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Cloud Cost Optimisation Guide and How We Do It

Arrows that show how costs are going down for AWS cloud.

Moving your software to the cloud may feel like leasing a Manhattan loft with a view over Central Park: it’s good for your heart & soul but bad for your wallet. And soon enough, maintaining this lifestyle gets out of hand, and the bills suddenly stop making sense... and you just want all of it to stop.

Let me tell you, keeping track of your infrastructure budget is tough, especially for a growing business. In fact, it's so common that according to a report published by Anodot, nearly half of the businesses (49%) find it difficult to get cloud costs under control, and 54% believe their primary source of cloud waste is a lack of visibility into cloud usage.

But worry not: in this article, I'll guide you through how we at Team Serverless think it's best to go around optimizing your cloud costs.

And if you need more than an article, we briefly describe how we help our clients with cloud cost optimization in the Milnorway case study, where we were migrating a product from a Chinese cloud platform to AWS Serverless.

So, What is Cloud Cost Optimization?


As you may have guessed from the headline, cost optimization is about ensuring you get value for money with no hidden costs or unused pricey cloud services. It involves implementing strategies and practices to effectively use your resources, manage spending and ensure your company gets the most out of its cloud investment.

By optimizing cloud costs, you can maximize ROI, ensure cost-effective operations, and allocate resources more efficiently.

Here are some of the activities involved in cloud cost optimization we implement for our clients:

  • Analyse and adjust allocated resources

    You have to rightsize your cloud resources, such as compute instances, storage, and databases, to match the workload requirements. This prevents overprovisioning or underutilization of resources, leading to cutting costs.

  • Look into Reserved Instances and Saving Plans

    Educate yourself about the pricing models cloud service providers offer, such as AWS Reserved Instances or Azure Reserved VM Instances, to commit to longer-term usage and benefit from discounted pricing.

  • Enforce Auto Scaling

    Implement automated scaling mechanisms to adjust the number of cloud resources based on demand, ensuring optimal resource utilization and cost efficiency during peak and off-peak periods.

  • Optimise Cloud Storage

    Put techniques like data tiering, compression, and deduplication into practice to reduce storage costs while maintaining data accessibility and performance.

  • Achieve Cost Visibility

    Establish governance policies, monitoring tools, and cost allocation mechanisms to gain visibility into cloud spending, track costs by projects or departments, and enforce cost control measures.

  • Plan Capacities

    Study historical usage patterns and plan for future growth projections to effectively plan and purchase reserved capacity in advance, avoiding last-minute purchases at higher prices.

  • Adopt FinOps Practices

    Establish collaboration between finance, operations, and development teams to align cloud spending with business objectives, track costs, and make data-driven decisions.

Cloud cost optimization is an ongoing process that requires continuous monitoring, analysis, and adjustment of cloud resources and usage patterns. By implementing effective cost optimization strategies, companies can achieve significant savings, improve cost predictability, and optimize their cloud expenditure without compromising performance or functionality.
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Kyrylo Kozak

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Cloud Pricing Models

For starters, let’s look at the most common cloud pricing models.

  • Pay-as-you-go (PAYG)

    In this model, users get billed based on the actual usage of cloud resources, such as compute instances, storage, data transfers, and other services, on an hourly, monthly, or per-usage basis. It offers flexibility and cost control by aligning costs with actual usage. And most of all, it's also our personal favorite. We like to ensure our clients pay for what they use now and not a penny more.

  • Reserved Instances (RI)

    This model is about specific terms and predicted usage. It allows companies to reserve cloud resources for a particular period (e.g., 1 or 3 years) at a significant discount compared to the pay-as-you-go rates. It's suitable for companies that have predictable workloads and want something long-term.

  • Dedicated Instances

    With this, you get a dedicated physical server for exclusive use. These are ideal for compliance, security, and performance-sensitive workloads, but they usually come at a higher cost than shared instances.

  • On-Demand Instances

    This is similar to the pay-as-you-go model, where you use and pay for resources without any upfront commitment. This pricing model typically charges you at regular rates with no long-term obligations or discounts.

  • Spot Instances

    Some cloud providers offer their customers to bid on unused or spare cloud resources. This may seem attractive when the price is low, but once the market price exceeds your bid, these instances can be terminated on a terse notice. So it's a pretty risky choice.

  • Free Tier

    This is perfect if you want to explore and experiment with cloud platforms without incurring any overcharges. In this model, cloud providers offer limited resources and services for a short time to test them out. Free Tier is usually aimed at new customers or small-scale cloud usage.

  • Adopt FinOps Practices

    Establish collaboration between finance, operations, and development teams to align cloud spending with business objectives, track costs, and make data-driven decisions.

