Colocation is one of the most effective ways for businesses to gain enterprise-grade data center infrastructure without the expense of building and operating their own facility.
By renting space, power, and connectivity inside a third-party data center, organizations gain access to resilient infrastructure and interconnection opportunities while paying only for what they need.
However, colocation costs can be challenging to decipher. Every provider prices slightly differently, with unique mixes of recurring and non-recurring charges.
To avoid surprises, you need a clear methodology for calculating your total cost of ownership (TCO) and for comparing quotes on an apples-to-apples basis.
Key Factors That Influence Colocation Pricing
Space
The first component of colocation pricing is the physical space. Providers typically sell space by the rack unit (U), in partial or full racks, or in secure cages.
Larger footprints, such as private suites, come with higher upfront costs but often offer better economies of scale per U.
Your space costs depend on:
- Form factor: ¼, ½, or full rack; cage; or suite
- Density: kilowatts (kW) of power provisioned per rack
- Security: locking cabinets or private cages
Power
Power is typically the single largest driver of colocation costs. Providers may charge for:
- Provisioned power: a fixed reservation of kW capacity, regardless of actual usage.
- Metered power: billed based on kWh consumption.
- Redundancy options: single-feed circuits (N) or dual-feed A+B circuits (2N) add resilience but can significantly increase monthly recurring charges.
The facility’s Power Usage Effectiveness (PUE) also impacts the final cost. A more efficient data center requires less overhead energy for cooling and operations, reducing the effective price per kWh.
Connectivity
A rack of servers is only as valuable as the networks it connects to. Colocation facilities provide:
- IP transit and direct internet access (DIA), sold by bandwidth commitment or usage.
- Cross-connects to carriers, clouds, and partners. These usually include a one-time install fee plus a monthly recurring charge.
- Interconnection fabrics or meet-me rooms for low-latency connections.
Connectivity costs vary depending on the provider’s ecosystem. Carrier-neutral facilities often offer more choices and better pricing options.
Remote Hands and Smart Hands
Most providers offer operational support through remote hands services. These include racking equipment, rebooting servers, replacing components, and basic troubleshooting.
- Typically billed hourly, with higher rates for after-hours requests.
- Some customers purchase a monthly block of remote hands to secure predictable costs.
Compliance and Security
Compliance is becoming an increasingly significant factor in colocation pricing. Facilities that maintain certifications like SOC 2, ISO 27001, HIPAA, or PCI DSS invest heavily in physical and process controls.
These certifications protect your business but may come with a premium in pricing.
Setup and Migration
Most colocation deployments involve non-recurring charges (NRCs):
- Install fees for racks, PDUs, and circuits.
- Cross-connect turn-up fees.
- Project management or migration assistance.
While one-time costs do not recur, they should be included in your total cost model, especially if you expect to expand or make frequent changes to interconnections.
Contract Term and Volume
Just like other IT services, longer contracts and larger footprints typically come with discounts. A three-year term may result in lower monthly charges compared to a one-year term.
Negotiating bundle pricing for space, power, and bandwidth can also reduce costs over time.
Building a Colocation Cost Model
Calculating colocation costs is about more than adding up line items. It’s about understanding your IT requirements and translating them into facility resources.
Here’s a step-by-step process:
Step 1: Define Your Space Requirements
Begin by taking an inventory of your equipment, including servers, storage, and network devices.
Identify how many rack units (U) you’ll need today and estimate your growth for the next three to five years.
Decide whether you need partial racks, full racks, or a dedicated cage.
Step 2: Estimate Power Needs
Measure or model the real power draw of your equipment. Avoid relying solely on nameplate ratings, as these often overstate usage.
Plan for peak consumption plus a buffer of 20–30%. Then decide whether provisioned or metered power better matches your usage pattern.
Step 3: Decide on Redundancy
Your uptime requirements determine whether you need single or dual power feeds, as well as the level of UPS/generator redundancy the facility should provide (N, N+1, or 2N).
Higher redundancy increases cost but may be essential for mission-critical workloads.
Step 4: Plan Network Connectivity
List the connections you’ll need: IP transit, dedicated internet access, private links to cloud providers, or cross-connects to partners.
Add projected bandwidth usage and the number of cross-connects into your model.
Step 5: Include Operational Support
If you lack staff near the facility, budget for remote hands. Estimate the average hours per month you’ll need and account for both routine and emergency interventions.
Step 6: Capture Non-Recurring Costs
Include installation, setup, and migration costs in your model. Although these are one-time charges, they still contribute to your total cost of ownership.
Step 7: Account for Term and Volume Discounts
When comparing quotes, normalize all costs to a common term length (e.g., three years).
Apply volume discounts if you anticipate future growth. This ensures you compare providers on a level playing field.
How to Compare Colocation Quotes
Not all quotes are structured the same way. Some bundle power with the rack price, while others list them separately. To make an accurate comparison:
- Normalize power pricing. Convert provisioned and metered quotes into $/kW at peak usage.
- Check what’s included in the rack. Some providers include PDUs, environmental monitoring, and the first set of circuits; others charge extra.
- Clarify cross-connect pricing. Are there monthly charges in addition to install fees?
- Examine bandwidth billing models. Flat-rate, 95th percentile, and burstable pricing can significantly impact your costs.
- Verify compliance and certifications. If you need regulated workloads, a facility with the right compliance may be worth a higher rate.
Hidden Costs to Watch Out For
When modeling colocation costs, keep an eye out for charges that don’t always appear upfront:
- After-hours or emergency remote hands fees.
- Cross-connect move or change charges.
- Charges for additional security or audit evidence.
- Early termination penalties.
- Utility surcharges or pass-through costs.
Understanding these in advance can prevent unpleasant surprises later.
Strategies to Optimize Colocation Costs
- Right-size your footprint: Avoid over-provisioning racks and power.
- Leverage efficiency: A provider with a low PUE will reduce your effective energy costs.
- Bundle services: Negotiating space, power, and connectivity together often results in a lower total bill.
- Plan: Secure capacity for future growth at today’s rates by negotiating scalable contracts.
- Choose your location wisely: Utility rates and market competition vary by geography, directly affecting your costs.
Learn More About Colocation Costs
Calculating colocation costs doesn’t have to be overwhelming. By breaking down the drivers, space, power, connectivity, operations, and compliance, you can build a model that reflects your real needs and compares providers fairly.
At TRG Datacenters, we help businesses of all sizes understand their options and make smarter infrastructure decisions.
Contact us today to learn more about colocation costs and how TRG can help you design a cost-effective, scalable strategy for your business.
FAQs
What are the main factors that affect colocation pricing?
The primary drivers of colocation pricing are the amount of space you require (in rack units or cages), the power capacity and redundancy you need, and your network connectivity (including bandwidth and cross-connects).
Additional costs may come from compliance, remote hands services, and one-time installation fees.
Is metered or provisioned power more cost-effective?
It depends on your workload. Metered power can be more cost-effective for variable or low utilization, since you pay only for what you consume.
Provisioned power is typically more suitable for consistent, high-demand workloads, as it offers predictable monthly costs.
How can I reduce my colocation costs without sacrificing reliability?
You can optimize costs by right-sizing your footprint, choosing a provider with strong energy efficiency (low PUE), bundling space and connectivity, and negotiating for scalable contracts that lock in pricing as you grow.
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