Cloud cost optimization: 10 best practices to reduce your cloud services bill

Increased data processing, storage, and computation needs for businesses have meant that startups and small-to-midsize firms increasingly rely on cloud infrastructure. But with that opportunity has arisen a challenge. The same flexibility and scalability that makes the cloud attractive, can also make cloud costs unpredictable and difficult to manage. This is especially the case for businesses with variable workloads. Alongside large costs like payroll and office leases, cloud-native businesses are seeing their cloud costs climb.

Without careful planning and effective management, cloud expenditure can devour your business budget. Fortunately, cloud cost optimization can help. By leveraging effective strategies and tools, companies can better manage their cloud resources, minimizing waste and aligning their cloud spending with their business goals. This guide will guide you towards practical ways to achieve optimal cloud cost management—without compromising on performance or security.

What is cloud cost optimization?

Cloud cost optimization is a strategic approach to controlling and minimizing the expenses associated with your business’ cloud computing services. Measures to optimize your cloud costs go beyond simple cost-cutting. Instead, they focus on rigorous analysis of your current cloud usage, identifying inefficiencies, and eliminating waste to maximize the value of each dollar spent on cloud resources.

The goal of cloud cost optimization is to gain better visibility into your cloud environment to ensure that resources are utilized effectively, balancing cost with performance, security, and availability.

Why you should prioritize cloud cost optimization

Optimizing cloud costs is not a one-time event, but rather an ongoing strategy with a myriad of benefits—from a more cost-effective cloud environment to a more competitive business.

• Reduce your expenditure. Cloud costs can become a budget blackhole without careful oversight. Prioritizing cloud cost optimization ensures you can eliminate wasteful spending, freeing up funds for other crucial business areas like product development and hiring.
• Ensure resource efficiency. Effective cloud cost optimization includes rightsizing your resources, ensuring you’re not over-provisioning, and paying for unused capacity. You’ll pay for what you need, when you need it.
• Gain budget control and predictability. A well-optimized cloud budget is a predictable one. With effective cost control measures, you’ll accurately forecast your cloud expenditure, skipping surprises and allowing for better strategic planning.
• Improve oversight and transparency. The process of cloud cost optimization provides better visibility into where and how your cloud budget is being spent while cost reporting. This deeper level of understanding can heighten accountability while aligning your technology and business goals.
• Preserve your competitive advantage. With resources utilized efficiently and costs under control, you can focus on innovating as a company and accelerating your time to market—whether that’s product roadmap prioritization or exploring marketing ideas that land customers.

10 Cloud cost optimization best practices

Understanding the necessity and benefits of cloud cost optimization is only the first step. The real challenge lies in identifying and implementing proven strategies that can effectively control and reduce your cloud costs. Let’s delve into actionable ways to keep your cloud costs in check while getting the most out of your cloud infrastructure setup.

1. Understand your cloud bill

It’s easy to glance at your cloud bills, only zooming in on the grand total. But effective cloud cost management begins with taking the steps to understand your cloud bill and overall cloud pricing. Knowing what charges are included, and what each line item maps to, will help you gauge where your money is going to optimize costs.

Here are the portions of your cloud bill to understand:

• Compute costs. These are charges for the processing power used. This pricing will depend on the types and sizes of virtual machines you’re running. Prices may vary based on regional differences, reserved versus on-demand instances, or the use of spot instances.
• Managed services costs. If you are using managed services (e.g. managed databases), there are charges for these based on usage or per-hour rates.
• Storage costs. These charges arise for storing data in the cloud. Different storage types (e.g. object, block), redundancy options, and data retrieval and transfer fees can impact your total storage costs.
• Bandwidth costs. These charges account for data moving in and out of your cloud environment and are commonly called “egress costs.” Intra-region and inter-region data transfers and data transfers between your cloud and the internet also factor into these costs, which can vary dramatically from month to month if your business is bandwidth-intensive.
• Support costs. Depending on your cloud provider and plan, you might have separate charges for support levels.
• Discounts and savings. Any upfront payments, reserved instances, committed use contracts, or other discount programs your company is participating in will appear, reducing the total amount of your bill.

2. Choose a cloud provider with predictable pricing

A cloud provider with a complicated pricing structure can lead to unexpected costs and surprise bills, making budgeting a challenging task. On the other hand, opting for cloud providers that offer clear, straightforward, and predictable pricing will allow your company to make informed decisions about cloud resource usage and cost control measures.

