Quick Cloud Cost Optimization Guide (Tips & Best Practices)


 | April 18, 2023

Cloud computing brings numerous benefits such as faster scaling, better IT systems integration, easier access for a hybrid workforce, increased automation, and improved efficiency. However, costs can add up quickly without an effective cloud cost optimization strategy. 

Cloud cost optimization can reduce overall cloud spend by configuring computing services, eliminating waste, and identifying poorly managed resources. Read on to learn some best cloud cost optimization practices to minimize costs while balancing performance and resources. 

What is cloud cost optimization?

Up to 30% of cloud costs are wasted, according to a recent report by Statista. A cloud cost optimization strategy helps you avoid unnecessary expenses by finding optimal ways to run applications in the cloud at the lowest possible cost. 

Cloud cost optimization best practices range substantially, depending on the size and complexity of your infrastructure. These can range from efficient business management practices - like identifying unused resources - to highly complex modeling and forecasting methods

Why Cloud Cost Optimization is Mandatory

Spiraling costs are a dominant cloud migration challenge because they directly affect profitability. Therefore, minimizing overhead expenses is crucial for any organization to achieve its long-term financial goals. 

Migrating to the cloud without significant planning and redesigning for cloud computing typically leads to higher costs due to overprovisioning. Every component and communication channel must be optimally sized to handle peak demand. Failure to do so can result in idle resources and unnecessary expenses. Moreover, routers, switches, leased-lines, load balancers, and firewalls in shared infrastructure are sized to handle the heaviest expected cloud user traffic. Unfortunately, this often leads to unnecessary latency and bandwidth costs. 

Benefits of Cloud Cost Optimization

The benefits of cloud cost optimization extend beyond reducing expenses. Secondary effects include improved operations, better resource utilization, and increased awareness across your teams. 

By establishing a comprehensive cloud cost optimization plan, managers can: 

  • Better understand how your cloud services provider prices services
  • Optimize for better resource utilization and cost-effective storage capacity
  • Identify areas where services can be improved to better leverage the unique benefits of cloud computing
  • Increase awareness of cost-optimization measures across your operations, managerial, and finance teams

It’s important to keep in mind that cloud cost optimization is a continuous process. Tracking metrics, analyzing data, and making data-driven decisions ensures that costs are kept to a minimum without performance losses.

5 Pillars of Cloud Cost Optimization

Amazon Web Services outlines five cost optimization pillars that apply to nearly all environments, independent of workload or architecture:  

Pillar 1: Choosing the Right Size

Right-sizing your infrastructure ensures your services match your cloud computing requirements. Factors to consider include memory, storage, CPU, and network throughput. 

Pillar 2: Increased Elasticity

Elasticity refers to the optimization of cloud resources according to usage. According to AWS, most IT costs and hardware requirements are optimized for peak usage, however costs add up when these resources are not turned off. 

AWS suggests that non-production instances can be turned off by 70% or more on any given week. Doing so enables businesses to optimize costs according to the resources they actually need. 

Pillar 3: Choosing the Right Pricing Model

Most cloud vendors provide a range of pricing models that optimize costs based on the required workload. These can include reserved instances for predictable workloads and on-demand and spot Instances for variable workloads. 

Pillar 4: Optimized Storage

Most public cloud providers offer multiple storage tiers at prices aligned with performance. For example, most businesses can lower costs while balancing performance and availability by identifying the most appropriate storage destination for specific data types. 

Pillar 5: Measuring, Monitoring, and Continuous Improvement

Maximizing the financial benefits of the cloud is an ongoing process of measuring, monitoring, and continuous improvement. 

AWS suggests some tips that include: 

  • Establish and implement cost allocation tagging to track expenses accurately
  • Define critical cloud migration key performance indicators (KPIs) and review progress regularly
  • Provide training to your team to identify cost optimization opportunities and provide incentives to meet targets
  • Assign responsibility to an individual or team, and allow them to make decisions that actively reduce costs

5 Essential Cloud Cost Optimization Best Practices

There are numerous ways to optimize your cloud infrastructure to reduce costs. Some of the most common include: 

Best Practice #1: Optimize Systems for the Cloud

Replace existing infrastructure with cloud-native systems that leverage capabilities specific to the cloud environment. While this requires extensive skills and experience, it’s the most effective way to optimize costs. 

Best Practice #2: Maximize Cost Efficiency of Existing Systems

Replacing existing systems with cloud-native alternatives may be the most straightforward way to reduce costs, but it can sometimes be resource-intensive and unfeasible.

The next best approach is to maximize existing infrastructure by identifying unused resources and right-sizing your system. Focusing on resource usage, finding inefficiencies, and right-sizing your cloud architecture helps determine if you are overpaying for unneeded capabilities and/or unused capacity. 

Best Practice #3: Leverage Capacity Reservation and Volume Discounts

Paying for capacity that will definitely be used is critical to optimizing cloud service provisioning. 

Estimating reserved instances and on-demand capacity reservation typically requires forecasting and budgeting. The objective here is to calculate your “baseline” utilization in order to pre-pay for capacity at a significant discount from your cloud service provider. 

Further, most major cloud providers offer volume discounts to larger businesses, resulting in better cost optimization. Being aware of these incentives and incorporating them into your overall cost optimization strategy is vital to controlling expenses in the long term.

Best Practice #4: Provide Cost-Focused Employee Training

Establish a training program emphasizing reviewing, controlling, and monitoring cloud computing costs. Additionally, you may want to incorporate those duties into specific financial, technical, and managerial roles. 

The effectiveness of your cloud cost optimization project ultimately depends on the people involved. Fusing key principles of cost optimization into various business roles enables your teams to measure and monitor cloud computing expenses continuously. 

Best Practice #5: Review Billing and Pricing Periodically 

Cloud service providers typically provide billing statements with a detailed breakdown of all costs. Reviewing these details can help you achieve even greater cost savings by analyzing the highest expenses, including CPUs, storage, and other cloud management costs.

Achieving the highest cost optimization requires a complete understanding of how cloud service providers price their services. Besides identifying what services are used the most, this information also helps you decide what services to avoid. For example, reducing instance type by one class can significantly reduce the hourly rate. 

Cloud Cost Optimization is Essential to the Success of Your Cloud Migration Strategy

Cloud computing offers many advantages, however expenses can quickly accumulate without a strategic plan. Cloud cost optimization helps reduce costs and improve application infrastructure efficiency. It’s an ongoing process that requires consistent measurement, monitoring, and improvement in order to maximize savings in the long term. 

Moonswitch Helps Optimize Costs from the Start

Migrating your data, IT infrastructure, and applications to the cloud evolves your business by leveraging unique benefits specific to cloud computing. Cloud cost optimization is vital to balancing resources and performance while maximizing ROI in the long term. 

Moonswitch can help you control costs from the very beginning. We help set the foundation for a successful cloud migration through a strategic plan that aligns with your company goals. Contact us to schedule a complimentary consultation to learn if your business is a good fit for cloud computing.