Identifying great business optimization opportunities is tougher than it seems. You often need to weigh the projected revenue and costs of taking a new path against the potential opportunity costs of not taking that path. Not only is this an apples-to-oranges comparison, but also a “what if” scenario riddled with variables.
For instance, what if slashing costs makes the customer experience so much slower and more frustrating that sales decline and you wind up losing revenue? This scenario is a common cloud cost optimization mistake and one you want to avoid.
Opportunity costs can also happen in the other direction. It probably seems worthwhile if it takes a team of ten engineers two months to build a new feature that could bring in an extra 5% revenue every month. But you still have to wonder: In that same two-month period, could your engineers have devised a more efficient infrastructure that would have saved your company an even greater amount in cloud costs?
It takes in-depth analysis to judge which opportunities are worthwhile and which you should forego. That said, let’s say you’ve already done your homework, run the math, and selected one or two courses of action you’re confident would be great moves for your company.
How do you convince the company’s executives, the board, or even your teammates that your conclusions are solid when these people haven’t experienced first-hand the extensive thought process you journeyed through to discover the facts of your argument?
You might know from your exhaustively researched, impeccably reasoned background work that gutting and restructuring your top products would result in huge savings and revenue. Still, your higher-ups will likely see only the risks instead of the potential rewards.
Many of these points, principles, and examples generally apply to optimization opportunities in any aspect of the business; in the following discussion, we’ll apply this perspective to cloud cost optimization.
The following tips and a healthy dose of confidence that your cloud cost analysis has solid data and sound reasoning should help you make your case.
Be Aware Of The Trade-Off
Many opportunities to save some cloud dollars will come with associated development costs. And as we’ve discussed, comparing the two isn’t an exact science.
Understanding this inherent trade-off is the key to building a persuasive business case to present to your company. For every opportunity you consider, ensure that you discuss both the potential payoff and the opportunity costs.
It can be easy to put your thumb on the scale of ideas you believe in, but if the company isn’t aware of how much it might cost to bring an idea into reality, you could end up with unhappy executives and stakeholders.
Always Come Back To The Top-Line Business Objectives
Let’s say one of your company’s primary goals is to improve its margin. You can accomplish that goal by increasing revenue, decreasing costs, or doing both simultaneously.
The more clearly your proposals align with the top-line goals of the business, the easier it will be to get the rest of the team on board. Opportunities to directly increase revenue or save money without dramatically impacting other areas should be an easy sell.
But what if you devise a plan to increase total revenue by increasing market share or some different roundabout scenario with many gray areas? Market share doesn’t directly relate to your company’s top-line objectives, so that it will be a harder sell.
More than likely, to make your case, you’d need to show precisely how increasing market share would impact total revenue in relation to costs.
You’d need to map out several variables, such as customer acquisition costs and average revenue per customer, and then use those numbers to predict how expansion into a new customer segment would drive margin growth.
Even if your organization is comfortable shipping new features quickly, doing so in these areas that don’t align with your business goals could be risky.
Rather than trying to bring color to a vast gray area, it’s usually better to reframe your plan entirely, so it fits the existing goals of the company. If improving margin is at the forefront of the minds of your executive team, proposing a plan to slash costs or boost revenue will ensure they sit up and take notice.
Graph Your Business Optimization Opportunities
Risky moves can lead to grand payoffs, but they can also lead to catastrophic failures. It’s always best to have an extensive and detailed data set on your side when you present your conclusions.
However, don’t expect everyone else to spend the same amount of time poring over your details.
In this case, simple visual aids can be a huge help. The easiest way is to graph each opportunity on two axes. For the opportunity you’re weighing, it makes sense to place “potential impact” on the X axis and “chance of success” on the y axis.
The numbers themselves may be relatively nebulous and inexact, but placing your best estimates on a graph will give you at least a rough visual. Your goal should not be exact estimation fidelity but instead grouping the opportunities into relative quadrants that everyone can discuss.
Graphing your opportunities also allows you to choose actions based on outcomes your business is looking to achieve. If you don’t have much time for innovation, graphing might vividly underscore the point that you’ll have more success with small, low-risk opportunities.
Seeing the chances of your efforts bearing fruit graphed out next to their potential impact on the company means you can quickly select the projects that make sense for your particular constraints.
Base Your Analysis On The Most Detailed And Accurate Cost Information Possible
The above assumes you are confident in your decision to pursue a specific opportunity. But what if you don’t have enough background information to come to an informed conclusion?
Accurate data is a requirement for dependable cost and revenue analysis. SaaS platforms and R&D organizations are complex systems. Even with perfect visibility, predicting the future is hard. You want to ensure that the data you use is as accurate and flexible as possible.
CloudZero’s platform allows you to track every cost metric you deem relevant to your business.
With unit cost tracking that goes as deep as you’d like, you can zoom in on the big picture to get the finer details of your company’s cost and revenue balance. Only with that level of detail can you build a forecast that illuminates the great business opportunities and empowers you to discard the unfavorable ones.
to start recognizing opportunities for growth and optimization!
The Cloud Cost Playbook
The step-by-step guide to cost maturity
