AWS Cost Optimization: Proven Tactics To Optimize Your AWS Costs

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Table of Contents

Introduction

Navigating AWS cloud costs can be a challenge for businesses of all sizes. As more organizations depend on AWS for their infrastructure, managing costs effectively becomes crucial to using resources efficiently and keeping budgets well-managed. AWS provides various services and pricing options tailored to diverse business needs, underscoring the importance of implementing thoughtful cost optimization strategies.

This blog explores practical techniques and best practices that empower businesses to maximize their AWS investments while minimizing unnecessary spending. Whether using cost management tools or adopting efficient resource allocation practices, mastering AWS cost optimization is essential for achieving financial efficiency and scalability in the cloud. Join us as we uncover actionable insights to help your business thrive in the AWS ecosystem.

What is AWS Cost Optimization?

AWS Cost optimization involves strategies, tactics, plans, ideas, and every aspect that can be implemented to manage and minimize your AWS cloud expenses efficiently and effectively. It includes strategies like rightsizing resources, eliminating idle ones, choosing the most effective pricing models, and using automation to maximize your cloud investment and reduce your AWS bill.

Understanding your AWS Expenses

Let’s quickly comprehend the basics of AWS Expenses first

How Much Does AWS Cost?

Figuring out how much AWS services cost can get tricky because of the range of services and pricing options available. AWS pricing is adaptable and expandable, letting users pay for their needs. Dive AWS expenses complete, with information and numbers to guide you through the intricate pricing world. Small businesses spend approximately $150-$200 monthly for basic needs. You can find pricing information on AWS for all its services here.

Basic Pricing Models
AWS provides pricing options designed to suit usage habits and requirements;

• Pay As You Go: This plan bills you based on the resources utilized, without any initial fees or extended obligations. It works well for fluctuating workloads.
• Save, with Commitment: By committing to an amount of AWS resources for one or three years, you can enjoy savings of up to 75% compared to pay-as-you-go rates. This includes choices such, as Reserved Instances and Savings Plans.
• Pay Less by Using More: AWS reduces the cost per GB as you use more services. This applies to services such as Amazon S3 and Amazon Glacier.

Understanding AWS Pricing Models

Quickly look at the different AWS pricing models you can use according to your business’s preference.

1. On-demand Pricing
On-demand pricing, ideal for AWS cost optimization, allows you to pay only for the resources you utilize hourly or per second. Costs vary by location, server type, and software. It is ideal for operating expenses(OpEx) with no upfront fees or long-term commitments and is perfect for applications needing high uptime and flexible scaling.

For example, Amazon EC2’s (Elastic Compute Cloud) on-demand Instances’ prices vary depending on the instance type and location. In the US East (N. Virginia) region, a t2.micro instance costs $0.0116 per hour.

Reserved instances can yield significant savings. Investing in one for three years in the region could total around $527.

2. Savings Plans
This pricing model offers plans to enhance AWS cost optimization with Compute Savings Plans ( More flexible) with up to 66% Discount & Instance Savings Plans( less flexible) with up to 72% Discount. It’s adaptable for AWS Lambda, Fargate, and EC2 instances, providing discounts regardless of instance size, location, or type. You can opt for a year plan with no upfront costs. Once you opt for it, AWS will automatically apply reduced rates to your usage. It is ideal for businesses seeking operational flexibility without upfront costs and applications with varied needs over an extended period.

For example, the first 1 million monthly requests in Amazon Lambda are free, after which it’s $0.20 per 1 million requests, priced at $0.00001667 for every GB second used.

3. Reserved Instances
Amazon Reserved Instances offer up to 75% savings by locking in computing power for 1-3 years, aiding AWS cost optimization. However, you must commit fully—you can’t return unused capacity, and extra needs are charged at standard rates. Types include Standard, Convertible, and Scheduled, each with varying flexibility. They are ideal for businesses using older or predictable apps with steady growth.

For example, Regarding Amazon RDS (Relational Database Service), Demand Pricing for a db.t3.micro instance in the US East (N. Virginia) region amounts to $0.0207 per hour.

Up to 60% savings are possible by opting for Reserved Instances with a three-year commitment.

