Cloud Cost Savings Definitive Guide: Proven Strategies, Best Practices & Hacks

Did you know that a survey conducted by the Everest Group across 450 organizations globally stated that 67% of global organizations experience higher-than-expected cloud costs? Additionally, 82% of global organizations struggle with more than 10% of their cloud spending getting wasted.

This highlights a gap in the maturity of cloud operating models and strategies being put into action. To counter this, cloud cost savings in cloud computing has been a key driver and one of the major reasons many companies moved their resources to the cloud.

Understanding Cloud Cost Savings in Cloud Computing

The potential for cloud cost savings is significant. Some studies suggest that businesses can reduce their cloud spending by 20-30% or more just by applying effective cloud cost optimization practices.

There could be various factors impacting your cloud cost savings. Some of the major ones are:

• Cloud Usage Patterns: Cloud costs can vary depending on how and when services are used. Costs can rise during peak usage if resources aren’t scaled down when demand is lower. The type of workload—whether it needs a lot of computing power, memory, or network bandwidth—also affects cloud savings.
• Cloud Pricing Models: Cloud providers offer various pricing options, like pay-as-you-go, reserved instances, and spot pricing. It’s important to choose the right pricing model based on your needs and usage, which can make a big difference in your overall costs.
• Cloud Service Models: The choice of cloud service model—Infrastructure as a Service (IaaS), Platform as a Service (PaaS), or Software as a Service (SaaS)—affects your costs. Each model offers different levels of control and management.
• Resource Management: You need to be proactive in regularly assessing and adjusting your cloud resources to ensure they meet current needs without excess. Right-sizing, optimizing configurations, removing unused services, and adopting newer, more cost-effective technologies are some of the ways that help in resource optimization, ultimately resulting in cloud savings.

This blog deep dives into instant cloud cost savings hacks as well as some proven long-term cloud cost savings strategies. We will explore practical approaches to help you achieve these savings and ensure you get the most value from your cloud investments.

Cost reduction best practices for instant cloud cost savings (simple fixes)

Companies can see immediate cloud savings by implementing some simple fixes. While some optimizations might require significant updates that take time, there are plenty of simple steps you can take today for quick cloud cost savings. Let’s take a look at them.

Review Resource Utilization

1. Analyze Usage: Use monitoring tools like Amazon CloudWatch, Azure Monitor, or GCP Cloud Monitoring to review the usage of production and non-production resources from the past month. Categorize resources as Idle, Underutilized, or Optimally Utilized.

2. Identify Idle Resources: Focus on metrics such as CPU and memory utilization, or for specific resources like RDS instances, check database connections. Examples of idle resources include:

• EBS volumes attached to stopped instances.
• Databases (RDS/RedShift, Azure SQL, Google Cloud SQL) with zero active connections.
• Load balancers with fewer than two active servers. 
• Compute instances (EC2, Azure VMs, Google Compute Engine) with low network utilization

Downgrade Underutilized Instances

Often, cloud compute instances run at just 10-20% capacity, which wastes the flexibility of the cloud. For optimal cloud savings, aim to use your resources at least 50-60% of the time. If your instances are consistently underused, consider downgrading them. Here’s how:

• Start Gradually: If both CPU and memory usage are low, consider switching to a lower configuration. Be cautious—make changes gradually and monitor performance closely.
• Switch Instance Types: If only one of the CPU and Memory metrics is low, you might switch to a different instance family.
• Combine Workloads: If downgrading seems risky, try running multiple apps or databases on a single server. Containerization can help with this.

Always Use the Latest Generation Instances

For instances running at around 60% or more utilization, it’s wise to use the latest generation available for AWS, Azure & GCP. These instances are generally cheaper. Replacing older instances with newer ones can have a quick and major impact on cloud savings.

Continuously Review & Remove Obsolete Snapshots

Snapshots capture a read-only view of your data for backup, but their size grows as the database changes. This leads to increasing storage costs, which can sometimes exceed the cost of compute instances. Regularly review and delete outdated snapshots to avoid unnecessary expenses. Even a 10% data change monthly can double snapshot costs within a year.

