that also apply to Joyent?

    Meaning, is Joyent’s revenue 10x the cost of it’s infrastructure.

  2. Yes Henry, we always try and follow our own rules.