12 Cloud Cost Optimization Examples For Your Cost Journey

Setting clear and attainable goals for cloud cost optimization keeps your whole organization on track and working toward a common end. The emphasis here is on clear and attainable. In other words, your team must know where they are headed and have full confidence that they can get there.

To help you decide on the best trajectory for your company, we’ll be discussing some optimization goal examples you could use, depending on how far you’ve progressed in your journey toward cost visibility and intelligence.

But before we move on to discussing specific goals, let’s first talk about this journey. At CloudZero, we like to break the process down into three stages: Crawl, Walk, and Run. Your mindset is important here. As the saying goes, you must crawl before you can walk, and walk before you can run.

Understand where you are in the process. You may be starting from nothing, or you might have already picked much of the low-hanging fruit in the first stage and you’re eager to move on to the next steps.

Advanced cost intelligence doesn’t happen overnight, so it’s okay if your company is still working on early goals, even if you feel like you should be further along in the cost journey stages.

It’s also important to work on each goal in order. Trying to jump ahead when you haven’t completed the earlier objectives is more likely to lead to frustration and complications than it is to accelerate your success. It’s almost always better to chip away at the problem and iterate on your previous successes than to force huge improvements before you’ve built a strong foundation.

With that in mind, here are some goals suitable for each stage of the cost journey.

Crawl Stage Goals: Lay A Foundation

Goal #1: Define a broad objective

What would you like to accomplish by optimizing costs? Are you working toward a lower budget? A stronger margin? Do you just want to conserve some cash to help your business withstand the fluctuating economic climate?

Your underlying objective will point you in different directions as you progress through each stage. If you’re under pressure to improve your margins, for example, you’ll need to focus heavily on unit economics. Whereas if you’re orienting more toward saving the most cash possible, you might care more about overall cost visibility so you can pare down the items that cost more than they’re worth.

Goal #2: Devise a way to make progress visible in real time

Some goals — staying under a specific monthly budget, for instance — should be continuously measured every day. It doesn’t help to set a budget goal if you only evaluate your progress after impactful decisions have already been made. You might hit your goal, but you could also blow past it and have no idea until the bill lands on your executives’ desks. You’ll want to focus on the trend line over time, not just the final number at the end of the month.

CloudZero’s platform is one option for tracking costs on a daily basis. Engineers and other employees who make decisions that impact cost can receive updates via Slack to make sure they’re on track to reach that month’s goal. If it’s the 15th and the team is falling short, they’ll know they need to make some adjustments before the damage is done.

Goal #3: Start breaking down costs into smaller and smaller pieces

There are three main components that affect cloud costs. First, there’s your provider: AWS, GCP, or Azure. The second is the price you pay for each service, and the third is how much you use each service. You likely won’t want to optimize by switching providers, so the second two factors should be your focus.

Can you identify how much you’re paying for each service? You’ll need a more advanced way of looking at costs than simply glancing at your provider’s monthly overview. If you’ve completed these goals in order, you should be able to use your day-by-day cost tracking method to achieve this visibility.

Try to break your costs down as granularly as possible. Instead of simply measuring your total EC2 costs, for example, you’ll ideally want to track the cost of each component that contributes to the overall total.

If all you know is that you’re spending a lot of money on EC2, you won’t know which engineering team to talk to or which product to tweak to fix the problem. But breaking that total cost down allows you to see which products, features, or teams are contributing the most toward the high cost.

Goal #4: Purchase reservations

Once you’ve tracked your usage and costs for a while, you will be able to identify some places where your service remains relatively stable from month to month. These are prime opportunities to save some money by reserving instances with your provider at a lower rate than your current on-demand rate.

In the crawl phase, it’s best to avoid biting off more than you can chew in prepaid reservations. Start by covering around 10% of your resources with reservations and monitor how that change impacts your costs over time. As you learn which areas of usage are stable, you can gradually increase that percentage so more of your resources are covered at a discounted price.

Goal #5: Identify underutilized resources

Mistakes happen. Every once in a while, an engineering team may open up a few instances to test out a new project and then forget to close them again. That could mean your company is paying for instances that aren’t being used.

As you start getting a clearer understanding of your costs and usage by tracking granular metrics, you can identify these wasted resources and close them down.