Avoid data transfer charges

• Always transfer data between EC2 instances in the same availability zone using Private IPs to keep it free.
• For GCP also, minimize network egress costs by placing resources (like VMs and databases) in the same region or zone to avoid cross-region data transfer fees.
• Compress data at every step—CloudFront, web servers, and when uploading backups to S3.
• If you rely heavily on AWS services like S3 and DynamoDB, enable VPC gateway endpoints. This shifts traffic to a private network, eliminating NAT gateway fees and significantly reducing data transfer costs.

Here's a detailed guide to help you understand about data transfer charges.

Leverage Time-Based Scaling

Time-based scaling is an easy and effective way to save costs, yet it's often underused. Let’s take the example of an AWS user running 6 C5.4xlarge instances can reduce to 2 during off-peak hours, cutting costs significantly. With hundreds of instances, these savings multiply fast.

Top 8 Proven Cloud Cost Savings Strategies

The recommendations discussed so far offer quick cloud cost reductions. However, for long-term, more significant cloud cost savings, a different approach is needed. These strategies take a bit more effort but lead to continuous, sustained cost savings over time.

1. Selecting the right Cloud Pricing Models as per your business needs

Cloud providers offer a variety of pricing models to help you in cloud cost savings effectively. However, it's wise to begin with short-term optimizations to quickly address immediate spending before diving into long-term commitments like Reserved Instances or Savings Plans.

Each provider offers different pricing models, features, and levels of support, which can significantly affect your overall costs and the value you receive.

By thoroughly evaluating your workloads, resource requirements, and potential cloud cost savings, you can select the most suitable provider and plan. Additionally, don't overlook the opportunity to negotiate enterprise discounts with cloud vendors or utilize standard discount options like Reserved Instances or Savings Plans for further cost reductions.

Reserved Instances (RIs)

RIs can save you 50-70% compared to on-demand pricing when you commit to one- or three-year contracts. They work best for workloads with stable usage. Use tools to figure out which instances to reserve for maximum savings, and manage variable workloads with on-demand instances.

Similar to AWS Reserved Instances, Azure offers Reserved Virtual Machines (RIs) for long-term commitments. If you have steady workloads that run consistently, you can save up to 72% by committing to a one-year or three-year term. Unlike AWS and Azure, GCP’s commitment isn’t tied to specific instances but instead to the total amount of resources used. GCP Committed Use Contracts allow you to receive significant discounts (up to 57%) for committing to a specific amount of resources (like vCPUs, memory, or GPUs) for a one-year or three-year term.

Savings Plans

Savings Plans are flexible contracts (one or three years) based on your hourly usage. They cover various services and can save you up to 72% on EC2 instances and 64% on SageMaker. These plans are great for workloads that change frequently.

Spot Instances
Spot instances let you tap into unused cloud capacity for discounts of up to 90%. They’re ideal for fault-tolerant tasks like batch processing but can be interrupted with little notice. Tools like Elastigroup can help manage these instances for better availability.

Burstable Instances
Burstable instances are low-cost options that provide steady performance but can "burst" for extra power when needed. They’re great for general workloads with occasional spikes, such as small websites or development environments, and can save up to 15% compared to on-demand prices.

Learn more in our blog on choosing the right cloud pricing model.

2. Choose The Appropriate Region & Instance Family

Choosing the right region and instance family can significantly reduce cloud costs and improve cloud cost savings. For example, hosting in North Virginia is often cheaper for services like servers, data transfer, and storage, compared to other regions. While compliance might require specific regions, you can still host non-production workloads in cost-effective areas like North Virginia.

3. Set Cloud Budgets and Forecasts

Creating a budget cloud cost forecasting, for your cloud expenses is a crucial step in managing costs that eventually leads to better cloud cost savings. As rightly said by Paul Saffo, the goal of forecasting is not to predict the future but to tell you what you need to know to take meaningful action in the present.

You can’t measure cloud cost savings without something to compare them against, so start by setting a budget based on your estimated cloud usage. Use this as a baseline to guide your cloud cost savings efforts and track your progress over time.

Accurately forecasting cloud costs can be challenging due to fluctuating usage patterns, unexpected workloads, or changes in pricing. To manage this, it’s better to create shorter-term forecasts, such as quarterly or monthly, rather than attempting to predict costs over an entire year. Regularly updating these forecasts will help you stay on top of any changes.

