What is Cloud Cost Optimization?

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min read time
January 5, 2024
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In today's dynamic business landscape, companies increasingly rely on cloud-powered services to fuel their operations, enable scalability, and drive innovation. However, the benefits of cloud computing come with a crucial caveat: cloud cost optimization.

As organizations leverage cloud tools and services to meet their evolving needs, keeping cloud expenses in check has become a paramount concern.

In this blog, we will talk about what cloud cost optimization is, what exactly the cloud costs involved are, what influences these costs, and the strategies that can help you keep avoidable costs at bay.

Let us begin by understanding what cloud cost optimization is.

What is Cloud Cost Optimization?

Cloud cost optimization is a strategic approach that helps organizations go beyond mere cost-reduction measures. It refers to the protocols, policies, and tools that companies use to continuously improve their cloud computing experience and reduce cloud SaaS spend.

Leveraging this approach, companies can ensure that they get the maximum efficiency, value, and performance from the cloud services they invest in.

With the exponential growth in cloud adoption, cloud cost optimization facilitates material cost savings while creating space for innovation, improving ROI, and supporting growth built on cloud platforms.

This practice allows companies to generate more ROI through their cloud investments, and that too within budget constraints.

But What constitutes cloud expenses?

Cloud costs refer to all the expenses an organization must consider to fully utilize cloud computing services. At first, cloud costs can seem overwhelming. However, breaking them down into components simplifies the concept.

It includes:

  • Infrastructure: Costs associated with storage, servers, and networking
  • Data transfers: Charges related to data transfer between the cloud provider and your system
  • Software licensing: The costs of acquiring cloud/SaaS solutions.

As more companies move their workloads to the cloud, cloud costs become a more prominent line item on budgets. Most industries worldwide have increased their cloud budget, increasing cloud spend.

The software industry spends 18%, financial services spend 10%, and retail and commerce spend 7%. Let’s now understand why it is essential to optimize cloud costs.

Why Is It Necessary For You To Optimize Cloud Costs?

It is important to build a culture that focuses on avoiding overspending on the cloud. Here are some of the key reasons why cloud cost optimization is necessary:

1. Cost Efficiency

Optimizing cloud costs helps in utilizing resources more effectively, reducing unnecessary spending, and maximizing the value of each investment.

2. Leads to Increased ROI

Optimizing cloud costs by right-sizing licenses and consolidating vendors leads to better returns on cloud investments. Organizations can get more value from what they spend on the cloud.

4. Re-align usage to evolving business needs

It extends flexibility to up or down-scale services and spending based on your business’s fluctuating requirements.

5. Controlled innovation  

Optimizing cloud costs frees up the budget for more innovation while minimizing waste and controlling overall costs.

6. Improved margins and profitability

Lower cloud costs directly boost profits by cutting unnecessary expenses. This is vital, especially for businesses heavily reliant on cloud services, allowing saved funds to fuel growth and innovation

7. Competitive advantage

Efficient public cloud utilization can be a differentiator and competitive strength, especially for digital businesses with mostly variable spending.

As cloud usage skyrockets in modern IT landscapes, optimizing costs becomes pivotal for productivity and prudent spending, aligning resources efficiently.

Now, a multitude of factors can influence your company’s cloud costs. Let’s take a look at it.

5 Factors That Influence Cloud Costs

Redundant cloud costs can only be controlled once you understand the underlying factors associated with them. Many aspects can influence cloud costs; however, here are the five most critical contributing factors:

1. Usage Patterns and Spikes in Demand

Predicting cloud service usage patterns in organizations is a complicated task in and of itself. The dynamic nature of cloud services makes predicting usage patterns a challenging task.

More often than not, companies experience resource demand fluctuations, leading to variable costs. Peaks in demand result in the automatic provisioning of extra resources to maintain performance, inadvertently causing a surge in cloud expenses.

A big part of effective cloud cost optimization involves analyzing these usage patterns and implementing auto-scaling mechanisms to optimize resource allocation and align with actual demand.

2. Hidden Egress Fees Associated with Cloud Services

Almost all cloud service providers highlight competitive pricing for ingress. However, the egress (data leaving the cloud) fee is usually a hidden cost that catches companies off guard.

Moving data out of the cloud incurs additional charges, and the costs associated with egress fluctuate based on the destination. Awareness of these fees is imperative for accurate cost estimation and leveraging content delivery networks (CDNs).

It also helps in optimizing data transfer and exploring cost-effective data storage solutions.

3. Storage and Compute Costs

Storage and computing resources are the backbone of any organization’s cloud infrastructure. Costs associated with these two have a significant impact on the overall expenses.

Factors like instance sizes, uptime, attached storage volumes, load balancer usage, etc., directly impact spending as they are usage-based.

Critical cost management strategies include understanding the connection between different storage classes, choosing the most appropriate storage tiers, and optimizing computing resources by right-sizing.

Regularly assessing and adjusting storage and compute configurations based on actual needs ensures optimal performance without additional expenditure.

4. Unused or Underutilized Resources

One of the common challenges in cloud cost optimization is the presence of unused or underutilized resources. Companies may provision resources for specific projects or peak demand periods but fail to de-provision them when they are no longer needed.

This results in ongoing costs for idle resources. Regular monitoring, automated scaling, and implementing resource lifecycle policies are vital to identify and mitigate the impact of unused or underutilized resources on cloud expenses.

Identifying and eliminating unused resources using cloud cost analytics helps with cost optimization in the cloud. Additionally, enhancing utilization levels by using autoscaling or rescheduling workflows also optimizes cloud costs.

