Bandwidth allotment is an important consideration in choosing a dedicated or colocated server host. There are different methods of allocation, and it is important to understand the differences among them.

First, let us begin by defining bandwidth. What is often referred to as bandwidth is really data transfer, which is the total of how much data has been transferred from a site over a certain period of time. Every time someone makes a request for an HTML page (views it in a browser), that HTML file is transferred to the user's computer, which takes bandwidth. If there are any images on that page, each of those images must also be transferred to the users browser, which takes more bandwidth. Bandwidth consumption on specific sites can be minimized by making the data set to be transferred smaller. Some of the ways to accomplish this include removing extraneous tags and spaces in your HTML code, compressing images more, using less colors in them, and using fewer images. Also, not using Microsoft Front Page. Not only does it generate sloppy and bloated code, but it adds unnecessarily to bandwidth consumption.

Sizes defined

It helps to understand the nomenclature regarding sizes.

8 bits = 1 byte.

1,024 bytes = 1 kilobyte (Kb).

1,024 kilobytes (Kb) = 1 megabyte (mb or meg)

1,024 megabytes = 1 gigabyte (gb or gig)

1,024 gigabytes = 1 terabyte. (tb)

The above are the correct and exact definitions. Note, however, that some hosts will use 1000 as the multiplier rather than 1024. Be sure to check with any host regarding how they define these terms.

Bandwidth patterns

Bandwidth usage will vary from hour to hour, day to day, and even by season. Viewed on a graph, peaks and valleys are typical of most any site and server. Traffic drops off sharply during night time hours (over many time zones) for most sites, week-ends, and even during summer for some.
Thus, spikes in bandwidth usage are normal and to be expected. In some cases, those spikes may be well beyond the typical traffic pattern, which can affect the server and attendant costs in various ways.

Bandwidth allocation and costs

The amount of bandwidth usage allocated by various hosting companies can vary considerably. Some of the monthly amounts seen among well known companies are 10 gb, 20 gb, 50 gb, 65 gb, 100 gb and others. Some even quote in megabytes, sometimes to hide the high cost of their bandwidth. One host advertises $40 for 500 mb additional bandwidth. That's $80 per gb, an exorbitant amount. Reasonable rates from $3 to $10 per gb can be found at better companies.
Bandwidth allocation methods

There are three basic methods used in the allocation of bandwidth. They are the capped line (or rate limited) method, average usage method, and the x percentile method. It is important to understand each one and what the differences among them are. One in particular, the percentile method, is greatly misunderstood and there is much false information spread about it by people who simply do not understand it.

Capped Line

Payment is a flat fee based on the size of the dedicated line you get. The amount of bandwidth that can be transferred is capped, or limited, to a specified amount. This can contain the cost of bandwidth to the specified limit and keep it at a flat fee. You get a data pipe of a specified (limited) size. A peak in bandwidth (several users accessing the site simultaneously) would mean slowdown or inaccessibility of the server. Some users would have to wait longer to access sites and some might get a "server timed out" message and not reach the site.

This method is also referred to as rate limiting as the rate of transfer is limited.

Average Usage

Bandwidth measurements are taken at various intervals and averaged together to provide the bandwidth consumption figure. Any bandwidth in excess of the allotted amount is charged the stated amount per gigabyte. Some hosts have bandwidth plans in blocks, whereas others charge per gb. Crossing the threshold into the next level could add substantially to the costs in block plans, especially for those hosts with a high cost per gb, so be especially aware of the cost of higher levels.

Note also that some hosts charge an estimated usage amount which may be higher than actual usage. Some may choose to use an average figure, others might use the median.

Overall costs tend to be higher at hosts that use the average usage method. You are either subsidizing someone else's high usage, or they are subsiding yours, and you are all paying higher costs on other services to cover the costs to the host.

It probably averages out for the hosting companies if they have enough customers. The way bandwidth traffic patterns usually work out, some 75% of them will probably overpay and cover the other 25% that underpay.

Percentile Method

This is the most misunderstood of the bandwidth methods. Though any percentile can be used, the 95th percentile method is most frequently mentioned. Here's the reason providers use the 95th percentile system - If you let your customers burst, it doesn't matter if you're paying for X bandwidth, or paying for X with burstable.