Actionable Advice: Leverage Cloud Cost Visibility Platforms like CloudKeeper Lens for precise cloud cost forecasting by providing insights on monthly forecast & daily cloud cost breakup, giving you a clear picture of where your budget is going.

4. Right-size your instances

Rightsizing cloud resources is considered one of the most effective ways for cloud cost savings. It is all about cloud cost reduction by eliminating unused or oversized resources and ensuring you have just the right capacity for your workloads.

How does it work?

• Analyze your usage: Figure out how much power your virtual machines are really using.
• Identify waste: Spot any resources that are underutilized or overprovisioned.
• Adjust your resources: Make changes to match your workload.
• Optimize performance: Fine-tune your setup to get the best results.

Cloud providers offer tools to monitor CPU, memory, and network usage, helping you set thresholds for when to scale up or down. You can use tools like Google Cloud’s Rightsizing Recommendations, AWS Cost Explorer, and Azure Advisor. Automating this process is key to avoiding both overprovisioning, which wastes money, and underprovisioning, which harms performance.

By using auto-scaling best strategies and smart capacity planning, you can keep resources perfectly aligned with your workload needs, maximizing performance and minimizing waste.  

5. Monitor and Correct Cost Anomalies

Unexpected spikes in your cloud bill can hurt your budget and cloud cost savings if you don’t catch them in time. These surprises often come from issues like poorly set up workloads or mistakes in how services are configured. The key is to spot these problems quickly so you can fix them before they lead to higher costs.

Monitoring cost anomalies is essential for spotting unusual expenses in your cloud usage. By keeping an eye on your spending trends and forecasting future costs, you can easily detect any sudden changes. This proactive approach helps you maintain control over your cloud spending and keeps your expenses in check.

There are many tools available for spotting anomalies in cloud spending, but CloudKeeper combines automation with human-assisted anomaly detection to avoid alert fatigue. We won’t overwhelm our customers with a flood of alerts that might not be important. Instead, we focus on analyzing genuine anomalies and usage trends. Our approach prevents alert fatigue by filtering out irrelevant notifications and highlighting only the significant issues.

6. Adopt Containers and Serverless Architectures

Switching to containers and serverless architectures can help you with cloud savings. Containers let you run multiple applications using the same operating system, which makes resource use more efficient and cuts down on extra costs.

On the other hand, Serverless computing (like AWS Lambda) takes cloud cost savings to an even further level by eliminating the need to manage servers altogether. You only pay for the actual compute time you use, meaning no charges for idle capacity. This pay-as-you-go model, combined with efficient resource use, reduces overhead and makes application deployment much more agile, leading to big operational cost savings. Serverless Architecture not only saves direct costs but it also takes away the complexity of administration & scalability.

7. Achieving 100% Coverage under Reserved Instances/Savings Plan

To maximize AWS cost savings, it’s smart to aim for 100% coverage with AWS Reserved Instances (RI) or AWS Savings Plans. While this strategy is a go-to for many, it’s actually best to start with other quick cost-saving steps first before locking in long-term commitments.

Achieving 100% RI coverage means every eligible instance hour benefits from discounted rates, making a significant impact on improving overall cloud cost savings spend. It also provides financial predictability, making budgeting and resource planning smoother.

Many users rely on standard RI utilization reports, but those don’t always tell the full story. To really understand where your savings are coming from and how much you’re spending on On-Demand instances versus Reserved Instances or Savings Plans, you’ll need more detailed insights. Custom reporting is a better way to track how well you’re utilizing your reserved instances and on-demand consumption.

For this, a cloud cost visibility platform like CloudKeeper Lens can be of great help. It showcases detailed insights on RI & Savings Plan Utilization and tells you how much of your AWS reserved instances was used every hour of the day. For Azure users, Lens offers insights into your Virtual Machine (VM). You can easily see a detailed breakdown of costs associated with each VM instance, helping you identify which resources are driving up expenses.

Actionable Advice: One of the easiest ways to achieve 100% AWS RI Coverage is to automate the process of AWS RI/SP Management by signing up with an AI-based Platform. CloudKeeper Auto is one such platform that makes the AWS RI management process hassle-free by automating buying and selling as per infrastructure needs. It also guarantees buyback for unused RIs, assuring that your AWS RI investments remain risk-free and unused capacity doesn't go to waste.