4. Spot Instances
AWS Spot Instances let you pay the current market price for computing capacity based on supply and demand, offering up to 90% cost savings and ultimately optimizing AWS Costs. They are ideal for flexible workloads that can handle interruptions and for tasks that can pause and resume without much impact, using resources when prices are low.

For example, Moving on to Amazon S3 (Simple Storage Service), Standard Storage is priced at $0.023 per GB for up to 50 TB per month. Opting for Infrequent Access Storage at $0.0125 per GB can reduce accessed data costs.

5. Dedicated Hosts
AWS Dedicated Hosts provide an entire physical server exclusively for your use, charged hourly for the host, regardless of instance count. Ideal for workloads needing strict compliance, specific hardware, or high isolation, offering dedicated resources and control over instance placement.

How Do I Calculate my AWS Savings Plan Cost?

You can calculate your AWS cost with the AWS Pricing Calculator, a free online tool that helps you estimate the cost of using your AWS services. You can use it to model solutions before building them, explore AWS service prices, review cost calculations, plan AWS spending, and identify savings opportunities for AWS cost optimization.

What can you do with this tool?

• See detailed calculations behind estimated service costs. Analyze costs by individual services or grouped services.
• Organize estimates into groups that match your architecture for precise cost analysis.
• Save and share estimated links stored on Amazon’s public servers.
• Generate estimates in CSV or PDF formats to distribute locally among stakeholders.

How to get started with AWS Cost Calculator
To calculate expenses with the AWS Pricing Calculator

• Go to the AWS Pricing Calculator.
• Click on Create Estimate.
• Select a service, configure settings, and click Add to my estimate.
• Organize services into groups if needed by clicking Add group.
• Adjust service settings and add them to your estimate.
• For detailed steps and options, visit the AWS Pricing Calculator Guide here.

Factors Leading To Unplanned AWS Expenses

Here are the primary causes of unexpected AWS Expenditures.

• Unused AWS instances lead to unnecessary costs without regular monitoring or decommissioning.
• Incorrectly sized instances waste resources and may cause performance issues.
• Not using multi-cloud providers limits cost optimization in AWS and flexibility.
• If you are neglecting orphaned snapshots, it will result in ongoing charges for unused resources.
• Using manual processes increases errors and operational costs.

AWS Cost Optimization Checklist

Optimize AWS costs effectively with this checklist:

☐ Establish detailed budgets for accounts, services, and resources to monitor and manage expenditures.
☐ Utilize Cost Explorer to analyze past cost analysis to identify patterns and areas for optimization.
☐ Employ AWS Cost Anomaly Detection to identify unusual spending patterns proactively.
☐ Implement chargeback or showback to allocate costs accurately across teams or projects.
☐ You need to right-size instances based on workload to optimize performance and costs.
☐ Consider Savings Plans for long-term compute cost savings with commitments over 1-3 years.
☐ Utilize Spot Instances for lower-cost, interruptible workloads.
☐ Implement instance scheduling to start and stop times based on usage patterns automatically.
☐ Implement serverless technologies such as AWS Lambda and Fargate to reduce expenses associated with idle resources.
☐ Enable S3 Intelligent Tiering to optimize AWS costs based on data access patterns.
☐ Use S3 Glacier Instant Retrieval for cost-effective data archiving and quick access.
☐ Regularly delete unused EBS snapshots and volumes to avoid unnecessary storage charges.
☐ Optimize database usage with appropriate services and instance types.
☐ Review and optimize data transfer costs using efficient options like VPC endpoints.
☐ Tag resources for effective cost tracking and allocation.
☐ Monitor and terminate idle resources to optimize unnecessary AWS costs.
☐ Maximize Reserved Instance utilization for significant compute cost savings.
☐ Explore managed services like Amazon RDS, Elasticsearch, or Redshift for operational efficiency.
☐ Consider third-party AWS cost optimization tools for advanced analytics and automation in cost management.

AWS Cost Allocation Tags

AWS cost allocation tags, such as EC2 instances or S3 buckets, are markers applied to your AWS resources. Each tag consists of a key and a value. They help businesses organize and track their AWS costs, improving cost management and resource allocation.