If your customers burst, then you must make sure that you have bandwidth available above their highest burst rate, not just equal to it, above it. If a customer uses 5 kbit for 5 minutes, you have to have 6 kbit for the entire month as they can burst at any time. If a customer uses 5 MBit for 5 minutes, you have to have 5.1 Mbit the entire month. Again, they can burst at any time.

In order to do that, you must either subsidize bandwidth elsewhere, or bill them based on that burst rate. There is no in-between, not if you want to last as a business.

Most of the upper end bandwidth companies such as AboveNet, Exodus Communications, and UUNet use it. They do so in order to prevent situations where they're getting congestion due to lack of bandwidth. They must always keep the 100th percentile amount of bandwidth in reserve.

The percentile method allows a server to accommodate most any increase in traffic without slowing access speeds for the visitors. The chart below is an actual one from the port of a host using the 95%ile method. In this case, it also indicates a change in clients, which is why there is no real activity from about July 21 to July 31 (the new customer took over on the 31st).

Note the fairly level blue line at its bottom range (just above the green, which is incoming bandwidth). This is what most people would probably think of as their typical usage, or in that general area. This is what they will say they "really used".

However, there are several spikes driving usage way up on a repeated basis. Basically, what happens is that more bandwidth is allocated so that traffic is not slowed down when it increases, even as much as it did here (and in other spikes). Essentially, the 95th percentile system is close to your maximum sustained bandwidth usage for any part of the month, and you are billed for that amount for the entire month if you are on this system.

The top 5% on the spikes is knocked off. Note the highest point in this graph is 1.21m Multiply that by 30 days and you would have 36.3 gb for the month. However, the maximum bandwidth is 33 gb. Obviously, part of that 1.21m spike is the 5% lopped off the top end.
What's the alternative? Systems that limit the bandwidth. They can contain your bandwidth costs to what you expect, but at the drawback of slowing access at peak periods. Imagine a hosting company with capped bandwidth and several sites at peak demand simultaneously.

Anyone care to read War and Peace or Hawaii while waiting for a web site to load in your browser?

Here we have another actual example (taken on May 30, 2001). Note the overall more uniform level than the example above.

So, to recap, we have 95%ile, with the advantage of fairly uniform access speed regardless of the increase in traffic and the disadvantage that the price of bandwidth will rise commensurately with that increase.

Since most hosting companies don't want the reputation of having slow servers, you should understand why they would prefer this method, even if they have a choice. However, many bandwidth providers charge by the 95th%ile method, so some of the hosting companies charge their customers the same way.

Misconceptions About the Percentile Method

It is unfair.
Is the 95%ile system unfair? No. It is a system that ensures that no matter how much increased bandwidth you have (which is related to traffic but not synonymous with it), that the speed will not be impaired. It can keep companies and servers from getting a reputation as a "slow server". In some cases, that could be detrimental for business. If you try people's patience, they may try other sites.

Why, then, do some people think this method is unfair? Aside from not understanding it, it is probably because they are billed for near the highest amount of usage for the entire month.

It discriminates against high bandwidth usage sites.
It does no such thing. It is the high spikes in bandwidth, not high bandwidth usage of itself, that trigger the charges some people don't understand. High usage sites pay more because they use more. There is nothing the least bit discriminatory about that very fair practice.

It triples your "real" bandwidth usage.
Another falsehood. Some people have had sustained spikes triple, or even quadruple, that of their level usage, in excess of the allotted amount, and state this as fact. It simply isn't true. The variation from level use to sustained spike height can vary from server to server.

One thing must happen in order to incur additional bandwidth charges under the 95th %ile method. The sustained spike level must exceed the allotted amount of bandwidth. If that doesn't happen, it doesn't matter how high the spikes are.

If the sustained spike level does exceed the allotted amount, then the height of the sustained spikes is a factor in additional charges. The frequency of the spikes, their height, and how long they spike, all help determine to what extent additional charges are incurred. It is far from so simple a statement as tripling one's usage.