> Our math tells us that $1/month will result in surprisingly high margins

What happens when a site uses too much bandwidth for this to hold? The first thing I looked for was information about storage and bandwidth limits, but I don't see that anywhere.

Those are outliers and are rarer than you think. Ask anyone who offers free hosting how many of these large sites they have.

Heliohost, as an example, only restricts sites based on CPU Usage. Free hosting of up to 500MB, unlimited bandwidth. But metered CPU Usage. Even then that's hard to hit.

That's a good point. It's really going to be a game of averages. Most small websites that I build (for restaurants, bands, conversion pages, etc) get a negligible amount of traffic. But every now and then there will be a site that sees 100x that traffic.

Or 100000x that traffic. One $1/month site that bursts to unexpectedly excessive bandwidth could wipe out the margins on thousands of such sites.

Storage is easy to set limits on in advance, but you're going to want some sensible limits on bandwidth usage too. With some care, you could do so via throttling (fixed average bandwidth with bursting) so that you never need to cut a site off entirely.