Cloud Cost Optimization: Best Practices and Tips to Reduce Your Cloud Spendings

We’ve recently talked about cloud computing for small businesses and how it helps companies grow and gain competitive advantage. While operation in the cloud brings immense flexibility and scalability, the main challenge lies in its complexity and lack of transparency and control. This leads not only to increased spendings but also to poorer performance of your apps. 
In this article, we discuss ways how to optimize your cloud costs without disrupting your business. The tips below are universal so you can use them as a baseline for your cloud cost optimization strategy.

What is cloud cost optimization?

Cloud cost optimization is a set of practices aimed at managing cloud costs, reducing them, and ensuring that the spendings align with the business goals of a company. As well, it helps enhance the app’s performance through wise allocation of resources and rightsizing. 

An important thing to note is that cloud spend optimization is not a one-time process. Instead, it should be performed in a continuous manner due to the highly dynamic nature of the cloud environment. And obviously, whenever you decide to scale your app, you will need to review your spendings accordingly.

We can define two main vectors of cloud cost savings:

• Smart use of available services: cloud offers a plethora of services and opportunities so it can sometimes be easy to sign up for something you don’t really need. Hence, the first thing to consider when planning your spendings is the available budget and the exact resources and services that you need. 
• Optimization of capacity: another big thing related to cloud costs is the optimization of your current capacity. This involves assessing whether your cloud is overprovisioned or whether there are unused resources. Such things can form a significant chunk of spendings that you may not even be aware of.

The benefits of cloud spend optimization

Now that we’ve answered the “what is cloud cost optimization” question, it is important to understand how exactly the optimization of costs will benefit your business.

Smarter budgeting and reduced spendings

Every company wishes to reduce cloud costs without compromising the operational efficiency. To achieve that, it is important to constantly maintain full transparency and control over your budget – and this can be challenging in a complex and dynamic cloud environment.

The optimization of costs can help you with this issue, Through thorough review and monitoring of your costs, you can eliminate unnecessary spendings and understand where exactly and how your budget is spent. This, in turn, will set the base for future budget planning and will help avoid unexpected costs.

Improved efficiency and performance of your apps

There can be many reasons why your app is underperforming, and one of them is underprovisioning or overprovisioning. If you are paying for unused capacity while some parts of the business do not receive needed resources, this will negatively impact the whole workflow and may even cause disruptions. With the help of cloud cost optimization, you make sure that you pay exactly for what you use and that your resources are allocated wisely and in accordance with your business needs.

Better control and visibility

For accurate budget management, it is critical to know where and how your finances are spent. Cloud cost optimization inevitably leads to the review of your assets and spendings and leads to increased transparency and better control over your spendings. 

Enhanced business continuity

Lastly, optimizing your cloud costs helps ensure the most effective use of resources and enhanced financial management. This, in turn, supports operational continuity. Optimization of costs also helps improve disaster recovery and scalability, thus making your business more resilient and stable.

Understanding cloud costs

The first step in optimizing your cost is understanding what they are comprised of, what their types are, and what the most common pitfalls are. 

Types of cloud costs

Your total bill consists of several costs, each covering a specific area of service. It is important to know about these costs in advance to accurately calculate the upfront bill and avoid unexpected costs:

• Compute costs: are charged for the used processing power. The price usually depends on such factors as the type and size of used VMs, use of spot instances, etc.
• Storage costs: charged for storing your data in the selected cloud. To manage these costs in the most effective way, carefully review available storage options and transfer fees of various providers.
• Bandwidth costs: charged for transferring the data within the cloud.
• Support costs: may vary depending on the selected provider.

Note that the list may include such additional costs as managed services costs or other specific costs – you can specify the upfront bill with the provider. The good news is that there might also be discounts which you also need to closely monitor and adjust your spendings accordingly.

Top reasons for a high cloud bill

Now that you know what you need to pay for, let’s look at the main reasons why your costs might be higher than expected:

• Overprovisioning: a frequent case when you lack transparency and do not monitor closely what exact resources are being purchased. In this case, you end up with more resources than actually needed, which leads to higher costs.
• Idle and unused resources: often caused by overprovisioning, some of your resources may remain in idle state or remain unused for a long time. Once again, you pay for something that is not in use.
• Lack of cost monitoring: since cloud is a dynamic environment, it requires constant monitoring so any changes to the app are adjusted with the resources in use. If you do not monitor your costs, you might end up with an inadequate bill.

Cloud cost optimization strategies and best practices

We’ve discussed the reasons for a high cloud bill and the biggest challenges that business owners face. Now, let’s see how you can resolve these challenges and what cloud cost optimization strategies might help you cut costs while improving the app’s performance.

Review your current pricing 

The first thing from the cloud cost optimization techniques that you can do is review your current billing and explore all areas of the bill in detail. Though seemingly obvious, we highly recommend starting with this step as it can already help you figure out how to cut down your spendings. As listed above, there are several types of cloud costs, so you need to know which ones are included in your bill and how much you pay for each. 

The good news is that there is an array of specialized tools designed to help you detect any anomalies and spending trends. As well, many of such tools also send notifications once your spendings exceed the predefined thresholds. In this way, you receive continuous monitoring and can access information about specific charges at anytime.

