Overselling server resources
Many web hosting companies oversell server resources. This scenario is always worst if you deal with a reseller, many of them look for the ability to overselling plan accounts.
What is overselling?
There is a limited amount of server resources available on any hosting environment, overselling is when hosting companies market plans with more disk space and bandwidth than they can provide.
Let me explain this with an example: a fairly good server can have the following features, phisically 150GB available of disk space for accounts, and a maximum throughput of 3,000GB in data transfer per month. If the hosting company offers plans for this server with 3GB of disk space and 60GB of data transfer, the maximum number of accounts without overselling would be 50.
If the 50 accounts in our example are allowed to have 6 domain names, under the same account, a maximum of 300 sites will be on that server.
Why hosting companies oversell?
Many of the 50 accounts, in our previous example, don't use totally their assigned resources. The hosting company finds out that on average they use only 1GB of disk space and 20GB of data transfer. So from a strictly business point of view, the hosting company sells the unused resources. They can decide to sell 75, 100 or even 150 accounts per server, it's up to them.
However, this is a risky business, on one hand, the hosting company can offer better prices, but in the other hand, server performance is always affected.
Reseller accounts allowing overselling
Many people interested in offering web hosting services on their own, look specially for reseller accounts allowing overselling.
This is the worst scenario, for example a typical low entry reseller account, can have the following features: 5GB of disk space and 50GB of data transfer. With this characteristic enabled, they can create as many accounts as they have allowed, with features surpassing their own limits like, accounts with 6GB disk space and 75GB of data transfer. Since they look specially for this feature, you can be sure they will oversell as much as they can. And probably the hosting company offering those accounts can be already overselling.