8. Foster a Culture of Cloud FinOps

Cloud cost optimization isn't just the responsibility of the finance or IT departments; it’s a team effort across the entire organization. Thus, establishing a FinOps culture ensures and encourages every business department to understand the importance of cloud cost savings and take ownership of their cloud spending.

This culture of accountability encourages teams to design with cost efficiency in mind—whether they're building applications, managing data, or setting up backup and disaster recovery processes. It also involves implementing tools to monitor and track cloud costs by project, team, or department, giving everyone a clear picture of their contribution to the overall bill. Regularly sharing cloud cost reports across the organization increases transparency and helps each team understand where they stand, encouraging proactive adjustments and improvising strategies for cloud cost savings.

Ultimately, a company-wide commitment to cost efficiency results in smarter decisions, reduces waste, and ensures that cloud resources are being used in a way that maximizes value while minimizing unnecessary expenses.

Actionable Advice: Cloud FinOps requires specific expertise and skill sets. It is a wise choice to partner with a FinOps Foundation certified Cloud FinOps partner who can help in establishing a successful FinOps culture or can even take off the whole responsibility of cloud financial management leaving you with more time, money, and resources to dedicate to other critical areas.

How Do We Measure Cloud Cost Savings Effectively?

We will talk about the two most important concepts that are very crucial for effectively measuring cloud cost savings here - Effective Savings Rate and Cloud Unit Economics.

Effective Savings Rate

Measuring cloud cost savings is essential to ensure you're getting the most out of your cloud investments. Effective Savings Rate (ESR) is the most important cloud cost saving metric that measures the percentage of total cloud spend saved through cloud cost savings strategies, such as Reserved Instances, Savings Plans, and other efficiency improvements.

Effective Savings Rate (ESR) = 1- {Actual Spends Including Discounts/On Demand Equivalent Spend}

Here, Actual Spend Including Discounts refers to the actual amount the business paid with RIs and Savings Plans, amortizing any upfront charges.

On-demand equivalent (ODE) Spend refers to the amount a business would have paid if no discounts were applied.

A higher ESR indicates better cost management and optimization of cloud resources, helping businesses maximize the value of their cloud investment.

Cloud Unit Economics

Let’s discuss another must-know topic which is cloud unit economics, or the cost per unit. It helps you figure out if rising costs are due to growth or if you’re just spending too much.

Let’s understand it through an example of cost per customer for a B2B SaaS company using a different scenario.

Suppose the company has an Amazon cloud bill of $50,000 for one month, serving 1,000 customers. This means their cost per customer is $50.

In the following month, their Amazon bill increased by 20%, bringing it to $60,000. However, their customer base only grows by 10%, reaching 1,100 customers. This results in a higher cost per customer of about $54.55.

In this case, the business is spending $4.55 more per customer on cloud costs compared to the previous month, which isn’t a good sign. Understanding these numbers is crucial to managing cloud expenses effectively and improving cloud cost savings. 

Moreover, It’s always a smart move to align costs with business KPIs for better insights and decision-making.

Addressing Common Questions About Cloud Cost Savings

Q: Does using cloud services always result in cost savings?

While cloud services offer the potential for significant cloud cost savings, it depends on how effectively they are used. Simply migrating to the cloud doesn’t guarantee reduced costs. In fact, if resources are over-provisioned, or if there’s a lack of proper management and optimization, costs can spiral out of control.

To achieve real cloud cost savings, it’s important to take steps like choosing the right pricing models (e.g., Reserved Instances or Savings Plans), regularly monitoring usage, rightsizing resources, and implementing cost management strategies as guided in this blog. When done right, cloud services can save you money, but without proper oversight, they can also become a source of unexpected expenses.

