As the world becomes increasingly digital, more and more businesses are turning to cloud computing to store and manage their data. While this technology has a number of advantages, it can also be expensive if not managed properly. With the right cost management strategies, however, businesses can optimize their cloud environments and achieve significant cost savings.
In this article, we’ll explore some of the key cost management strategies that businesses can use to keep their cloud spending under control. From setting budgets to leveraging automation tools, we’ll provide tips and advice to help you get the most out of your cloud investment without breaking the bank. So whether you’re a small startup or a large enterprise, read on to discover how you can optimize your cloud cost management strategies and save money in the long run.
Table of Content:
- What is Cloud Cost Management?
- Optimizing Cloud Cost Management Strategies
- Challenges of Managing Cloud Cost
- Benefits of Optimizing Cloud Cost
What is Cloud Cost Management?
Cloud cost management, or cloud cost optimization, is the process by which an organization manages the costs and resources associated with its cloud technology. This includes understanding the costs of cloud usage and finding ways to maximize efficiency while keeping costs under control.
As cloud infrastructure becomes increasingly complex, it can be difficult to track and manage cloud costs. The “pay for what you use” model used by most public cloud providers can lead to significant savings if usage is monitored and managed effectively. However, if cloud usage is not properly monitored, costs can quickly spiral out of control, especially in decentralized organizations where individuals have the ability to spin up instances without accountability.
Cost Management is not a one-time activity but a continuous process that requires constant attention and improvement. This involves four main steps:
- Resource Planning: Evaluation and planning of the use of the physical, human, financial and informational resources required to complete the work activities and their tasks.
- Cost Estimating: Use to quantify, cost and price the resources required by the scope of an investment option, activity or project.
- Cost Budgeting: Sub-process within estimating used for allocating the estimated cost of resources into cost accounts against which cost performance will be measured and assessed.
- Cost Control: Measuring variances from the cost baseline and taking effective corrective action to achieve minimum costs.
Optimizing Cloud Cost Management Strategies
To make the most of their cloud infrastructure and keep costs under control, enterprises need to employ a cloud cost management strategy. This involves several key steps, such as understanding the different cost models and pricing structures of cloud providers. Additionally, identifying cost optimization opportunities, and implementing best practices for monitoring and controlling cloud usage. By taking these steps, organizations can ensure they are maximizing the value of their cloud investments while keeping costs in check.
There are many factors that contribute to cloud costs, and not all of them are obvious upfront. Costs can include:
- Virtual machine instances
- Network traffic
- Training and support
- Web services
- Software licenses
As more businesses move to the cloud, the need for effective cost management has become increasingly important. To help you get started, we’ve compiled a list of cloud cost management strategies that can help you reduce costs and improve efficiency.
1. Eliminate Unused Licenses and Resources
This involves finding and removing the cloud resources that are not being used or are no longer needed. This will help you to save money on cloud bills. To reduce the cost of unused resources, an organization should regularly inactive resources. Some examples of un-used resources are:
- Unused SaaS Licenses
- Unnecessary snapshots or backups.
- Idle compute resources.
- Unused IP addresses or load balancers
2. Downgrade or Right-Size Licenses and Instances to match your needs
This involves adjusting the level and size of cloud resources to match your actual usage and needs. This can help avoid overpaying for resources that are not fully utilized or needed. Some examples of downgrading or right-sizing licenses and instances are:
- Switching from premium to basic licenses for SaaS users who do not need advanced features
- Choosing the optimal instance type and size for your cloud workloads based on their CPU, memory, and network requirements.
- Using automatic scaling to adjust the number of instances based on demand instead of planning for peak utilization.
- Leveraging savings programs or reservations to get discounts for committed usage or capacity.
