How Much Does Colocation Cost?

Cost of Colocation

April 15

Understanding the potential cost of a solution, service, or product is an important part of early-stage evaluation. If something is cost-prohibitive or out of your company’s allocated budget, it’s not a viable solution. So when evaluating data management strategies, “how much does colocation cost” is likely one of your first questions.  

Unfortunately, the answer is “it depends.” You’ve likely heard the analogy before, but asking how much colocation costs is a bit like asking how much a car costs. Sure, you might be able to get a general range, but the actual cost is highly dependent on your specific needs. A baseline Camry doesn’t cost the same as a fully loaded Escalade, and is eons away in price if you’re in the market for a Lamborghini. 

While we can’t give you an exact price estimate for colocation without knowing your exact needs, we can help you understand the factors that go into colo pricing. This can help with your colocation planning, give you a general understanding of what drives cost, and explain the latent costs and benefits that effect the true ROI of a colocation deployment.  

Wholesale Colocation versus Retail Colocation 

The first thing we need to address is that there are two types of colocation: wholesale and retail.  

Wholesale colocation is when an enterprise leases a dedicated space (often an entire building) but must provide their own amenities. Things like IT infrastructure and staff, network carriers, cloud connectivity capabilities, security, cross connects, and power distribution are not provided. It’s essentially a privately-owned data center in someone else’s space. 

Retail colocation is more like a “data center as a service” style offering. You lease space (from a single cabinet to multiple cages) and get access to the colocation provider’s infrastructure, staff, partnerships, network connections, cross connects, security, and other managed services. (You provide your own servers and, sometimes, PDUs.) Organizations can still have large footprints in a retail colo facility, but don’t have to worry about the day-to-day operations of the data center. 

For the rest of this colocation cost analysis, we’ll be specifically focusing on the cost of retail colocation. 

What Directly Impacts Your Colocation Costs? 

These aspects make up the bulk of what colocation will cost for your specific deployment. While each element has a baseline price, the options you choose and your specific requirements impact the ultimate cost. Some of these elements are optional (like Remote Hands) but there is no avoiding other costs (like power and bandwidth).  

Cage Space & Cabinets 

How much space do you actually need and what do you want in that space? Cage space is charged per square foot or, more commonly, based on how much power (measured in kW) you want delivered to the environment. There may be a minimum square footage requirement depending on the facility.  

The type of security you want on the cage also affects total cost. Security features like mesh that extends below the raised floor or a ceiling on the cage often come at an extra (one-time) charge. Elements like a card reader for cage access may be offered as a service and typically carries an installation fee and a monthly recurring charge. If you want advanced biometric security or multi-factor authentication you should expect an additional charge. 

Cabinets can be either standalone or inside the cage. (You may be able to provide your own cabinets depending on the solution and colocation provider.) Standalone lockable cabinets are charged based on how much power is needed. 

Power 

Power is the foundation of a data center deployment and, unsurprisingly, how much power you need has a major impact on both setup and monthly costs. Colocation power is provided and charged for on a per kW basis. However, “power” isn’t a single or simple line item on a data center order form. 

How much power you want delivered to your cages directly impacts your initial installation charges. How much power you expect to use helps determine what you pay on a monthly basis. Best practice is to keep delivered power in a ratio of how much power you expect to use on a monthly basis. This helps keep installation and monthly costs down — there’s no point in paying high installation, PDU, and monthly costs that are out of line with your actual projected consumption.  

The goal should be to have an efficient deployment where you are using no less than ~65% of delivered power. Colocation providers can react quickly and can typically deliver additional power in 10 days or less if needed. Remember, for each kW of power installed in a customer’s environment, it is protected by a UPS and backed by a generator which all contribute to the overall solution costs. On a monthly basis, power is billed either by metered usage or a flat rate, depending on your contract. 

Finally, you’ll need power distribution units (PDUs) to plug your equipment into. The colocation provider may provide these with the cages/cabinets, but you can also supply your own power strips. 