Q. How do I avoid cloud waste?

Avoiding cloud waste is all about making sure you're only using what you need and optimizing your resources.  Here are a few tips to get you started:

• Turn off idle resources: If you have instances running that aren’t being used, shut them down! These idle resources can add up to big costs.
• Right-size your resources: Make sure you're only using the resources you actually need. Avoid overprovisioning, as this can lead to unnecessary costs.
• Optimize storage: Clean up unused storage and archives that you no longer need. Also, it's a good practice to use tiered storage for data that’s infrequently accessed.
• Monitor Resource Usage: Continuously monitor resource utilization. Keep track of what's being used, and optimize where needed—whether it’s memory, CPU, or storage.
• Set budgets & alerts: Regularly monitor your spending. Use cloud cost management tools to set spending limits and get alerts to take proactive actions before things get out of control.

Q. What are common cloud cost pitfalls to avoid?

• Over-provisioning: Don’t pay for more resources than you actually need. Right-size your instances
• Leaving unused resources on: Shut down idle servers or instances to avoid paying for nothing.
• Lack of monitoring: It's a must to use cloud cost visibility and management tools to monitor and control your cloud expenses.
• Not setting up cost alerts: It is important to set up cost alerts so that you can be notified when your spending exceeds a certain threshold. 
• Ignoring savings opportunities:  Many cloud providers offer discounts for long-term commitments or specific usage patterns. If your workload is predictable, it’s a great way to save money.
• Data transfer costs: Moving data between regions can get expensive, so plan carefully.
• Not using cloud cost management optimization: Many cloud users skip out on using the available cloud cost management optimization, but these can help track spending, set alerts, and find areas where you can optimize your usage.

Learn more about common mistakes to avoid when optimizing non-production environments.

Q. How do Reserved Instances or savings plans reduce cloud costs?

Reserved Instances and Savings Plans are two popular strategies used to reduce cloud costs. They work by providing discounted rates for a committed period of usage.

Reserved Instances: These are instances that you commit to using for a specific term (e.g., 1 or 3 years). In exchange for this commitment, you get a significant discount on the hourly rate.

Savings Plans: These are a more flexible option that provides a discounted hourly rate for a specified amount of compute usage over a one-year term. You can use your Savings Plan across multiple instance types and regions.

Here's how these options can help reduce cloud costs:

• Predictable Costs: By committing to a specific usage pattern, you can lock in a predictable cost for your cloud resources.
• Significant Discounts: The discounts offered for Reserved Instances and Savings Plans can be substantial, saving you a significant amount of money.
• Flexibility: While Reserved Instances offer a fixed commitment, Savings Plans provide more flexibility, allowing you to use your discounted hours across different instance types and regions.

Check out this guide to help you decide whether Reserved Instances or Savings Plans are the best fit for your needs.

Q: How often should we review and adjust our cloud costs?

Cloud cost optimization is a continuous process. It’s good practice to monitor cloud costs on a monthly or even weekly basis. Regular reviews help catch unnecessary expenses early, especially as your workloads and business needs change. By keeping an eye on your cloud usage, you can adjust resources, scale up or down as needed, and avoid unexpected cost spikes.

Effortless Cloud Cost Savings With CloudKeeper

CloudKeeper is a comprehensive and certified cloud cost optimization partner for AWS, Azure and GCP. It is a one-stop destination offering a comprehensive suite of solutions and services, that provides you with everything you need for effortless cloud cost management and greater savings.

CloudKeeper’s offerings are tailored to meet the unique needs of different customer segments and bring highly skilled and experienced cloud professionals to help you at every stage of the growth journey. 

CloudKeeper AZ:  Guaranteed reduction on the entire bill with access to volume-based pricing and hassle-free management of RIs & Savings Plans, without any commitments. 
CloudKeeper Auto: Zero-touch, AI-based automated system for Reserved Instances (RI) and Savings Plans management offering RI & Savings Plans pricing for on-demand instances and a buy-back guarantee of unused RIs & SPs.
CloudKeeper EDP+: Maximizes your AWS EDP benefits with additional discounts, lower annual commitments, and discounted prices on AWS Support.
CloudKeeper Lens: A cloud cost visibility & analytics platform that provides insights to track, analyze, and optimize your cloud usage.
CloudKeeper Tuner: An Automated AWS Usage Optimization & Recommendation Platform that optimizes the performance of your workloads on 50+ AWS services thereby reducing the cost of your infrastructure without compromising on performance.

Discover how CloudKeeper can transform your cloud infrastructure and achieve cloud cost efficiency for you, today!