3. Reduce Redundant Applications and Services
This involves eliminating cloud resources that have overlapping or duplicate functionality. This can help avoid paying for multiple services that serve the same purpose. Some examples of redundant applications and services are:
1. SaaS applications that provide similar features or capabilities.
For example, ClickIp, Trello and Jira are some of the SaaS applications that help users to plan, organize, track and collaborate on projects. Tableau, Power BI, and Google Data Studio are SaaS applications that help users to analyse, explore and visualize data. Make sure that different services should serve a different purposes.
2. Cloud instances that run the same workload or service
Virtual Machines and serverless functions are two famous cloud instances that help you to run the applications such as code, libraries, configuration files etc.
3. Cloud storage systems that store the same data
For example, you are storing the same data in Dropbox, OneDrive or iCloud Drive. You need to make sure that different cloud storage system should have different data. If you are storing the same data in different cloud storage, you have to bare the cost for each storage system which will ultimately be expensive.
4. Cloud providers that offer the same service
Azure App Service, Google App Engine, Salesforce Platform etc are some of the Platform as a Services (PaaS) tools for developing, testing, deploying and managing applications. However, AWS Lambda, Azure Functions etc are some of the Function as a Service (FaaS) tools that allow users to run code snippets or functions in response to events or triggers.
4. Consolidate Subscriptions and Leverage Discounts or Savings Plans
This involves combining multiple cloud services or accounts into a single pricing model and taking advantage of special offers or programs that provide lower rates for committed usage or capacity. This can help reduce the complexity and variability of cloud costs and achieve greater savings. Some examples of consolidating subscriptions and leveraging discounts or savings plans are:
- Merging multiple SaaS subscriptions into a single enterprise-wide plan
- Using AWS Savings Plans or Azure Reserved Instances to get discounts for committing to a certain amount of usage or capacity for a specific term.
- Use Google Committed Use Discounts or Sustained Use Discounts to get discounts for committing to a certain percentage of usage or for using resources for a long duration.
- Negotiating custom discounts or contracts with cloud providers based on your expected spend or demand.
5. Adopt a Proactive Renewal Strategy and Negotiate Contracts
This involves planning ahead for cloud service renewals and using data and insights to get better terms and prices from cloud providers. This can help avoid getting stuck with automatic renewals, paying for unused or underused services, or missing out on discounts or savings. Some examples of adopting a proactive renewal strategy and negotiating contracts are:
- Creating a SaaS renewal calendar and set alerts for upcoming renewal dates.
- Reviewing original purchase agreements and contracts to understand the renewal clauses and conditions.
- Evaluating SaaS usage and performance to determine if the service is still needed or valuable.
- Contacting sales representatives and using usage data to fuel negotiations for lower prices or better features.
- Exploring vendor’s success metrics and leveraging them to get more favorable rates or terms
- Monitoring economic indicators and cost indexes to estimate vendor pricing and forecast future price changes.
6. Measure Unit Cost, COGS, and Cost Per Customer to align costs with Business Metrics
This involves tracking and analyzing how much it costs to build and run your cloud products and services, and how those costs relate to your business metrics and goals. This can help you understand the return on investment (ROI) of your cloud spending, optimize your pricing and profitability, and achieve economies of scale. Some examples of measuring unit cost, Cost per cloud service, Cost per app (Cost of the platform etc) and cost per customer are:
- Calculating the cost per unit of resources, such as cost per feature, cost per team, and cloud cost.
- Calculating the cost per cloud service will help to understand how much the user is spending on Storage, Computing, database or other cloud services.
- Cost per app includes how much it cost you to run the application daily, monthly and yearly.
- Cost per customer includes several factors such as how much a new customer costs in terms of cloud storage or computing, and How much is a new customer worth in terms of revenue.
7. Improve Architecture to Increase Efficiency
This involves designing and building cloud applications and services that can scale up or down based on demand and performance needs. This can help avoid overprovisioning or underutilizing cloud resources and paying for more than what you use. Some examples of improving architecture to increase elasticity and efficiency are:
- Adopting a microservices or serverless architecture that allows for greater flexibility and granularity in scaling and deploying cloud resources.
- Using auto-scaling or spot instances to adjust the number and size of cloud instances based on demand or price fluctuations.
