CDN Costing 101: Math Behind 95/5 Percentile

CDNs make money by selling three different services 1) data transfer (transit) plans 2) features such as WAF and 3) consulting services. When it comes buying transit from carriers and selling it to customers in the form of data transfer plans, confusion tends to set in when converting 95/5 into data transfer, expressed as GB/month (Gigabytes). In this brief, we’re going to look at the conversion math for transit. CDNs buys transit from carriers in 10Gbps increments, meaning they buy a 10Gbps Internet Port (burstable) on a minimum monthly commit (usually 10% of port capacity) from multiple carriers.

The basic unit of measure for converting 95/5 transit into GB/month is 1Gbps. Thus, 1Gbps = “x”/month (“GB”/month). The interesting part is that the “x” differs between CDNs. We’ve seen some CDNs use a conversion rates of 300TB/month for 1Gbps and other CDNs use 100TB/month for 1Gbps. In another words, conversions are all over the map. The bottom line is if conversions are off, then pricing and margins are wrong. In the exercise below, we’ll do conversions from scratch and cost it appropriately.

95/5% Conversion into TB per Month

  • 1Gbps = 1,000,000,000 bits per second (Giga = billion)
  • 1,000,000,000 bits per second divide / 8 bits = 125MB per second (8 bits = 1 byte)
  • 125MB per second x 60 seconds x 60 minutes x 24 hours = 10,800GB per day
  • 10,800GB x 30 days = 324,000GB per month (30 days is the number of days many carriers use in their 95/5 calculations)
  • 324,000GB / 1,000GB = 324TB per month
  • Important note: When it comes to transit – IP overhead, jitter, and latency must be taken into account for costing purposes, because packet loss reduces the actual bandwidth available on an Internet Port (circuit)
  • Some carriers factor a packet loss as high as 40% on each circuit. Thus, if 1Gbps = 324TB and packet loss is 40%,  which is 129.6TB of packet loss . That is the reason the conversion rate differs between CDNs. However, it should differ that much

The 5% in the 95/5 % Calculation

  • Many carriers use the 5 minute sample. Thus, most carriers take a sample of traffic every few minutes in the billing cycle for pricing purposes
  • Total samples in a 24 hour period: 60 minutes x 24 hours = 1,440 minutes / 5 minutes = 288 samples
  • Total samples in month (30 days): 288 samples x 30 days = 8,640 samples in a month
  • 5% bursting above monthly commit in the 95/5 model is discarded by carriers for pricing purposes: 5% x 8,640 samples = 432 samples discarded
  • CDNs can burst above monthly commit for 36 hours (5 minutes x 432 samples) and pay no overages. If a CDN exceeds that period, they pay overages
  • If a CDN buys a 10Gbps Internet Port with 1Gbps minimum monthly commit, and burst above 1Gbps for 40 hours, overages will be charged
  • Carriers set billing on the 433rd sample

Costing Example

  • CDN buys a 10Gbps Internet Port (1Gbps minimum monthly commit) from Carrier ABC at $25/Mbps (expensive country)
  • Minimum monthly cost is $25,000/ month (1,000Mbps x $25/Mbps)
  • $25,000 / 200,000GB (200TB)  = $0.125 per GB. This is the transit cost to a CDN
  • CDN will add margin to the $0.125/GB and sell it in the form of a data transfer plan
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4 thoughts on “CDN Costing 101: Math Behind 95/5 Percentile”

  1. I am not sure I understand the argument about Packet Loss. CDN bill on Bandwidth delivered to the website visitor not on Packet loss. Can you explain your argument?

    IMHO, one critical thing missing in this article is the fact that Website do not generally operate at Peak Bandwidth 100% of the time. As a result, even if 1Gbps of sustained Throughput would equal 324TB on a monthly basis, the actual usage will be much lower. This is why you need to introduce the concept of Peak to Mean ration to make assumption on the delta between 95th percentile and average utilisation.

    It is common practice to use a number between 2 & 3. Although it depends on the type of website. Using 2 is pretty common which means that 1Gbps will likely be 162TB per month.

    Why do you not cover this crucial issue?

    • Laurent, thanks for the feedback. The discussion above is not about the cost/price from a CDN customer perspective, but between the CDN and the carriers they buy transit from. The question is how do CDNs create the proper cost structure for the transit they acquire from carriers, in order to create end-user price/GB. Thus, the packet loss I discussed is on the carrier side.

      The 1Gbps = 162TB is not a common conversion used by all CDNs. Maybe the 162TB is what Verizon is using, but other CDNs don’t base their cost/price on 162TB/month for 1Gbps. What I’ve seen is that carriers tend

      to be on the lower end of the spectrum in their conversion and CDNs higher. Also, there are too many variable to use 162TB across the board for everyone. CDNs need to run their own test and see what kind of throuput and packet loss they experience for each carrier. Obviously, packet loss will be higher on the Cogents of the world as opposed to AT&T.

      Example, Fastly charges their customers 2 cents per GB on 5PB monthly volume. (http://www.fastly.com/pricing/). The question is how do they calculate the cost of that bandwidth. Is the cost (which Fastly pays a carrier) 1/10th of a cent per GB, half a cent/GB, etc. Once you take into account the different carriers used for a CDN and their different price points, and different packet loss for different carriers in different region, it become calculus. Did that answer your question?

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