Set the budget in a collaborative manner

One of the most effective cloud cost optimization best practices to manage your spendings is to set an initial budget from the start and plan your spendings accordingly. Since service providers are normally very open and transparent about their fees, you can estimate approximately how much you’ll have to spend in the near future. Note though that your bill will most probably fluctuate since the fees are directly based on the use of services and resources. So one important thing to note here is that you need to decide on a budget together with your team, including developers, security experts, and cloud engineers. Together, you will be able to come up with a reasonable budget that would allow you to fully meet your current needs.

Identify idle and unused resources

As already mentioned, idle and unused resources are normally the biggest reasons for your bill to skyrocket. Examples of such idle resources are load balancers or storage volumes, created for a specific project. Once such project ends, developers may simply forget to deprovision these resources – this is where your extra costs come from.

Here are a few tips to help you resolve this issue:

• Use cloud monitoring tools for regular monitoring of resources and their activity;
• Watch for resources with minimal activity, especially the ones that display it for a long period of time;
• Evaluate the necessity of detected idle resources and eliminate or downsize any that won’t impact your current operation.

Rightsize your cloud services

Rightsizing means aligning your resources with the current needs of your business. This includes reducing the overprovisioned resources and increasing the underprovisioned ones. And since it sounds quite obvious, let’s look at a few actionable tips:

• Review and assess your workloads and identify the ones that need optimization in terms of provisioning;
• Try different configurations to identify which one will suit the best for each workload;
• Use heatmaps to locate cost centers and understand how the computing power is allocated and what resources lack it (or receive too much);
• Deploy load balancing to evenly distribute workload and automate this process;
• Continuously monitor the workload and adjust resource sizing upon the need.

You can also used automation tools like autoscaling that will monitor the workload and will automatically add or reduce provisioning in accordance with the predefined preferences. 

Limit data transfers

Service providers typically charge businesses for data ingress (the data comes into the cloud) and egress (the data is moved out of the cloud) and these fees can make up a significant amount of your bill. Hence, we recommend reviewing your current data transfer process and optimize it as much as possible.

You can start with optimizing your architecture in a way that it minimizes the amount of data transfers. For example, if you have on-premises apps that require frequent cloud access, you can simply migrate them to the cloud. As well, make sure that there are no redundant transfers, which include migration of the same data by different teams.

Use spot instances

One great way to optimize cloud costs is to use discounts and sales, and spot instances are one of them. They are usually auctioned by service providers as unused inventory and can be by 90% cheaper than on-demand instances. However, there are a few considerations that come with such available resources.

First, you cannot predict when a spot instance becomes available so you’ll have to continuously monitor the offers by your cloud service provider (CSP). Second, spot instances usually come with certain limitations, like they can be interrupted by a CPS due to various reasons. Hence,  it’s best to use them for non-critical workloads that can withstand such interruptions.

Consider using reserved instances

Reserved instances can also be considered a discount offer by CSPs since they are usually sold at a lower price than other instances. But similar to spot instances, there are a few considerations related to RIs. 

The biggest challenge is that when buying a reserved instance, you’ll need to commit to using it during a specific period of time, usually from 1 to 3 years. So obviously, you will have to thoroughly plan your future budget and adjust it correspondingly. On the other hand, providers like AWS also offer the Savings Plan program that also comes with discounts but has more flexible terms of use.

Perform regular monitoring

One more thing among the cloud cost management best practices that can help you with your cloud costs is real-time, regular monitoring of specific KPIs, such as:

• CPU usage;
• Memory usage;
• Network traffic;
• Storage usage;
• Instance uptime;
• Error rates level.

Any anomalies in these KPIs, like a high error rate level or high network traffic, may signal about an overloaded instance or lack of resources. Constant monitoring of these KPIs helps timely identify areas for optimization and take proactive action.

How to select the right provider for cloud cost savings

While cloud cost reduction mostly takes place after your app is transferred to the cloud, the choice of the cloud provider will predefine the amount of these costs and their flexibility. So how do you select a perfect cloud service provider among available options?

Microsoft Azure has a comprehensive list of the key areas to consider when selecting a perfect CSP. In short, they are:

Business health

A selected provider should be reliable and trustworthy and display a healthy financial position. They should also have an established risk management policy and a clear and formal management structure.

Administration support

You should expect the following from the selected CSP:

• Detailed and clear Service Level Agreements (SLAs);
• Regular performance reports;
• Sufficient controls for resource monitoring;
• Automated billing.

Technical capabilities

Obviously, you will need to look for the required services, scalability, and features, but in addition, the cloud should be easy in deployment, has standard APIs to connect with your existing digital infrastructure, and a well-documented change management process. This area is usually among the core ones that impact the final choice so make sure that the selected provider will equip you with all needed functionality to successfully grow your business.

Security

Lastly, it’s critical to pay attention to the security of the selected cloud solution. While most cloud providers operate by the shared responsibility model, they still need to have robust security policies in place and ensure protection of your assets from their side. Hence, carefully review the security policy of a selected provider and gain a clear understanding of their and your areas of responsibility.

Cloud cost reduction: summing up

In general, cloud infrastructure is more cost-friendly than on-premises one but the costs may fluctuate and one should be ready for it. Our best advice here would be to not only plan your budget in advance but also prepare for extra costs and rapid adjustments “on the go”. And obviously, don’t forget to implement autoscaling for automatic resource provisioning and real-time monitoring for effective cloud cost optimization.