Look for cloud vendors that provide a detailed breakdown of your usage and cost, making it easier to understand your cloud bill and identify areas for optimization. A consistent and transparent pricing structure keeps your cloud costs in check, while also giving you peace of mind.

3. Identify unused and unattached resources

Part of your cloud cost optimization strategy should include pinpointing underused (and inefficiently used) cloud resources. These unused resources, while seemingly innocuous, can quietly drain your budget without providing any value to your business.

Here are a few proactive steps you can take:

• Setup regular monitoring. Routinely monitor resource usage, implementing cloud monitoring tools with alert notifications to track key metrics such as CPU usage, disk usage, disk I/O, bandwidth, and memory usage. Resources with consistently low usage, or idle resources, should be candidates for downsizing or removal.
• Locate idle cloud resources. Keep an eye out for instances that show minimal or no activity over an extended period of time. For instance, an idle database may not have significant read or write operations over several months. These are prime targets for deletion.
• Evaluate and take action. After identifying underutilized resources, assess their future necessity. If they aren’t required for forthcoming projects and won’t affect your current operations, opt for removal or downsizing.

4. Right-size your computing services

Right-sizing is the practice of matching your computing resources with your actual needs, ensuring that you’re not overpaying for unused capacity. Right-sizing involves both reducing the size of over-provisioned resources and increasing the size of resources that are near (or at) capacity.

Here are actionable tips for right-sizing your cloud computing services:

• Understand your workloads. Take time to assess your workloads, including performance requirements and usage patterns. This knowledge will provide the necessary context for optimizing your computational resources efficiently.
• Test different configurations. Experiment with various instance sizes and types to determine the best fit for each workload. This will help ensure you find the optimal configuration.
• Utilize heatmaps. Heatmaps provide a visual representation of your company’s computing demand over time. By monitoring and identifying patterns in the heatmap, you can locate cost centers and adjust your resources accordingly.
• Implement load balancing. Load balancing helps distribute workloads evenly across resources, preventing overuse and underuse. This can help to ensure that you’re making the most efficient use of computing resources and not overpaying for unused capacity.
• Continuously review and adjust. Right-sizing is a continuous activity. Regularly reviewing your resources and adjusting sizing in response to changes in your workloads can lead to significant long-term cost savings.

5. Explore autoscaling using solutions like Kubernetes

Scaling on demand is one of the most significant advantages of building a cloud-first company. However, manually managing scalability can be challenging, leading to over-provisioning and, as a result, inflated costs. Autoscaling can be the solution to allowing for both cost- reduction and efficient resource optimization.

Autoscaling allows you to dynamically adjust the quantity of computing resources, based on actual usage. Autoscaling is particularly useful for unpredictable and mission-critical workloads. Instead of keeping resources idle during low usage periods, or hitting capacity during high usage, autoscaling ensures that you use the right amount at the right time.

One great tool for enabling autoscaling is Kubernetes, an open-source container orchestration system known for its ability to automate the deployment, scaling, and management of applications. Kubernetes offers different options to facilitate effective autoscaling:

• Cluster Autoscaler (CA)
• Horizontal Pod Autoscaler (HPA)
• Vertical Pod Autoscaler (VPA)

While Kubernetes is available on a number of cloud platforms, DigitalOcean provides a managed Kubernetes service. This service reduces the overhead of setting up and managing a Kubernetes environment, letting you focus on deploying and scaling your applications.

6. Use the correct storage options for your business

When it comes to cloud storage, one size doesn’t necessarily fit all. Different types of data and different business needs require unique storage solutions. Using the right storage options is key to maximizing performance and minimizing costs. For instance, block storage and object storage are two common solutions with unique strengths.

Block storage offers high performance and is ideal for transactional and structured data that requires frequent read and write operations. That storage type generally comes with a higher cost but has performance benefits for latency-sensitive applications.

Object storage, on the other hand, is significantly more cost-effective for storing large amounts of unstructured data. While it doesn’t offer the same high-speed access as block storage, it has benefits for infrequently accessed data, such as archival storage or backup data. The correct storage choice will reduce costs and contribute to your overall cloud cost optimization strategy.

Here are tips for optimizing your cloud storage:

• Opt for the right storage type. Most cloud vendors offer various storage classes within block and object storage, ranging from high-performance to low-cost tiers. Choose the one that fits your data’s performance requirements and access frequency.
• Use lifecycle management features. Lifecycle management allows you to implement policies that move infrequently accessed data to lower-cost storage tiers over time, or archive them. This can be a cost-effective strategy.
• Regularly review and clean your storage. Remember to regularly audit your storage and delete outdated or unused data. This could include outdated backups, unused snapshots, or old data that no longer has business value.

