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Are Your Cloud Costs Too High? 5 Steps to Lower Your AWS Costs

Nearly every CEO we speak to with a cloud-based product universally agrees that their Amazon Web Services (AWS) bill is too high. While some may have unrealistic expectations, in most cases, companies simply must tightly manage usage to reduce cloud costs. These five steps will take you in the right direction.

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5 Steps to Create a Cloud Cost Reduction Plan

1. Compare Your Cloud Costs to Your Product Financials

Before you spend time analyzing your AWS budget, spend time with your product’s financials. Take a close look at your existing cloud costs, other operational costs that make up your cost of goods sold (COGS), average revenue per customer or user, and your profitability target. These are helpful questions to answer:

  • How much do your customers or users pay monthly, on average?
  • What are you currently paying each month for cloud costs?
  • How much do you spend monthly on other operational costs?
  • What is your desired cloud operating margin?

Now that you have a baseline of product costs versus profits you can set a realistic target for lowering your AWS budget.

2. Set a Realistic Target for Your AWS Cloud Costs

By setting a target AWS budget for your cloud costs, you’ll have more control over your desired profitability. Get started with free Amazon Cost Management tools, like AWS Cost Explorer, that can help you analyze your direct costs and usage as well as control spending. Three especially useful features include:

  • Cost Explorer: Shows spending history and estimates future spending based on past behavior
  • AWS Budgeting: Receive notifications when your budget exceeds a threshold that you set for cost optimization
  • Cost & Usage Reports: View usage of instances and the number of remaining instances to identify and control cost drivers

But what is a realistic target? Dive back into your financials and ask yourself:

  • What percentage of our COGS should our cloud costs be? Many SaaS product companies expect this to be as low as 10% but it can be much higher for some.
  • To reach this target, how much do we need to reduce our AWS costs? 10%, 20%, or even 30%?
  • What is our projected growth and how will our cloud costs scale or impact profitability?

The main drivers of AWS costs are processor time, managed services, and transfer of data. Computing time and managed services are more straightforward pricing-wise than data transfer. Though you’re not typically charged for inbound data transfer or data transfer between AWS services within the same region, there are some exceptions. Outbound data transfer is aggregated across services and charged at the outbound data transfer rate; the more data you transfer, the less you pay per gigabyte.

What is Forecast Cost in AWS?

We’re asked this question a lot! Amazon Cost Explorer’s Forecast Cost feature allows you to select a forecast time period to predict your costs for managing AWS services. You can use a forecast to estimate your AWS bill and set alarms and budgets based on predictions. Keep in mind:

  • It is based on past usage so isn’t 100% accurate as Amazon explains in this white paper.
  • Billing forecasts vary in accuracy like weather forecasts. The higher the prediction interval, the more likely the forecast has a wider range.
  • An 80% prediction interval may forecast spending between $90-100 with a mean of 95 for a budget set to $100/month.
  • The range of the prediction band is dependent on historical spend volatility or fluctuations.
  • The more consistent and predictable the historical spending, the narrower the prediction range.
  • Sudden spikes in usage, customers, or growth could require replanning.

3. Consider Architecture Design & Deployment Choices that Reduce Costs

Ten Mile Square’s team is frequently asked to conduct a business technology assessment of existing architecture and the deployment landscape with an eye on design and deployment choices that can reduce your cloud costs. During this assessment, we audit everything running in the cloud to understand what is there and why. It is not uncommon for us to find a number of opportunities to reduce cloud costs, such as:

  • Shift to horizontal scaling: Vertical scaling requires scaling up an entire system at once, which is costly and inefficient. Systems tend to be over-provisioned as well to handle traffic spikes. By shifting to horizontal scaling, you can scale up discrete parts rather than the entire cloud-based system to meet demand. It’s drastically more cost effective and enables auto-scaling.
  • Kill the zombies: If we uncover cloud resources that are no longer needed, make a plan to shut them down to reduce costs.
  • Manage oversized loads:As you increase capacity in one area, you’ll need to consider downstream capacity. Load balancer automation can improve availability by routing traffic to different service instances to prevent overloading and ensure smooth operations for customers.

4. Create a Cloud Cost Reduction Plan

Once an assessment is complete, Ten Mile Square’s experts analyze your cloud cost structures and alternatives that could be utilized. Typically, we circle back within 10 days with our assessment analysis and a Cloud Cost Reduction Plan that outlines specific recommendations to reach your target cloud costs.

Every plan is tailored to your situation but often includes similar recommendations for reducing costs:

  • Monitor Usage: AWS makes it so easy to deploy resources that costs can quickly escalate. We always recommend a plan for closely monitoring the usage of virtual servers like Amazon EC2 so you can deactivate unused resources sooner rather than later.
  • AWS Resources: Besides a well-architected workload, the right selection of AWS services can also lower costs. Our plan lays out the right combination for each client.
  • Cache Content: Data transfer can be costly. We suggest caching dynamic or static web content when possible at Amazon CloudFront edge locations to contain these costs.
  • Auto-scale: Using AWS Auto Scaling allows you to better balance supply and demand by adding or removing resources as needed. It is where Cost Explorer and usage reports come in handy.
  • Update Architecture Design: Your company is always evolving, which means your cloud utilization needs are, too. Regular review of your architecture design ensures the resources, services, and systems are deprecated and new cloud services and features are deployed.

Delivered Cloud Cost Reduction Plan to Reduce AWS Costs by 30%

Ten Mile Square helped this SaaS CEO lower cloud costs in just a few steps:

  • Looked at their business objectives and projected growth
  • Reviewed current architecture and the deployment landscape
  • Examined service delivery costs and considered ways to reduce costs
  • Delivered a Cloud Cost Reduction Plan in 7 days to reduce AWS costs by 30%

5. Put a Roadmap in Place and Implement

Ten Mile Square has guided dozens of SaaS and product companies through this process, and we’re well versed in countless ways to optimize and create savings plans to reduce your AWS cloud costs. Once we have a roadmap, we can implement it alongside you, including:

  • Hands-on Architecture Modernization to help move the current system state to the desired target state
  • DevOps Automation to ensure the production environment is a known and stable configuration
  • Cost Saving Scalability Features such as application monitoring, auto-scaling triggers, and ephemeral environments

Ten Mile Square Helps You Keep Cloud Costs Under Control

Stop paying high AWS bills that are dragging down profitability. Contact us today to request a Cloud Cost Reduction Plan or AWS Cost Analysis. Together, we will lower your AWS costs.

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