5. Geographic Locations & Vendor Pricing Models

Cloud service providers provide multiple services with an array of pricing models and regional pricing variations.

Understanding the pricing details of each service, choosing the right pricing model (e.g., reserved instances or pay-as-you-go), and becoming aware of the geographical location of resources significantly affect costs.

The choice of a specific region for deploying cloud resources also impacts pricing, as costs vary based on the location of the data center as well.

Strategic planning that aligns with the organization's needs and cost considerations is critical when navigating vendor pricing structures and geographic factors.

How to Optimize Cloud Costs?

1. Get Complete Visibility to Understand Cloud Bill

For organizations to get a bird's-eye view of their cloud expenses, establishing an exhaustive understanding of their cloud spend and gaining complete visibility into its billing details is key.

Today, many cloud optimization platforms and solutions, like CloudEagle, will provide end-to-end visibility into your cloud spend data, contracts, invoices, and bills.

Leverage these cloud optimization tools and services to get a breakdown of your cloud bill, track usage patterns, and identify cost drivers.

These tools also help you analyze expenditures across various services. This transparency is a foundation for well-informed, faster cloud cost optimization strategy decision-making.

2. Identify and Rationalize Unused Cloud Resources

Pinpointing cloud resources that don’t serve your company or aren’t as functional anymore is crucial. This can be done by conducting regular cloud infrastructure audits to identify and eliminate unused or underutilized resources.

Proactive steps are needed when your organization has decided to optimize cloud costs effectively. This proactive approach will help you minimize unnecessary costs linked to idle resources.

The goal of cloud cost optimization is not just to reduce costs but also to enhance productivity. By rationalizing your cloud infrastructure and terminating redundant assets, you cut short on expenses and boost overall operational efficiency.

Perform quarterly cloud rationalization to identify redundancies within your stack and eliminate them to optimize your cloud.

3. Rightsize Resources Based on Usage

Tracking usage of the cloud services and tools you use over time is beneficial when you are focused on cloud optimization in the cloud.

Maximize your cloud infrastructure’s potential by rightsizing resources after meticulously analyzing your usage requirements and patterns.

By doing this, you can seamlessly avoid underprovisioning or overprovisioning compute instances in your company. It also ensures that your resources align closely with the demands of your applications.

This dynamic approach allows you to maintain optimal performance while minimizing cloud spending costs, as resources can be adjusted to fluctuating workloads.

4. Optimize Storage Usage

Cloud storage is a big aspect of your infrastructure that must be tackled and optimized. Choosing the right storage type based on your data requirements and business type is crucial.

Cloud providers offer various storage options with varying costs and performance characteristics. Assess your data access patterns and opt for the appropriate storage class, like standard, cold storage, and infrequent access, to match the needs of your workloads.

This ensures you're not overinvesting in cloud storage that exceeds your requirements, keeping your ROI on point. Only utilize/purchase storage based on your team’s requirements.

5. Embrace Cloud-Native Services

Utilize cloud-native services as well as serverless architectures to their maximum potential. These cloud services provide a more cost-efficient, scalable alternative to traditional infrastructure.

By choosing managed services offered by cloud providers, your organization can offload operational overhead and leverage services designed for optimal efficiency, contributing to overall cost savings and reduced maintenance costs.

By combining these strategies, organizations can establish a proactive and dynamic approach to cloud cost optimization.

Cloud cost optimization with CloudEagle

CloudEagle is a SaaS management and procurement platform that can help organizations optimize their cloud costs. By integrating with your internal systems, CloudEagle will get access to your cloud portfolio and provide complete visibility on usage, spend, contracts, bills, licenses, etc.

Image of CloudEagle dashboard

Using CloudEagle, you can optimize your cloud costs and save on spend. Here’s a quick rundown of how this platform can help you:

Usage Insights: Delivers in-depth visibility into cloud usage, empowering informed decisions by identifying underutilized resources.

Real-time Cost Monitoring: Tracks cloud expenses, enabling proactive cost management by identifying areas for optimization without disrupting operations.

Rightsizing Strategies: Suggests ways to optimize cloud licenses, ensuring resources match actual needs, thereby preventing unnecessary expenses.

Procurement Efficiency: Centralizes purchasing power, negotiates favorable terms with cloud providers, and secures cost-saving deals with the help of assisted buyers.

Automated Governance: Enforces policies and optimizes resource usage through automation, ensuring cost control throughout the organization.

Vendor Relationship Management: Facilitating better communication and negotiations with cloud service providers to secure cost-effective and suitable license agreements.

CloudEagle streamlines cloud cost management through these tailored features, fostering cost-effectiveness while sustaining operational excellence.

Summing It Up

Successful cloud cost optimization revolves around understanding factors influencing these costs and strategies to optimize them.

Businesses should actively manage obscured charges, and usage patterns, streamline resources, eliminate idle assets, and navigate pricing models and geography for optimal cloud cost optimization and maximum benefits.

Getting complete visibility, resource rightsizing, optimizing storage, and integrating cloud-native services collectively empowers businesses to navigate the complexities of cloud expenditure.

In 2022, over 40% of business and technical professionals used automated policies to reduce and shut down workloads after hours and rightsize underutilized instances.

Automated cloud cost management solutions save time while ensuring companies monitor their environments regularly to eliminate waste.

CloudEagle is a powerful cloud optimization solution that helps ensure a lean and cost-efficient cloud environment. Book a demo and see how it can help you optimize your cloud costs.

Written by
Vamshi Krishna
Product Manager, CloudEagle
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