Last Updated on May 13, 2025
Quick Summary
This blog explores different cloud pricing models. It highlights their pros and cons to help businesses choose the most suitable cloud cost model based on their specific needs and operational factors.
Table of Contents
The worldwide cloud computing market is expected to hit $912.77 billion by 2025. Ease of use, as well as technology superiority, are among the reasons companies are choosing cloud. Nowadays, many cloud services are available, with Amazon Web Services (AWS), Microsoft Azure, and Google Cloud being the major players in the cloud industry.
When using these cloud services, it’s important to understand the pricing of various resources and the available discounts to get the most value from your cloud infrastructure. Understanding the cloud pricing model is key to avoiding overspending and getting the best value from your cloud investment.
A cloud pricing model basically means how a cloud provider (like AWS, Azure, or Google Cloud) charges you for using their services, such as servers, storage, databases, etc. Instead of buying your own hardware, you “rent” resources from the cloud, and how you pay depends on the pricing model you choose.
There are many cloud pricing models available, each offering different ways to balance cost and flexibility, like paying only for what you use, committing long-term for discounts, or getting lower prices with fewer guarantees. Accurately determining the billing model is crucial for precise cloud cost forecasting.
There are many cloud pricing models offered by various providers so customers can choose the one that best fits their needs. The most widely used cloud pricing models include:
Pay-as-you-go pricing, also known as on-demand pricing, means that you pay only for the cloud resources you use. Calculation for this cloud billing model is based on actual usage, such as per hour, per second, or other usage units, depending on the cloud services and service provider(AWS, Azure, GCP).
There is no upfront payment or long-term commitment, giving you the flexibility to scale resources up or down as needed. This cloud pricing model works best for businesses with unpredictable workloads, short-term projects, or testing environments that don’t require long-term infrastructure.
| Pros | Cons |
| No upfront payment | Higher cost per unit compared to long-term pricing |
| Pay only for what you use | Costs can increase quickly with continuous or heavy use |
| Easy to scale resources up or down | Harder to predict monthly costs |
| Ideal for unpredictable or short-term workloads | Not cost-effective for long-term, steady workloads |
Note: Many cloud services, especially for storage and data transfer, offer volume-based discounts, where per-unit prices decrease as your usage increases.
Reserved Instances (RIs) are a way to save money on cloud services by committing to use certain resources, like storage or computing power for fixed period like 1 or 3 years. In return, businesses get discounts of up to 70% compared to pay-as-you-go pricing model. Reserved Instances are an excellent approach to save money if you know how much capacity you require.
With Reserved Instances, you choose a specific type of resource and the region (like a country or data center) where it will run, and both stay fixed for the entire reservation period. Businesses can choose to pay all at once, in part, or monthly. Paying all at once usually results in bigger savings.
This option is best for companies with consistent computing resource needs over the long term. If the reserved resources are no longer needed, services like AWS let you sell them to others, though there might be some conditions and fees.
| Pros | Cons |
| Save up to 70% on costs compared to PAYG model | You must commit to using the resource for fixed period |
| Fixed pricing simplifies cloud budgeting. | You need to pay upfront or partially upfront to get discounts |
| Best choice if you know you’ll need the same resource long-term | If your needs change, you may end up paying for unused capacity |
| Helps lower your overall cloud spending | |
| Some providers (like AWS) let you sell unused reservations in a marketplace |
Spot Instances (also called preemptible instances or auction-based pricing) means accessing cloud resources that the provider has available but aren’t currently being used by other customers. These unused resources are offered at a much lower cost, up to 90% cheaper than standard prices.
However, the cloud provider can take these resources back at short notice if they are needed for other, higher-priority workloads (such as on-demand users or reservations).
While this pricing model provides significant savings, it’s best suited for flexible tasks where temporary downtime or interruptions won’t affect business operations.
| Pros | Cons |
| Very cheap (up to 90% less) | The provider can shut down (terminate) your instance anytime without warning |
| Best for non-critical, flexible jobs. | |
| Great for testing large workloads cheaply. |
Savings Plans are a flexible pricing model where you commit to spending a specific amount per hour(for example, $40/hour) for a period of 1 or 3 years. Unlike Reserved Instances, you’re not locked into specific machine types, sizes, or regions.
This allows you to change resources, switch regions, or use different services while still benefiting from the discount. It’s a great option for businesses that want predictable costs but need the flexibility to adjust their cloud usage.
| Pros | Cons |
| You can switch services, instance types, and regions while retaining the discount. | You must commit to a fixed spend per hour, even if your usage changes. |
| Offers significant savings compared to on-demand pricing. | Underutilization means paying for unused commitment. |
| Simplifies cost management with predictable pricing. | Discounts aren’t as high as Reserved Instances. |
| Reduces the need for precise capacity forecasting. | May not be ideal for unpredictable workloads. |
Custom / Enterprise Agreements are personalized contracts, cloud providers offer to large corporate companies that have specific requirements. These contracts can also contain negotiated pricing (e.g., discounts), exclusive support, flexible billing options, and customized services.
In contrast to standard cloud pricing models, custom agreements provide businesses with more flexibility to ensure that their cloud costs are in line with their needs and usage. That’s great for companies with significant cloud requirements or complex workloads that require customized contracts.
| Pros | Cons |
| You can get prices that fit your needs | Takes time to negotiate |
| Flexible billing and support options | Usually not for small businesses |
| Can save more money if you use a lot |
Cloud providers like AWS, Azure, and Google Cloud offer free tier plans that allow users to explore and test their services without incurring costs. These free offerings come in a few different types. The always free option provides free access to certain services indefinitely, as long as you stay within specified limits.
This is ideal for small-scale projects, learning, or testing without any financial risk. Then there are free-for-12-month plans, which offer free access to many services for the first year, after which you’ll need to pay if you continue using them.
Additionally, many cloud providers offer free trials or credits, where you receive a certain amount of free credits to use across various services for a limited time. Once the credits are exhausted or the trial period ends, you’ll have to pay for further use.
| Pros | Cons |
| Free forever within limits | You may need to upgrade if usage exceeds the free tier limits |
| Free access for the first year (Free for 12 Months) | You’ll be charged once the 12 months end |
| Free trials/credits allow you to explore a variety of services | Charges apply once the credits or trial period expires |
| Ideal for testing and learning |
After understanding the different cloud pricing models, it’s clear that selecting the right one depends on your business’s unique needs, budget, and growth plans. Choosing the right cloud pricing model requires careful planning and analysis of your long-term needs. To avoid costly mistakes and maximize savings, working with experienced cloud consultants can help you make informed decisions and align your cloud strategy with your business goals.