Types of Tags

• AWS-generated tags: These are created automatically by AWS or third-party services (prefixed with “aws:”) to track details like resource creators.
• User-defined tags: Created by you (prefixed with “user:”) to label resources based on your needs, such as departments or projects.

Activation

• You need to activate Billing and Cost Management console Tags to appear in reports like Cost Explorer.
• It takes up to 24 hours for newly added tags to show up.

Why use them?

• Cost tracking: Tags help organize & optimize AWS costs by categories like departments or applications, making it easier to analyze spending.
• Reporting: AWS generates detailed cost allocation reports in CSV format, grouping costs by your active tags.
• Filtering: Tags can filter views in Cost Explorer for better cost analysis.

Third-Party AWS Cloud Cost Optimization Tools

Here are the various third-party tools you can use for AWS Cost Optimization.

1. Economize

Economize is an AWS cost optimization tool that helps optimize AWS cloud costs by providing insights into monthly spending, unit costs, and budgeting strategies through a comprehensive billing console.

Features of Economize

• It offers a thorough perspective on costs, resource usage, and per-unit expenses.
• It facilitates connectivity with platforms such as BigQuery, Datadog, and Slack to augment functionality.
• Automatically tags unidentified instances for better cost tracking.
  Offers suggestions for optimizing underutilized resources.

Pricing

• Free Tier: This free tier is designed for organizations with cloud expenditures up to $10,000 per month.
• Plus Tier: Priced at $99 per month, tailored for businesses spending $50,000 monthly on cloud services.
• Premium Tier: This plan costs $499 monthly and is ideal for companies with monthly cloud spending ranging from $50,000 to $100,000.
• Professional Tier: This tier is available at $999 monthly and is suitable for businesses spending over $100,000 monthly on cloud resources.

2. CloudHealth by VMware

CloudHealth is another tool on the list of AWS cost optimization tools focusing on cloud cost governance. It provides visibility into AWS spending to enforce compliance and financial management policies.

Features of CloudHealth

• It guarantees oversight and management of expenses to meet compliance and financial requirements.
• It offers clear cost insights across various cloud environments, including hybrid setups.
• It incorporates features for planning budgets and predicting future expenditures using past data.
• It aids in implementing policies to govern and optimize cloud expenditures efficiently.

Pricing

• There is a flat fee for AWS spending up to $100,000, then 3% of monthly expenditure (minimum fee of $1,000).
• For AWS spending over $100,000: Annual pricing options ranging from $41,904 to $125,712.

3. Spot by NetApp

Spot is another popular AWS cost optimization tool that offers cloud cost management with automated data-driven decision-making across AWS, GCP, and Azure.

Key Features of Spot

• It uses data-driven insights to make automated decisions for cost optimization.
• It manages AWS, GCP, and Azure costs from a single platform.
• Identifies and optimizes cloud infrastructure to reduce costs.
• It can forecast upcoming expenditures by analyzing historical patterns.

Pricing

• The free option supports up to 20 virtual machines.
• Pay-as-you-go pricing is available upon inquiry with Spot.
• The subscription model offers customizable annual terms tailored to usage and cost savings.

4. CloudCheckr

CloudCheckr is a popular AWS cost optimization tool that combines cloud cost optimization with robust security features, particularly for high-risk industries.

Key features of CloudCheckr

• It focuses on optimizing cloud costs while ensuring compliance and security.
• Manages reservation portfolios efficiently to maximize cost savings.
• It offers robust support for regulatory compliance in industries with high-risk profiles.
• Includes features for managing Amazon EBS snapshots and other cloud resources.

Pricing

• The SaaS solution is priced at 3.5% of cloud spending and costs a minimum of $500 monthly.
• Additional unit-based fees apply for extra usage.

5. Densify

Last on this list is Densify, another popular AWS cost optimization tool that provides hybrid and multi-cloud management with machine-learning-driven cost and performance management.

Features of Densify

• It employs machine learning to offer suggestions for enhancing cloud infrastructure efficiency.
• It identifies unusual cost trends and inefficiencies in resource usage.
• It functions smoothly in single-cloud, hybrid-cloud, and multi-cloud settings.
• It forecasts future spending based on historical data and usage patterns.