    If you still need to decide what pricing model and service provider to choose, schedule a call, and we will help you.

Common Cloud Cost Drivers

Okay, now that cloud pricing models got covered, let's move on to the most common cost drivers that lead to overspending if not appropriately managed.

At Team Serverless, we recognize two types of reasons: one has to do with how an organization is structured, and the other has to do more with cloud resources & providers. Let's take a look:

To understand how to approach cloud cost optimization, you have to understand the common cloud cost drivers.
  • Improper Pricing Model Selection

    Pretty obvious, but I have to put it out here because it gets overlooked quite often: choosing the wrong pricing model for cloud services results in overspending. For example, opting for on-demand instances instead of reserved instances for stable workloads will dry your budgets over time.

  • Lack of Usage Monitoring and Governance

    Poor visibility into cloud resource usage can make it challenging to identify overspending areas. Crazy, right? But also difficult to keep in mind. Monitoring cloud services and implementing proper governance practices, such as tagging resources, is necessary to track and optimize costs. Enforce these practices from the start to spend wisely.

  • Inadequate Cost Allocation

    Hanging money on a growing project takes a lot of work. You want the best, the fastest, the most scalable of them all. Without proper cost allocation practices, it becomes difficult to attribute costs to specific teams, projects, or departments. This lack of granularity can lead to overspending without clear accountability.

  • Lack of Cost Optimization Strategies

    Failing to implement cost optimization strategies, such as rightsizing resources, using spot instances or spot blocks, implementing caching mechanisms, or leveraging cost-effective alternatives, leads to overspending. And I know doing all this homework and addicting additional steps to your checklists can be a pain. But trust me — the result is worth it.

  • Unused Resources

    This is first and foremost. If you want to know where your precious money goes, check for instances, storage, and other running cloud services that have yet to actively serve any purpose. Just like Liam Nison said — find them and end them.

  • Overprovisioning

    It’s simple: don’t bite more than you can chew. It's essential to accurately assess the required capacity and choose appropriately sized instances and storage to avoid paying for resources you don’t use.

  • Lack of Resource Optimization

    Using your resources inefficiently leads to increased costs. So to avoid that, you must establish some ground rules and include performance audits and optimization in your quarterly plans.

  • Data Transfer and Network Costs

    Excessive data transfer between different services, regions, or external networks can contribute to overspending. Check for inefficient data transfer patterns, unoptimized network configurations, or unnecessary bandwidth allocation to save up.

  • Unoptimized Storage

    Are you using your storage efficiently? Check for whether you're storing redundant or infrequently accessed data in expensive storage tiers, as it can really cut down that check at the end of the month. To optimize your storage costs further, employ data lifecycle management strategies and ensure you're utilizing the appropriate storage classes.

  • Complex Pricing Structures

    Let's be honest, with an abundance of cloud providers & offers like various pricing models, discounts, and pricing tiers, it's not easy to find what matches your needs. But Team Serverless is always here to consult if you need some advice. Just give us a call.

Cost Performance Indicators to Keep an Eye On

My team was set on including a list of the most important KPIs you can track and measure to ensure you use your resources efficiently. So here they are:

  • Total Cost of Ownership (TCO):

    Measures the overall cost of cloud services compared to on-premises alternatives.

  • Cost per workload/user/transaction:

    Evaluates the cost efficiency of individual workloads, users, or transactions in the cloud environment.

  • Resource Utilization:

    Monitors CPU, memory, and storage utilization levels to ensure efficient resource allocation.

  • Service Availability:

    Measures the uptime and availability of cloud services to ensure they meet the defined service-level agreements (SLAs).

  • Performance Metrics:

    • Average Response Time: Measures a system or service's time to respond to a request.

    • Latency: Measures the delay between sending a request and receiving a response.

    • Throughput: Measures the rate at which a system or service can handle incoming requests.

  • Scalability and Elasticity:

    • Auto-scaling Events: Tracks the frequency and effectiveness of automatic scaling events based on demand.

    • Time to Scale: Measures the time it takes to scale resources up or down to meet workload requirements.

    • Resource Provisioning Time: Measures the time it takes to provision new resources in the cloud environment.

  • Security and Compliance:

    • Security Incidents: Tracks the number and severity of security incidents and breaches.

    • Vulnerability Management: Measures the effectiveness of vulnerability management processes.

    • Compliance Adherence: Ensures compliance with relevant industry standards and regulatory requirements.

