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With more and more companies migrating to the cloud, the question of cloud cost reduction is becoming increasingly pivotal. Research from Zippia shows that 94% of organizations are already using cloud computing, either partially or fully. While you can rely on IT infrastructure consulting services to perform a successful cloud migration, cost optimization remains the afterthought.
Especially if your business is prone to variable workloads and customer traffic, keeping close track of your cloud expenses is central to your long-term success. Luckily, GCP, Azure, and AWS consulting services features help corporations take control over their cloud costs.
So, what is cloud cost optimization? In this article, we’ll dive into effective strategies and best practices that will minimize wasteful spending without jeopardizing the quality of your products.
Cloud cost optimization is a process of minimizing your spending associated with cloud services. A set of measures aimed at reducing costs, this mechanism involves analyzing current usage, detecting roadblocks and inefficiencies, and ultimately improving future processes, algorithms and overall performance.
Cost optimization in cloud computing is an ongoing activity that continuously discovers new ways to optimize cloud costs and enhance productivity. Your company will go through phases, the market will fluctuate, and your customers will develop new demands, all of which need to be taken into account. However, the reality of it is quite challenging as cloud environments tend to be complex and require comprehensive metrics and analytics.
While cloud cost optimization is the goal, FinOps is the framework that will help you get there. FinOps is an operational framework aimed at maximizing the value of the cloud and facilitating stronger collaboration among engineering, finance, and business. Oftentimes, companies’ strategies limit themselves to only the optimization phase, disregarding two essential steps, namely Inform and Operate.
While cloud cost optimization is a vital part of FinOps methodology, it’s not the sole objective. The main focus is to shift the cultural paradigm within the company and continue to gain cost savings in the long run. Let’s take a look at the three steps in more detail:
Before exploring actionable tips that will help you achieve optimal cloud usage, let’s take a look at cloud cost optimization benefits.
Before developing a cloud cost optimization strategy, it’s imperative to analyze your current spending. More importantly, focus on what your money is going towards. Investigate how much money is spent on certain features, instances, and services, and trace down the expenses to every product, team, and customer. Every request, product, and process in your cloud strategy has a cost tethered to it, and a detailed breakdown will aid you in understanding how you’re utilizing your cloud and give you pointers to minimizing costs.
Based on the outcomes of your in-depth analysis, you can begin reevaluating the services you’re currently using. You may decide to eliminate a feature or product that doesn’t generate any income while accumulating additional costs. The goal is to reduce unnecessary expenditures without jeopardizing the quality of your products and services.
Cloud cost optimization is not only about expenses and profits—on the contrary, it offers a comprehensive approach to your overall health. You can develop a strategy that focuses on long-term success, cloud security, and performance without any wastage.
To calculate how well you’re performing compared to your competitors, you can rely on the Cost of Goods Sold (COGS). This metric refers to the amount of money spent on producing the products, including raw materials, manufacturing costs, packaging, human resources, etc.
The simplest way to calculate COGS is to add the starting inventory to purchases and subtract the ending inventory in a period. The higher the number, the lower your gross margin and profit. Compare your results to the industry benchmarks to learn whether your expenses are higher than average.
Cloud cost optimization analysis can also help you identify new areas to grow and expand. By breaking down your current performance, you will see which products are yielding better results and attracting new customers. By focusing on them and eliminating others, you can unlock new sources of revenue and increase sales.
Cost optimization in cloud computing is a continuous process as opposed to a one-time action. It’s not about optimizing exposures once and for all, but facilitating an environment where employees are conscious of the expenditure. Think of it as a trial and error process whereby you can try out new features, modify the code, or adopt new practices and assess how these changes reflect on the overall cloud bill.
Setting up your system in a way that visualizes and breaks down cloud costs increases visibility and efficiency. Having a holistic overview of your expenses, their sources and objectives, as well as outcomes shortens the time required to find these metrics. Instead, your engineers and financial specialists can devote their time to core business activities.
Finally, let’s focus on the best practices that will help you reduce cloud costs and maximize savings using various cloud features from cloud providers like AWS, Azure, and GCP, as well as strategies such as employee training, cultural shift, and other useful tips.
