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

Nearly every CEO we speak to with a cloud-based product universally agrees that their Amazon Web Services bill is too high. While some may have unrealistic expectations, in most cases, companies simply must tightly monitor and manage cloud usage to reduce costs. 5 Steps to Reduce AWS Costs >

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What are some ways to optimize AWS costs and reduce my bill? Business and technology leaders commonly ask this question as cloud usage is continually changing and without careful expense management, it is easy for your bill to increase. Cloud platforms like Amazon are attractive due to their flexibility and scalability to efficiently manage workloads and adapt to changing demands and requirements with the ability to provision resources on-demand and pay only for what you use. In reality, companies pay for the resources you order, whether you use them or not.

Cost optimization to reduce your cloud spend can be achieved through a variety of strategies:

Right-Sizing: Analyze resource utilization to adjust size of your instances, storage, and other resources to match actual needs. Downsize over-provisioned resources or use auto-scaling.

Instance Optimization: Select instance types based on workload requirements and specific use cases, such as memory-intensive, compute-intensive, or burstable workloads.

Storage Optimization: Optimize storage costs by using lifecycle management to transition data to lower-cost storage tiers when less frequently accessed.

Serverless Computing: Use serverless architectures (AWS Lambda or Fargate) where you pay only for actual compute time consumed, resulting in cost savings and efficiencies.

Reserved Instances & Savings Plans: To benefit from cost savings for long-term workloads.

Spot Instances: Use for fault-tolerant and flexible workloads that can handle interruptions.

Cost Allocation: Implement resource tagging to track costs accurately and allocate to specific products, projects, or teams for better cost visibility and accountability.

Alerts: Set alerts on cost overruns or unusual spending patterns to take action promptly.

Continuous Optimization: Regularly optimize your infrastructure, monitor new services and pricing changes, and review architectural best practices.

Below, we detail five steps that leaders can take to help you with cost management.

5 Steps to Optimize AWS Costs and Reduce Your Bill

1. Compare Your Cloud Costs to Your Product Financials

Before you spend time analyzing your Amazon budget, spend time with your product’s financials. Take a close look at your existing 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 services?
  • 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 reducing your Amazon budget.

2. Set a Realistic Target for Your AWS Cloud Costs

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

  • Spending Analytics: See spending history and estimate future spending based on past behavior
  • 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

Another tool to help you forecast your monthly Amazon expenses:

  • AWS Pricing Calculator: Helps you foresee monthly expenses based on specific services, regions, instance types, storage options, and other variables for better cost planning.

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

  • What percentage of our COGS should our cloud expenses 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 Amazon costs: 10%, 20%, or even 30%?
  • What is our projected growth and how will our costs scale or impact profitability?

What are the factors that affect the cost of using Amazon Web Services?

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

There are a number of factors that impact your Amazon costs:

Usage: The amount of resources used (compute, storage, data transfer) drive your costs.

Services: Each AWS service has a different pricing model making it complex to forecast costs.

Elasticity: A key advantage of the cloud is how easy it is to scale resources up or down based on demand but usage needs to be tightly managed to avoid unexpected costs.

Data Transfer: The cost to transfer data between regions and services adds up quickly, especially for high-volume workloads. Consider cost-effective options like Direct Connect or Regional Data Transfer.

Region: Costs vary regionally due to differences in infrastructure costs, taxes, and regulations.

Instance Types: Each instance type has its own specifications and pricing, which impact overall costs, such as the type of Elastic Compute Cloud (EC2) instance you choose.

Reserved Instances: When you anticipate consistent, long-term usage, opting for reserved instances (RIs) can provide significant cost savings over on-demand. You commit to a specific instance type, availability zone, and term length to lock in lower pricing.

Discounts: Amazon offers volume discounts, savings plans, spot instances, standard and convertible RIs, and enterprise agreements that may save you money.

What is Forecast Cost in AWS?

We’re asked this question a lot! Amazon’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 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 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 expense structures and alternatives that could be utilized. Typically, we circle back within 10 days with our assessment analysis and a plan that outlines specific recommendations to optimize and reach your target costs.

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

  • Monitor Usage: Amazon 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 Services: 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 Cost Reduction Plan to Reduce AWS Costs by 30%

Ten Mile Square helped this SaaS CEO lower 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 plan in 7 days to reduce Amazon 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 AWS pricing and create savings plans to reduce your AWS cloud usage. 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 Amazon Costs Under Control

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

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