Pricing

• The pricing is $48.3 per instance per year and fluctuates depending on the cases handled.

Free and Open Source Tools for AWS Cost Optimization

1. AWS Billing Dashboard

It provides a visual overview of AWS costs and spending trends, with budget alerts and detailed billing reports for cost management.

Key Features of AWS Billing Dashboard

• It provides graphical charts showing monthly spending by service.
• It provides budget alerts to manage cost thresholds.
• It has detailed billing reports for analysis and optimization.

2. AWS Cost Explorer

Analyzes past AWS expenses, forecasts future costs, and recommends instance types based on usage patterns for optimized spending.

Key Features of AWS Cost Explorer

• View payments over the last 12+ months and forecast the next three months.
• Recommends On-Demand Instances or Reserved Instances based on usage patterns.
• You can customize visualizations to track service usage trends.

3. AWS Trusted Advisor

Automatically scans AWS accounts, offering recommendations to optimize AWS cost performance, security, and cost efficiency by identifying unused resources and suggesting instance optimizations. Integrated seamlessly with AWS developer tools, this comprehensive approach maintains financial oversight and fosters insightful decision-making for enhanced cost-effectiveness across diverse cloud operations.

Key Features of Trusted Advisor

• It gives recommendations for optimizing EC2 instance types from On-Demand to Reserved Instances.
• It identifies unused resources like Elastic Block Store volumes, Redshift clusters, and RDS instances.
• Access to the entire suite requires business or enterprise support plan enrollment.

4. AWS Lambda Power Tuning

Enhances AWS Lambda function efficiency by testing and suggesting the ideal memory allocation to balance performance and cost-effectiveness.

Features of AWS Lambda Power Tuning

• Tests Lambda functions with different memory allocations to find optimal performance.
• Measures metrics like execution time, CPU utilization, and cost for each iteration.
• Recommends ideal memory settings to balance performance and cost.

5. Komiser

A cloud cost optimization tool for AWS, offering insights into cost breakdowns, resource utilization analysis, and recommendations for cost-saving strategies like rightsizing instances and leveraging reserved instances.

Features of Komiser

• Cost visualization with a dashboard showing cost breakdowns by service, region, or resource type.
• Analyzes resource utilization to identify underutilized or idle resources.
• Offers cost optimization suggestions for AWS, such as optimizing instance sizes or utilizing reserved instances effectively.
• Integrates with AWS services like CloudWatch, Cost Explorer, and Trusted Advisor for data analysis and extends functionality with custom plugins.

AWS Cost Optimization Best Practices Even AWS won't Hint You!

Here are tested and efficient strategies for optimizing AWS costs to help you make the most of your budget:

Select The Suitable AWS region

• Costs: AWS regions vary in price. Use the AWS cost calculator to estimate costs for each region & optimize AWS Cost Optimization.
• Latency: Select regions with lower latency for better application accessibility.
• Service Availability: Verify that the desired AWS services are accessible in your selected region.
• Availability: Use multiple regions to enhance availability and create a disaster recovery site.
• Data Sovereignty: Comply with legal requirements for data storage in specific regions.

Rightsizing EC2 Instances For AWS Cloud Cost Optimization

If your m4.large instance isn’t fully used (e.g., below 50% utilization) and costs $4.1/day, consider downsizing to a cheaper t2.small during low demand. This switch can save over 60% in instance costs by paying only for necessary capacity.

Scheduling On/Off Times

Turn off unused instances during low-demand periods—auto-scale production instances based on demand to save costs. Terminate development, test, training, and demo instances after finishing projects to avoid ongoing expenses that effectively contribute to AWS cloud cost optimization.

Delete Unattached EBS Volume

To save costs, monitor and delete unused EBS volumes in AWS. Even after terminating EC2 instances, EBS volumes may remain unless set to “Delete on Termination.” Use AWS Trusted Advisor to find underused EBS volumes. Detach volumes from instances and check their status in the console before deleting: “In-use” means attached, and “available” means detached and ready for deletion. This approach ensures you only pay for necessary resources, enhancing your AWS cloud cost optimization efforts.