To optimize cloud costs, couple each budget with a concrete goal to simplify monitoring. Instead of setting the budget for the entire project, break it down into specific tasks and deliverables. This facilitates transparency and helps you stay within the desired budget.
There’s a lot that goes into cloud costs, including unit costs, idle costs, and other vital metrics. Educate yourself and your employees about different cloud expenses to instill a more well-rounded approach.
For example, unit cost measures the cost per specific unit—be it API, report, or any other units applicable to your software. Idle costs refer to cloud expenditure with zero customer load. Another integral metric is the cost/load curve that evaluates your growth rate versus your customer base. Additionally, consider the costs of shared infrastructure and how you distribute the expenses across multiple teams.
Aside from the pivotal indicators that we have mentioned above, there’s an array of other metrics that need to be studied and monitored. For instance, the cost of a feature is a metric that measures how much it costs to integrate an additional feature into the application. Based on this number, you can evaluate whether it’s worth it to build this function right now or at all.
Another important performance indicator is cost per team which calculates how much each team spends in the cloud. Cost per cloud service indicates the spending on storage, demand instances, databases, and other functionalities. You can also monitor the cost per customer and segment to identify how much every new user costs you in terms of storage and cloud services.
While DevOps specialists require historical data to investigate issues and anomalies, cloud FinOps experts usually focus on the future. They predict how much the cloud bill will increase with every new customer or a new feature. DevOps specialists, on the other hand, are concerned with studying past data in order to find weaknesses and improve the application.
Creating a detailed cloud cost optimization strategy will allow you to marry these approaches and align them to the same goal.
More often than not, software development teams worry about cloud costs only after the application has been built and released. Using cloud cost management, you can integrate cost optimization into the software development life cycle from day one. Starting from the planning stage where teams need to back up the chosen budget with concrete data up until the post-launch phase. Even during coding and deployment, you can rely on your roadmap to adjust to the changing circumstances and avoid exceeding the budget.
Companies rely on cost management platforms to monitor various cost indicators in real time. Using such tools, you can ensure that your team will always stay on top of their cloud costs. Moreover, you can set up alerts and notify the employees in charge whenever any interference is needed. The sooner you fix any abnormalities, the cheaper the costs of repairs.
Conventionally, organizations charge their customers based on the available metrics. By following a rigid pricing model, you may be setting yourself up for failure. Business growth may lead to a nonlinear increase in cloud expenses which can result in revenue deficits.
Having access to the above-mentioned metrics in their dynamic state grants the team a clear understanding of how their actions affect costs. Based on these findings, you can tailor pricing models to each customer and avoid over or undercharging for your services.
Providing a flexible pricing strategy will not only guarantee profit margins but also enhance customer experience.
Using platforms to monitor spending on cloud resources, organizations gain access to their cost breakdown in a comprehensive and user-friendly manner. You can set up various dashboards, graphs, and charts to monitor data from multiple cloud providers. Besides that, you can take a closer look at each parameter and learn more specific KPIs like cost per feature or user.
While one-size-fits-all solutions can also be somewhat helpful, the lack of customizability will inevitably drive up unnecessary spending. To tailor cloud usage, utilize the rightsizing features that your cloud provider offers. For example, the cloud can provide millions of function combinations allowing companies to choose instance types and resources they need to cover their unique issues. The process of hand-picking each resource will require quite a time investment but it will pay off in the long term.
When it comes to storage options, you can choose between block and object storage. The former is suitable for transactional and structured data that is frequently accessed and read. A more expensive model, block storage is designed for applications that depend on low latency. Object storage is a more cost-effective approach suitable for safeguarding unstructured data. Used for archives and backups, object storage is created to collect vast volumes of data.
In order to optimize your data storage, enable lifecycle management that automatically moves infrequently accessed data to object storage to unlock cloud cost savings. Additionally, make the habit of auditing your storage on a regular basis to remove unused data and duplicates.
Through continuous monitoring and adoption of cloud automation and cost management tools, you can identify unused resources. Furthermore, you can set up notifications to be informed whenever the usage of a certain resource goes below a benchmark. In this case, the resource will be automatically removed or downsized.
While most companies apply the rehosting method of cloud migration, they’re oftentimes left with a slew of inefficiencies. The rehosting, or lift-and-shift, approach implies moving the existing on-prem infrastructure to the cloud without making any major changes. Albeit a more simplistic technique, it does come with caveats: if you have any inefficiencies in the system, you’ll bring them to the cloud infrastructure.