Ten Steps to Start Saving Money on Your Cloud Resources ASAP

Optimizing costs in the cloud involves steps that help identify inefficiencies, eliminate wasteful spending, and maximize the value of your cloud resources. Here are ten steps to start saving money on your cloud resources as soon as possible:

10 steps that will help reduce cloud expenses in no time.
  1. Learn More About Cloud Cost Optimization

    Begin by familiarizing yourself with cloud cost optimization principles and best practices. Gain an understanding of the different pricing models, resource allocation strategies, and optimization techniques specific to your cloud provider.

  2. Analyze Your Cloud Usage

    Look at your cloud usage patterns and identify areas where you can improve. Look for overprovisioning, underutilization, and potential inefficiencies in resource allocation.

  3. Identifying Idle Resources

    Spot out any idle or unused resources in your cloud environment. These can include idle instances, storage volumes, and databases that consume resources and incur costs without delivering value. Terminate or reallocate these resources to eliminate unnecessary expenses.

  4. Optimize Your Cloud Storage

    Review your cloud storage usage and identify opportunities for optimization. Archive data based on usage patterns and cost implications. Compress and deduplicate data where applicable to reduce storage costs.

  5. Take Advantage of Reserved Instances

    Look at cloud providers' reserved instances offerings and analyze your workload requirements to purchase reserved instances for predictable and steady workloads.

  6. Look Into Spot Instances

    Consider using spot instances for non-critical workloads that can tolerate interruptions. Spot instances are available at significantly lower prices compared to on-demand instances. You can achieve substantial cost savings by using spot instances, especially for fault-tolerant or flexible workloads.

  7. Review Your Cloud Network

    Ensure your network design aligns with your requirements, eliminating unnecessary components or data transfer costs. Implement efficient network routing and traffic management strategies to minimize costs.

  8. Use Automation

    Your cloud provider's automation tools and services are there for a reason. They help to streamline processes and optimize resource management. If you want to save money, go ahead and automate the provisioning and de-provisioning of resources, implement auto-scaling mechanisms, and use infrastructure-as-code practices. It will pay off in no time.

  9. Monitor Your Cloud Usage

    Implement monitoring and analytics tools to gain visibility into your cloud usage and spending. Continuously monitor resource utilization, performance metrics, and cost trends. Use this data to identify anomalies, optimize resource allocation, and make informed decisions.

  10. Make Sure to Review Your Cloud Costs Regularly

    Regularly review and analyze your cloud costs to identify trends, patterns, and areas for improvement. Conduct cost reviews on a monthly or quarterly basis, involve relevant stakeholders, and adjust your optimization strategies accordingly. It’s a must for cutting cloud costs.

Optimize Your Cloud Infrastructure With Us

At Team Serverless, we have a strong track record in helping businesses optimize their cloud costs. With a team of experienced cloud architects and cost optimization experts, we have guided numerous companies through maximizing cost efficiency in their cloud deployments.

Here is a brief description of the services we provide to our clients:

  • Comprehensive Cost Assessment

    We start off by conducting a comprehensive assessment of the client's cloud infrastructure and spending patterns. Our experts analyze the client's cloud usage, workload requirements, resource utilization, and cost breakdown. This assessment provides us with a clear understanding of the client's current cost landscape and areas for potential optimization.

  • Customized Cost Optimization Strategy

    Based on the assessment findings, we process with developing a cost optimization strategy for each client. We consider the client's specific business goals, workload characteristics, and budget constraints. The strategy encompasses a range of cost optimization techniques and best practices, aligning with the client's unique needs.

  • Right-sizing Resources

    One of our key focus areas is right-sizing cloud resources. We have covered that earlier in our article and continue to signify its importance. Our team analyzes resource utilization metrics (if you provide them or find that our for you) to identify overprovisioned or underutilized instances, storage volumes, and databases. By resizing resources to match the workload requirements, we help eliminate unnecessary costs while ensuring optimal performance.

  • Instance Optimization

    We look at the client's instance utilization patterns and recommend appropriate instance types based on workload characteristics. Considering CPU, memory, and storage requirements, we select cost-effective instance types without compromising performance.

  • Storage Optimization

    We identify infrequently accessed data to optimize storage costs and suggest appropriate storage tiers or archival options. By using cloud provider features like object lifecycle policies and intelligent tiering, our experts help clients reduce storage costs while maintaining data accessibility.

  • Reserved Instances and Savings Plans

    At Team Serverless, it’s our job to know and advise our clients on different savings plans offered by cloud providers. We evaluate the client's usage patterns, workload stability, and long-term commitments to determine the most cost-efficient reservation options.

  • Cost Optimization through Automation

    Automation is a core component of our team’s approach to cost optimization. We help clients automate resource provisioning, de-provisioning, and scaling using infrastructure-as-code practices and cloud provider tools. By dynamically adjusting resource allocation based on workload demand, clients can optimize costs in real-time and avoid unnecessary expenses.