7. Leverage spot instances

Spot instances allow you to bid for unused cloud provider capacity at a significant discount, compared to on-demand instances. While these instances can be interrupted or reclaimed by the provider, they can be an effective cost-saving measure for workloads that are non-critical and flexible. With proper management, spot instances can be a cost-effective part of your cloud cost optimization strategy.

Here’s how to get the most out of spot instances:

• Regularly monitor spot instances prices. Spot instance prices fluctuate based on supply and demand. Take advantage of third-party tools to monitor pricing trends and help you make informed purchasing decisions.
• Find the right use case for spot instances. Consider using spot instances for stateless applications, development and test environments, and other workloads that can be interrupted without critical impact.
• Integrate spot instances with load balancers. Linking your spot instances with load balancers helps ensure that your workload is distributed evenly, minimizing the impact of any single spot instance interruption.
• Have a fallback strategy. It’s crucial to have a plan b for when a spot instance is reclaimed. This might involve automatically switching to on-demand instances.

8. Build a multi-cloud strategy

Being a multi-cloud company, where you use two or more cloud computing services from different providers, can play a significant role in optimizing your cloud costs. Each cloud service has its strengths and weaknesses. By leveraging multiple clouds, you can exploit the advantages of each.

One primary advantage of the multi-cloud approach is the potential for cost-saving opportunities. Each cloud service provider has their own pricing models and rates for specific services. By comparing them, you can select the most cost-effective service for each provider. Additionally, a multi-cloud strategy can support risk management, provide increased flexibility, and prevent vendor lock-in.

9. Use real-time monitoring and analytics

Implementing real-time monitoring and analytics provides valuable insights into your cloud usage. By monitoring your cloud usage, and analyzing trends in real-time, you can proactively identify (and solve) inefficiencies and monitor cost anomalies, reducing unnecessary expenditure.

Here are some key metrics your business should be monitoring:

• CPU utilization. Monitoring CPU usage can help you identify underutilized instances, a sign that you might be overpaying for unused capacity. Alternatively, discovering overutilized instances may point to the need to scale up.
• Memory utilization. Regularly reviewing your memory usage can help you determine if your instances are appropriately sized for your workloads.
• Network traffic. High network traffic can indicate a busy instance, potentially incurring significant data transfer costs. Monitoring this metric can help manage data transfer expenses.
• Storage usage. Track your storage consumption to make sure you’re not paying for unnecessary storage space. Routinely clean up outdated or unnecessary data to prevent storage costs from ballooning over time.
• Instance uptime. Tracking uptime can help identify underutilized instances and turn them off when they’re not being used. For example, if you have instances that are only used during business hours, but are running 24/7, you can save money by turning them off.
• Error rates. A high error rate can indicate a problem that may lead to higher costs, such as increased network traffic due to reloads or additional CPU usage to handle exceptions.

10. Optimize cloud costs at every software development stage

Cloud cost optimization shouldn’t be an afterthought. Instead, it should be a continuous effort integrated throughout your software development lifecycle, embedding cost-efficiency into your company’s DNA.

Here’s how to optimize cloud costs at key stages of development:

• Planning. For development projects, identify the cloud resources you’ll need and make project projections. Use historical data to predict usage patterns and select the most cost-effective resources for your needs.
• Development. Use smaller and chapter instances for testing and development. Develop with cost-efficiency in mind, with the goal of creating lightweight and scalable applications.
• Testing. Use automated testing to accelerate this stage and reduce resource usage time. Additionally, consider spot instances for non-critical testing environments. Remove temporary resources after testing to avoid unnecessary costs.
• Deployment. Similarly to testing, automate deployment processes to minimize error and reduce resource usage time.
• Monitoring. Implement real-time monitoring and set up alerts on platforms like Slack for unusual resource usage. Use auto-scaling to adapt to varying demands and load balancing to efficiently distribute traffic.
• Maintenance. Make time to regularly review your applications and resources, deprecating any that are no longer needed.
• Updates. When updating your software, test it on smaller instances. This can help avoid the cost of errors on larger and more expensive production instances.

This approach will yield significant cost savings over time and makes cloud cost optimization a key part of your software development cycle.