- Choosing the optimal storage class and tier for your data based on its access frequency, latency, and durability requirements.
- Leveraging cloud-native or third-party tools and services that provide performance optimization, caching, compression, or deduplication.
8. Use Cloud-Native or Third-Party Tools for Cost Analysis and Reporting
Cloud-native and third-party tools can help you monitor your cloud usage, identify cost drivers, allocate costs to different business units or projects, and generate reports and alerts on your spending patterns. By using these tools, you can gain visibility and control over your cloud costs and make informed decisions on how to optimize them.
Some examples of cloud-native tools are:
- Amazon CloudWatch: AWS’ native tool that pulls metrics and logs from over 70 AWS applications, services, and resources.
- Azure Cost Management + Billing: Microsoft’s native tool that provides cost reporting, budgeting, alerts, recommendations, and more.
- GCP Billing: Google’s native tool that offers cost reports, budgets, alerts, and export capabilities.
Some examples of third-party tools are:
- CloudZero: A tool that focuses on architectural optimization and unit economics for AWS.
- Densify: A tool that provides analytics, automation, and execution capabilities for AWS, Azure, and GCP.
- Apptio Cloudability: A tool that offers cost management and resource optimization for AWS, Azure, and GCP.
Challenges of Managing Cloud Cost
Managing cloud costs can be a challenging task for organizations of all sizes. With the increasing complexity of cloud infrastructure and the pay-as-you-go model used by most cloud providers, it can be difficult to accurately track and manage cloud expenses. However, by implementing a comprehensive cloud cost management strategy, organizations can overcome these challenges and reap the benefits of optimized cloud spending.
Here are some of the common challenges that organizations face when managing cloud costs:
- Lack of visibility into cloud spend: Without proper tools and processes to monitor and analyze cloud usage and spending, it can be hard to identify and eliminate hidden costs, wasteful resources, or inefficient practices.
- Inaccurate budget forecasts: It can be challenging to predict cloud expenditure, especially when there are multiple cloud resources, services, and providers involved. Cloud costs can vary depending on factors such as demand, performance, availability, and discounts.
- Poor cloud architecting: Designing cloud solutions without following best practices such as the AWS Well-Architected Framework can lead to suboptimal performance, reliability, security, and cost efficiency. Poor cloud architecting can also result in overprovisioning, underutilization, or misconfiguration of cloud resources.
- Complex billing: Cloud billing can be complicated and hard to understand, especially when there are multiple cloud providers, services, and regions involved. Cloud billing can also change frequently due to new features, discounts, or price changes.
- Too many options in the cloud: Cloud providers offer a large and growing number of features and services that can suit different needs and preferences. However, this also makes it difficult to choose the best-suited feature with the lowest cost for a given context. Moreover, keeping up with the latest updates and announcements from cloud providers can be challenging and time-consuming.
Benefits of Optimizing Cloud Environment
By implementing a comprehensive cloud cost management strategy, organizations can realize a range of benefits, including:
- Cost reduction: By optimizing cloud resources, usage, and performance, you can eliminate waste, avoid unnecessary charges, and take advantage of discounts and savings plans.
- Business value: By optimizing cloud services and features, you can align your cloud costs with your business goals, measure your return on investment, and increase your revenue and profitability.
- Innovation and efficiency: By optimizing cloud applications and data, you can leverage the latest technologies, improve your software quality, enhance your customer experience, and accelerate your time to market.
- Collaboration and feedback: By optimizing the cloud operating model and skills, you can foster a culture of agility, automation, and continuous improvement, as well as leverage third-party expertise and support.
Optimizing cost management strategies for your cloud environment is essential for maximizing your cloud investments and controlling costs. However, by implementing a comprehensive cloud cost management strategy, you can identify cost optimization opportunities and reduce wasteful spending. Overall, optimizing your cloud cost management strategy is critical for realizing the full potential of your cloud infrastructure and driving business value.