If you don’t understand the 95th percentile billing method, don’t worry, you’re not alone. That’s actually one of the more common questions we get. Because it is an industry standard methodology for billing, it’s pretty important to completely understand it.

Ok, so what is it?

The 95th percentile method is a pricing schedule that can dynamically bill you based on your bandwidth needs and usage. Every 5 minutes, we measure (in bits per second) the rate of data transfer your server is using at that given moment. We drop the top 5% of our measurements, when your bandwidth usage was the highest. In a 30 day month (720 hours), this comes out to 36 hours of ?bandwidth peaking forgiveness? per month.

For simplicity sake, let?s pretend we only measure every 432 minutes, which comes out to exactly 100 measurements per month. We?ll then sort those 100 measurements from greatest to least. Let?s say the chart on the right is the top few of those measurements. You would be billed for 2 mbps because in 95 of the measurements, you were at or below 2 mbps.

So what?s a bandwidth commitment and why do I need one?

A bandwidth commitment enables you to negotiate better pricing in exchange for giving us an accurate picture for how much bandwidth you plan on using or are willing to pay for even if you don’t use. The chart on the right shows our list prices for bandwidth.

Your bandwidth commitment allows us to accurately judge how much bandwidth capacity we’ll need. In exchange for a commitment, we offer reduced rates for purchasing more bandwidth. Will bill bandwidth overages at your normal rate; if you commit to 1 mbps and use 10 mbps, you just pay for 10 mbps at $65/mbps. Alternatively, if you know you’re going to use that much bandwidth at let us know, it helps us out a lot ? in exchange, we reduce the price to $45/mbps, which is mutually beneficial.

Water Analogy

Water bills are typically measured in gallons-used. Let’s pretend for a moment that the water company started measuring water usage in throughput using the 95th percentile method. Over the course of the next month, every hour on the hour the water company measures and records the gallons per minute used at that moment in time.

Graph of 95th percentile measurements

You and your twin, Herald, live in identical homes with identical yards and have identical water piping. You each own a sprinkler system for your yards and to keep the grass nice and green you like to run it once per day for 1 hour starting at 7:00 am.

Herald likes to shower while he’s getting ready for work and takes a 10 minute shower at 7 am. You always shower in the evening at 7 pm. You both always shower for exactly the same length of time. If you keep in this exact routine for the entire month, you’ll both use precisely the same amount of water. But whose water bill would be higher? Let’s take a look!

When the water company sends out the bill at the end of the month, Herald’s bill is higher. This is because Herald used more water when water was in high demand ? he’s paying more because he’s using the water when the water piping is the most contested. You only paid for 500 gallons per second while Herald paid for 600 gallons per second.

Why the 95th Percentile Method?

Because it scales beautifully! Dedicated servers are priced with the mentality of listing “what you get”; i.e. a processor that can do X calculations per second, Z amount of hard disk space, Y amount of bandwidth. Dedicated servers don’t scale ? 1 server or 500 servers are still ultimately individual units and each one is pretty small in the grand scheme of things. Contrastingly, colocation is priced with the mentality of capacity planning. It’s all about figuring out how big of a physical connection you’ll need, how much space you’ll need, and even how big of a wire you’ll need for your electricity. The same pricing methodology must fit an account with a single server as well as an account the size of a datacenter. 95th percentile gives a very accurate picture of how much hardware is needed to provide bandwidth at an acceptable quality of service.

Here’s the longer answer:

The 95th percentile method enables us, your upstream provider, to accurately plan our network’s capacity: preventing dropped packets, poor latency, and other network woes.

We must run enough fiber to handle the “Internet rush hour.” A fiber connection to a facility’s limit isn’t the total amount of GB that can be transferred to it, rather, the total amount *at once*. Throughput is the chokepoint – it’s the finite resource so the ability to push a large amount of data during periods of high traffic is coveted – and paid for rather than the ability to push traffic any time of the day. If all of our customers push bandwidth at 8 pm, we need enough fiber to handle that push. In effect, the finite resource we’re managing isn’t the total transfer over a month, rather, the capacity of transfer at any given time. Ultimately the finite resource is the capacity of that line rather than the total transfer that line can do. The “total GB transferred over a month” isn’t a great number in figuring out what size of fiber we need. When you’re purchasing 1 mbps, you’re in essence purchasing a fraction of our higher capacity line.

This explanation of the 95th percentile may also be downloaded in portable document format. (.pdf)

We also have a bandwidth calculator that can help you estimate your bandwidth needs.