  • Monitoring and Cost Visibility

    We always emphasize the importance of continuous monitoring and cost visibility. Our experts assist clients in setting up robust monitoring and alerting mechanisms to track resource utilization, cost trends, and potential cost overruns. By closely monitoring their cloud spending, clients can proactively identify areas of inefficiency and take timely cost optimization actions.

  • Ongoing Support and Optimization

    We collaborate with our clients by providing ongoing support and optimization services. If requested, we conduct regular reviews of cost optimization strategies, assess the effectiveness of implemented measures, and recommend further improvements. This iterative approach ensures that clients continue to benefit from cost savings and stay aligned with evolving business needs.

Explore our case studies to see how our holistic approach of encompassing assessment, strategy development, implementation, and ongoing support, has proven instrumental in driving significant cost savings and enhancing overall cloud cost efficiency for our clients.

Conclusion

In conclusion, optimizing cloud costs is a crucial aspect of managing your cloud infrastructure. This article has covered various strategies and best practices for saving big bucks on cloud cost optimization. Plus, we also highlighted the common cloud cost drivers and provided a list of key performance indicators to monitor.

And sure, while implementing these cost optimization strategies can lead to significant savings and improved cost predictability, it’s an ongoing process that requires non-stop effort. That's where our expertise comes in.

At Team Serverless, we specialize in helping businesses optimize their cloud costs. Our team can conduct a comprehensive audit of your cloud infrastructure, develop a customized cost optimization strategy and guide you through choosing the right pricing models for your business.

If you need further guidance or have specific questions about your app's architecture, our team is here to assist you. Reach out, and let’s together choose what architecture suits your app best.

Faq

Why is cloud cost optimization important?


Cloud cost optimization allows organizations to minimize their expenses and maximize the value they derive from their cloud resources. Pay for what you use only. By optimizing cloud costs, businesses avoid overspending, allocate resources efficiently, and optimize their ROI in cloud services.

What are the cloud cost optimization tools?


There are several cloud cost optimization tools available today, like:

AWS Cost Explorer: A tool provided by Amazon Web Services to analyze and visualize costs and usage data.

Azure Cost Management and Billing: A service provided by Microsoft Azure that provides cost analysis, budgeting, and spending alerts.

Google Cloud Cost Management: A suite of tools and services that Google Cloud Platform (GCP) offers to monitor and control cloud spending.

CloudHealth by VMware: A cloud management platform that offers cost optimization features across multiple cloud providers.

RightScale: A cloud management and cost optimization tool that provides cost visibility, reporting, and automation capabilities.

How can organizations optimize their cloud costs?


There is a list of strategies companies can implement to cut the costs of cloud services:

  1. Regularly monitor cloud resource usage to identify areas of inefficiency or underutilization. Use monitoring tools to gain insights into resource consumption patterns and adjust provisioning accordingly.
  2. Select cloud instances that best match the workload requirements regarding computing power, storage, and networking. Avoid overprovisioning or underprovisioning resources.
  3. Utilize automation tools to manage resource allocation and scaling based on demand. Automate processes such as scheduling instances to run only when needed, shutting down non-essential resources, or resizing instances based on workload.
  4. Evaluate storage needs and choose appropriate options based on performance requirements and cost. Consider using lower-cost storage classes for infrequently accessed data.
  5. Minimize data transfer costs between regions or services within the cloud provider's ecosystem. Utilize CDNs to reduce latency and data transfer costs.
  6. Take advantage of reserved instances or savings plans offered by cloud providers. These can provide significant discounts for long-term usage commitments.

What are some common challenges with cloud cost optimization?


In our experience, the most common challenges for companies are

  1. Lacking visibility: Without proper monitoring and analysis tools, gaining visibility into resource usage and identifying areas for optimization can be challenging.
  2. Getting lost in pricing models: Cloud pricing models can be complex, with various factors affecting costs. Understanding and optimizing costs across different services, regions, and pricing tiers can be challenging.
  3. Keeping around idle resources: As companies scale their cloud usage, they encounter issues with resource sprawl, where instances, storage, and other resources are provisioned but not properly utilized or decommissioned when no longer needed.
  4. Lacking analytical data: Cloud workloads can be highly dynamic, making it challenging to forecast resource needs and optimize costs effectively and accurately.

Remember, designing a microservices architecture requires careful consideration of your specific requirements and trade-offs. It's important to continuously evaluate and refine your architecture as your application evolves.

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Kyrylo Kozak
Kyrylo Kozak
founder, CEO