What Are The Different Cloud Cost Models? 3 Types You Need To Know

Identifying the best payment plan for cloud services can be a challenge. For one thing, no two businesses are exactly alike.

Since each organization faces a unique set of circumstances, it is tough to choose the best option from all the different cloud cost models without taking an in-depth look at business-specific aspects such as demand, spending preferences, and projected revenue over the next few years. On top of that, the payment plans themselves are very often confusing.

So what are the cloud cost models available, and how can you possibly choose the best one without knowing the future?

Our advice: When you’re shopping for cloud services, start with the end goal in mind and build your system to reflect that goal. Once you know exactly which services you will need in order to make your vision a reality, then you can identify the cloud cost models that will best suit your needs.

Following, we’ve tried to simplify the cloud cost models into a few basic concepts to help you narrow down your options.

Cloud Cost Models: 3 Types

As you shop around, understand that, from a financial perspective, what seems like the best deal at first glance may actually cost more money in the long run.

Examine your current spending habits and learn more about how to manage your cloud costs before you make a final decision on one of the following types of cloud cost models.

1. Up-front payments and static service savings plans

Fixed or even up-front payments can be a great choice if you know ahead of time the level of demand your customers will generate. Most cloud service providers will be more than happy to negotiate a discounted up-front rate if your organization is willing to commit to a specified dollar amount or duration for your contract.

Large companies that can negotiate an enterprise discount often opt for a type of fixed payment called a reserved instance, which is a long-term commitment that guarantees access to a static level of services for a fixed price.

Though up-front payments come with an enormous price tag out of the gate, this cloud services cost model is the most transparent and predictable on the list. If your organization can handle parting with a substantial chunk of its budget all at once, you might end up paying less overall.

2. Pay-as-you-go plans for dynamic services

When future demand is uncertain, it can be difficult to get past the sticker shock of a fixed-price quote. No one wants to overpay for services that might not be needed.

Pay-as-you-go plans are a good choice for businesses that will experience varying levels of demand over time. If there is a chance that your organization will face lulls in customer usage of cloud services, it makes more sense to only pay for the services your company uses rather than trying to predict your usage ahead of time.

While you may miss out on bulk-payment discounts, by choosing a plan that charges based on real-time performance you can realize cost savings that far and away eclipse the savings you might get from a reserved instance or a savings plan.

3. Spot instances for short-term, low-cost service

If guaranteed, reliable access to cloud services is less of a priority than saving money, spot instances can offer a fantastic return on your investment. When cloud service providers have extra capacity that hasn’t been claimed by any companies, they often sell this limited availability at highly discounted rates to the highest bidder.

The downside to this option is the lack of reliability and predictability. Your services may be subject to changes or interruption based on your service provider’s capacity needs.

Need Help Optimizing Your Cloud Costs? CloudZero Has The Answers

It’s not always easy to make an educated guess about your organization’s service requirements and future cloud infrastructure. If it were that simple, no one would ever waste money on service tiers they don’t need or underestimate the demand their customers will place on the system.

When you’re making consequential decisions about your cloud spending, make sure you have CloudZero’s cloud cost intelligence at your disposal.

and discover how our expert cost intelligence team can organize your cloud spend and simplify your budget.

Author: Erik Peterson

Erik Peterson is the co-founder and CTO of CloudZero, is a software startup veteran, and has been building and securing cloud software for over a decade. Erik is a frequent speaker on FinOps, cloud economics, DevOps, and security.