Bandwidth 

If you want your data to enter or leave the data center, you need bandwidth. Some colocation providers offer this as an in-house service but in other cases you need to purchase the bandwidth directly from a carrier. This cost is determined almost entirely by the carriers, though your colo provider may have a deal you can capitalize on. Carrier neutral colocation data centers give you the ability to shop around for the best deal if you do not have a specific carrier requirement (such as a term contract with an existing carrier). When evaluating colocation providers, understand their bandwidth options and how much control you have. 

 Blended IP services, a popular additional service offered by many colocation providers, blends two or more carriers together and manages the failover between the two, should one carrier experience planned or unplanned issues. However, Blended IP is a paid-service separate from the base colocation offering. This service is often priced higher than the bandwidth you would get when going directly to a carrier. This is due to the colocation provider having to purchase expensive infrastructure (routers, switches, etc.) and employ network architect and network engineers to maintain the service. Cross connects are typically bundled into the cost of Blended IP services, though this may vary.  

Cross Connects 

Cross Connects are a necessary component to connect a customer’s environment to the colocation provider’s Meet-Me-Room (a dedicated cage space for carriers) and there is typically a monthly charge for each cross connect. 

The cross connect medium you choose impacts cost. Fiber cross connects are the most common but also often the most expensive. Other options include copper cross connects and coax cross connects. As with most things, the cross connect solution can be customized, however the more complex the environment, the more expensive the deployment (Camry versus Escalade). 

Depending on the colocation provider, cross connects can be a single upfront cost (if buying in bulk) or a recurring monthly fee that generally ranges from a few hundred to a few thousand dollars per month. However, this is entirely dependent on your colocation provider. 

Cloud On-Ramps 

A 2019 survey by Flexera found that 94% of organizations use cloud. Being able to connect to the cloud solutions of your choice from directly within your colocation environment has myriad benefits. Cloud on-ramps make this possible, but it represents an additional cost that scales with your need and the number of locations/facilities you want access from. Depending on your colocation solution, these costs may appear on your monthly colo bill or can be billed through the independent cloud on-ramp providers.  

Using cloud on-ramps is likely to make your monthly bill vary as your solution usage varies. 

Remote Hands 

One of the benefits of colocation is that you don’t need to be as hands-on with data center maintenance and management as you would be with a privately owned approach. Remote Hands further expands this benefit by having an on-site technician perform tasks such as: 

  • Handling on-site emergencies 
  • Moving and securing network cables 
  • Performing server refreshes and reboots 
  • Hardware replacements and software installations 
  • Inventory management and labeling 
  • Shipping and receiving at the data center 
  • Performing physical audits of your footprint 

Remote Hands services are most often an add-on and can be purchased in blocks of time or charged on an as-needed basis. Some colocation providers also charge a premium for off-hour Remote Hands requests, so be sure you understand all of the potential fees if you anticipate wanting this type of service. 

Installation & Management Fees 

As you can see, colocation is much more than just hooking up some cabinets in someone else’s data center. Just about every element of your colo engagement will involve an installation (or set-up) fee and/or an on-going management fee. These are sometimes presented as a flat rate or may be itemized based on your specific setup. Pay close attention to what is a one-time fee and what is a recurring monthly cost as this will have a major impact on your initial and overall cost over the entire engagement. 

Service Order Term 

The length of your contract may also impact cost. While it likely isn’t a very large driver of overall cost, many colocation service providers have a minimum term length. This is important to consider because you will be locked into the engagement for the length of the term or will likely have to pay a penalty to break the contract early.  

On a more positive note, you may also receive a mild discount for longer terms. If you’re committed to colocation, ask about this possibility as a way to reduce colocation costs. 

What Else You’re Getting for the Cost of Colocation 

There are additional elements of colocation that you won’t see on an order form, but are important to the overall ROI of your engagement. While this article aims to answer the question “what does colocation cost,” we feel it’s important to also discuss what you get for your money as the “cost” of something often also means “is it worth it?” 