If that’s your case, you can rely on a cloud cost optimization strategy to implement gradual changes to eliminate roadblocks and improve performance.
Traditionally, engineers are left out of conversations concerning cloud costs. Meanwhile, their duties involve tasks associated with cloud spending such as development, deployment, testing, etc. Build your cloud cost optimization strategies that include engineers from day one. This working model will aid you in properly tagging and rightsizing cloud resources without increasing cloud waste. Furthermore, having engineers on board allows them to access cost data and choose the suitable architecture that brings significant cost savings to cloud computing.
A cloud services provider can offer additional discounts and bonuses to companies committing to cloud usage for a certain period of time. For instance, AWS grants discounts of up to 75% to businesses that sign three-year contracts. However, make sure you’re choosing the cloud provider that covers all your needs to avoid unfortunate vendor lock-in.
When executed properly, a multi-cloud strategy can yield significant cloud savings. You can reduce cloud costs by picking and choosing different services from various cloud providers. Every vendor has its own strengths and weaknesses and suits different needs. Combining several service providers not only increases flexibility and improves your risk aversion, but also prevents vendor lock-in.
Everything we mentioned so far requires a lot of effort and expertise to properly and consistently execute. To eliminate mundane processes, consider autoscaling, a feature that automatically scales your cloud usage depending on how resources are impacted by demand fluctuations. This function allows teams to terminate unused and idle resources without doing highly laborious manual work.
Ongoing cloud cost optimization requires a cultural shift. Follow industry-standard best practices, assign roles and duties to people in charge, and work with a reliable IT partner. Although a lengthy process, eventually you’ll create an efficient and cost-effective cloud infrastructure.
The advice above demands an in-depth technical understanding of cloud platform, cloud computing, and finances. Easier said than done, the reality of cloud resource optimization is quite challenging. While some optimization software can help you achieve cloud computing cost savings, they require a lot of customization to meet your unique needs and goals.
On top of that, to properly utilize such tools you need to be able to correctly interpret data. For example, you receive a notification alerting you that your costs suddenly went up. However, the system might not be able to identify the exact root cause of the spike. Meanwhile, the costs are continuing to grow while your team is trying to pinpoint what caused it to begin with.
To avoid these complications, consider collaborating with a certified AWS, Azure, and GCP partner. NIX is a software development agency with decades of experience and a rich portfolio of success stories. Let’s take a look at our prominent cutting cloud costs case to understand how we work and what services we offer.
GlenFlow is an IT consulting delivery organization offering solutions across sectors and verticals, including insurance, healthcare, entertainment, and social media. Providing their services to companies of different sizes, from startups to global S&P enterprises, they’re devoted to quality, security, and customer support.
GlenFlow became concerned about its cloud computing cost and decided to reach out to a seasoned AWS partner to discover ways to minimize its spending.
Despite the fact that AWS is a mature platform, deploying an array of solutions across industries posed a few obstacles. For one, their complex healthcare solutions require substantial processing power and memory usage to meet the performance requirements.
Secondly, application deployment in the cloud may rack up costs, especially when large systems are involved. GlenFlow wanted us to carefully assess the costs of deployment and find solutions to reduce expenses without jeopardizing quality and performance.
We helped GlenFlow significantly reduce their cloud costs by leveraging a combination of AWS services:
By successfully implementing cloud cost optimization best practices, we rightsized their resource usage, utilized reserved instances, and adopted autoscaling paired with serverless computing services. The client’s resources are now allocated more effectively which reduces waste and leverages AWS services.
If you’re struggling with cloud spending, consider reaching out to the NIX team to receive a consultation and ask remaining questions. We’ll explain the pitfalls of cloud computing, clarify the difference between AWS vs Azure vs GCP, tell you about emerging cloud trends, and help you find the most suitable solution. We combine our extensive cloud environment expertise with software development acumen and business prowess to deliver the best possible services to our clients.
Artur is passionate about shaping the future of cloud architecture and driving innovation in enterprise solutions. He adeptly empowers businesses to thrive in fast-paced environments, skillfully leveraging the power of serverless technologies to optimize cloud economics.
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