Walk Stage Goals: Get Comfortable With Tracking Cost

Goal #6: Cultivate a culture of cost optimization in your teams

You’ve identified some opportunities for savings and closed down any underused resources. Now it’s time to develop a culture around making smart cost decisions in your organization.

Keeping cost considerations at the forefront will help to prevent your team from making expensive mistakes or suboptimal decisions simply because they weren’t thinking about the potential impact to the bottom line.

Part of establishing cost optimization as a priority is encouraging each team member to take advantage of the real-time visibility afforded to them by your cost-tracking platform. If you’re using CloudZero, our automated updates and convenient Dimensions views will keep everyone aligned with little outside effort needed.

By the time you’ve reached the walk stage, your finance and engineering teams should both have a consistent habit of checking usage throughout the month, identifying opportunities to save a little bit here and there, and pointing out potentially wasteful areas.

Goal #7: Increase reservation coverage

In the earliest phases of your cost journey, you may not have had the information to confidently commit to reserved instances. Now, you should not only see whether your initial explorations into reservations have been successful, you can also identify other opportunities to reserve instances for savings.

If almost half of your usage is relatively consistent and stable, it’s realistic to aim for 40% to 50% coverage in the walk stage.

Goal #8: Right-size your instances

Perhaps early on you operated with caution and reserved instances that turned out to be far too large for your actual needs. Or, perhaps you underestimated your actual usage and you’ve been trying to compensate for that decision ever since. Now is the time to shrink or grow your instances as needed.

The goal is to pay for only as much as you’ll use, without coming in too far over or under your target.

Goal #9: Break costs down even further

You’ll want to feel comfortable tracking your costs per product, per feature, per team, per customer, and any other comparisons that make sense for your situation. Once you’re able to look at your data and confidently see trends, you can Run at full speed.

Run Stage Goals: Make Business Decisions With Confidence

Goal #10: Drill down into unit economics

You’ll need to clearly see and track your revenue per customer, per product, and per feature to be able to answer these questions. Doing so allows you to see which areas could use some optimization and which have been surprisingly successful. Those unexpected heroes could become your templates for future innovations.

You might have a product that costs far more than any other product you offer, but it also brings in five times as much revenue as your other products. In the earlier stages, you lacked this context. You might have seen the sky-high price tag and assumed this product urgently needed to be optimized.

But now, you can use unit economics to discover that this product’s ROI is actually astounding in comparison to other products, and your optimization efforts would be better spent elsewhere.

Goal #11: Look for additional savings opportunities

You’re confident making major infrastructure decisions based on high-level intelligence, and you’ve put a substantial amount of your resources into reserved instances with discounted pricing. You can certainly continue to look for additional reservation opportunities, but now that you have enough information, you don’t have to stop there.

AWS Spot Instances may help you take advantage of unused resources offered at a lower price, and every cloud provider has enterprise discounts that can open up a whole new world of pricing tiers and negotiations. Armed with the details and context you’ve gathered so far, you can recognize suitable opportunities that could be worth exploring.

Additionally, there are solutions that will automate some of this process for you, allowing you to set tags and configurations and let those services automatically manage your reserved instances and AWS Spot decisions. CloudZero partners with two companies that can help you do just that.

Goal #12: Strive for continuous improvement

Not all optimization in the run stage has to come from massive changes. If you know your current features have a cost per customer of $120, for example, you can set goals to lower a particular feature to $110 per customer.

You know exactly where your costs are coming from, you know which products or features need to be optimized, and you know how to architect a solution. This kind of deep understanding of your business allows you to make small, iterative improvements that will bring huge rewards with minimal risk over the long term.

With CloudZero, You Can Run Faster Than You Think

Tracking cost and revenue for each product, feature, and customer might sound like a tedious and overwhelming process, but it doesn’t have to be.

CloudZero’s automatic cost tracking tool, real-time updates, and customizable dashboards put crucial contextual information in front of every team member, so each person can make educated decisions aligned with the company’s goals.

to see how it works!

Author: Cody Slingerland

Cody Slingerland, a FinOps certified practitioner, is an avid content creator with over 10 years of experience creating content for SaaS and technology companies. Cody collaborates with internal team members and subject matter experts to create expert-written content on the CloudZero blog.