When understanding the cost of colocation, it’s important to remember that you’re buying an outsourced service that has its own business expenses. Remember, the overall cost of colocation isn’t just the services you’re ordering, but must also cover (albeit as a shared expense) the costs of owning, operating, and maintaining the data center. It’s particularly important to keep these “invisible costs” in mind when comparing colocation to in-house data centers, as they’re costs you’d incur with a CapEx model. 

Data Center Infrastructure 

Owning a data center isn’t cheap. Colocation providers that own data centers need to purchase (or lease) the land, design and maintain the building, and pay property and other associated taxes.  

Data center buildout includes providing redundant paths into the center. This means creating a physical path (conduit) from the sidewalk or street into the facility. Depending on the location, this could mean permits and costly digging or trenching through a parking lot to deliver this path. Colo providers also have to build out infrastructure to ensure they can deliver cross connects (and therefore cloud connectivity) to every customer, in every corner of the data center. 

Other systems that go into creating and maintaining a safe, secure, successful data center include building security (outside your individual cage/cabinet security), HVAC, fire detection and suppression systems, and robust backup power infrastructure. All these systems must be installed by a highly trained professional and need regular maintenance and testing to ensure they perform as expected.  

These elements are part of colocation services that you aren’t directly charged for (though you may see them in your total cost as various fees). 

Staff 

Many colocation data centers are staffed 24×7, from on-site technicians to security personnel. Data centers require highly trained personnel to ensure the facility stays in top performance condition. The main way you’ll see staffing costs in your invoice is as maintenance fees or Remote Hands services. Regardless of whether you use Remote Hands or not, someone needs to be on site monitoring and maintaining the data center at all times.  

Cleaning is another important element to maintaining a healthy data center environment. Many data centers do a deep cleaning of the white floor once a year to prevent dust from getting into customer equipment and shortening its lifespan. While this is a regular practice, you will not be billed for it. 

Staffing is a major component of the outsourced model of colocation — you’re paying someone else to maintain a data center for you. 

SLA/Uptime 

When you contract with a colocation provider, you’re trusting them to ensure that your data is always available — no matter what. Part of what you’re paying for with colocation is the fact that the data center will remain operational at all times, including during natural or man-caused disasters. This won’t appear as a line item on your quote (though the company’s SLA should be clearly stated in the contract), but it’s a big part of what you’re ultimately paying the colo provider for. Someone else is responsible for uptime so you no longer have to worry about it (as much). 

Security Reports 

Security and data centers go hand in hand, particularly cyber security. You want to ensure the service provider you engage with takes security seriously — both for peace of mind and to prove your organization’s business practices are also secure. Colocation providers undertake all required security reporting for themselves, and many providers will give you access to these reports free of charge (most often SOC1, SOC2, and SOC3 or similar reports). When evaluating providers, ask which reports will be provided and if there is an extra fee involved. 

Compliance 

If you’re in an industry that must meet specific compliance requirements such as PCI DSS or HIPAA, how the data center infrastructure is designed, built, maintained, and audited is a major component of meeting and maintaining compliance. This can be a giant burden on organizations in terms of hiring a compliance team and paying for external audits. Some data center facilities are designed to meet strict physical and secure-access compliance requirements, making it easier for you to achieve compliance overall. 

Compliant infrastructure and security practices are often provided at no extra charge, as those measures are in place anyway. However, some colocation providers may charge you for compliance audits, so verify if this is a complimentary service or an additional fee. 

Getting a Colocation Quote 

While there are a set of basics when it comes to the cost of colocation, your specific deployment and needs drive the majority of the cost. When considering colocation, do some initial information gathering (here’s a quick reference guide to help you), then approach a colocation provider. A Sales Engineer specializing in colocation will be able to guide you, spec out your needs, and give you an accurate estimate for your specific environment. 

Also keep in mind when considering colocation that you are paying for much more than just space and power. There are many “invisible” costs that you would likely pay for in one form or another if you opt for a different solution. When assessing fees, think about the hidden benefits you receive by outsourcing your data center management to a colocation provider.