Use Discounted Instances

To save money on AWS, consider Reserved Instances (RIs). They provide significant discounts of up to 75% for one- or three-year commitments, with more significant discounts for longer terms. Discount rates depend on the instance type and deployment region, making this strategy essential for optimizing AWS cloud costs.

Opt For AWS Spot Instances

AWS spot instances are like a marketplace for Amazon EC2 capacity. You bid on instances at a maximum price you’re willing to pay per hour, with potential savings of 15-60%, sometimes up to 90%. If the spot price surpasses your bid, instances are immediately terminated. Managing your spot requests and instances is essential to avoid unexpected costs. Using different instance types across various availability zones or regions can reduce expenses by taking advantage of varying spot prices.

Minimize Data Transfer Fees

To reduce AWS data transfer expenses, ensure that Object Storage and Compute Services are located in the same region to avoid additional charges. For inter-region transfers, replicate Object Storage to the target region instead of transferring data each time. For example, moving 1GB 20 times between US West and US East costs $0.20, but setting up a mirrored S3 bucket in US East beforehand cuts this to $0.02 for transfer and $0.03 for storage monthly, saving 75%. S3’s cross-region replication boosts performance too.

For frequent S3 downloads, use AWS CloudFront for efficient delivery. CDNs like CloudFlare offer flat-rate pricing and can be more cost-effective than direct S3 access, especially for serving static assets like website images, where only a tiny fraction of requests directly go to your S3 bucket. This method is essential for optimizing AWS cloud costs.

Use AWS Compute Savings Plan

AWS Compute Savings Plans provide automatic discounts for EC2 and Lambda usage, applicable regardless of instance type or region. Choosing a one-year term without upfront payment can save up to 54% compared to paying on-demand prices. Use AWS Cost Explorer to manage monthly or daily costs effectively. Compute usage is billed at discounted rates specified in the Savings Plans, with any excess usage charged at regular on-demand rates.

Remove or Transfer Unnecessary Files Post a Specified Date

Automated rules can delete or move data between storage types based on usage patterns, reducing long-term storage costs. Cloud providers offer Lifecycle Management for this purpose, allowing you to automate these processes and optimize AWS cloud cost optimization strategies.

Compress Data Before Storage

Reduce storage costs by compressing data. Faster algorithms like LZ4 offer high performance, significantly lowering storage requirements.

Manage Incomplete Multipart Uploads

Regularly clean up partial objects left from interrupted uploads in Object Storage to prevent wasted space.

Reduce API Access Costs

Batching objects to reduce the number of API calls charged per object regardless of size minimizes costs. This strategy is cost-effective for large files and essential to AWS cloud cost optimization efforts.

Design Workloads for Scalability

Optimize cloud resources using scalable services like AWS Lambda or Google Container Engine, scaling computing power dynamically based on workload demands.

Strategic Storage Caching

Utilize memory-based caching such as Amazon ElastiCache to enhance data access speed and reduce the need for expensive storage tiers. This method improves performance and contributes to efficient AWS cloud cost optimization strategies.

Use Auto-Scaling During Off-Hours

Implement auto-scaling for applications to adjust resources based on workload fluctuations, saving costs during low-activity periods.

Optimize Amazon S3 Usage

Analyze S3 usage patterns using analytics tools to identify cost-saving opportunities, such as moving data to lower-cost storage classes like Amazon S3 Glacier for archiving.

Identify Underutilized Amazon RDS and Redshift Instances

Monitor and identify idle or underutilized Amazon RDS and Redshift instances using AWS Trusted Advisor. To reduce costs, stop or pause these instances when they are not actively used.

Examples from the Real World

➱ Netflix: As an AWS user, Netflix enjoys the advantages of AWS scalability and adaptability. With the help of AWS services, Netflix can manage surges in demand during new content launches without facing excessive expenses. Read our Netflix AWS migration case study here.
➱ Airbnb: Leveraging AWS, Airbnb can quickly scale its infrastructure to handle varying workloads, maintaining cost efficiency and high availability for users around the globe.

Conclusion