AWS Cost Optimization - Best Practices and Pricing Models
AWS
Fredrik Filipsson
Table Of Contents
  1. AWS Cost Optimization – Best Practices and Pricing Models for Your Organization

AWS Cost Optimization – Best Practices and Pricing Models for Your Organization

Diving into AWS Cost Optimization

Amazon Web Services (AWS) is a versatile cloud computing platform offering a plethora of services, from storage to database management, analytics, and beyond. As more companies turn to AWS to host their applications, AWS Cost Optimization becomes crucial to maximize your investment.

In this article, we’ll explore:

  1. Cost Optimization in AWS: We’ll delve into how you can make the most of your AWS investment by optimizing costs.

  2. AWS Pricing Models: We’ll discuss the three pricing models offered by AWS, helping you choose the one that best suits your needs.

  3. Best Practices for Cost Savings: We’ll share four best practices that can help you save on your cloud infrastructure costs.



What is AWS Cost Optimization?

what is aws cost optimization


Cost optimization in AWS is managing and minimizing the costs of your cloud infrastructure while maintaining or even improving the performance of your applications. Cost optimization is important because cloud infrastructure costs can quickly add up, especially when you’re not paying attention.

By optimizing your costs, you can ensure that you’re not overspending on your AWS infrastructure and can allocate your resources to other areas of your business.

What are the 3 Pricing Models of AWS?

aws pricing models


AWS offers three pricing models for its services, which include:

  • On-Demand Instances:


    This pricing model allows you to pay for your computing capacity by the hour or by the second, with no upfront payment or long-term commitment.

  • Reserved Instances:


    This pricing model requires an upfront payment for a one or three-year term, and you can receive a significant discount on your hourly charges.

  • Spot Instances:


    This pricing model allows you to bid on unused Amazon EC2 capacity, and you can save up to 90% of the on-demand price.

Benefits of AWS Cost Optimization

benefits of aws cost optimization


Optimizing costs on AWS is crucial for businesses of all sizes.

  • Cost optimization can help you achieve significant cost savings, such as up to 90% on EC2 costs using Spot instances and up to 72% with AWS Savings Plans.

  • You can save up to 10% by rightsizing workloads with AMD-based instances or up to 20% by migrating to AWS Graviton2-based instances.

  • Cost optimization can increase agility by freeing up resources that can be allocated to scaling applications cost-effectively.

  • This increased agility can help you finance more projects to better serve customer needs or provide more resources to existing applications to improve performance.

  • Cost optimization can streamline instance selection by providing recommendations based on millions of simulations to help you choose the most suitable instance type and right-size the computing environment.

  • With the right cost optimization strategies, you can optimize your cloud infrastructure and achieve the maximum value for your investment in AWS.

  • By staying ahead of the competition and adapting to changing business requirements, you can continue to grow and succeed in the marketplace.

What are the Four Best Practices of Cost Optimization in AWS?

best practices for cost optimization aws
  1. Monitor Your Usage:
    Monitoring your usage is critical to cost optimization in AWS. You can use tools such as AWS CloudWatch to track your usage and identify any areas where you can cut costs.

  2. Use Right-Sized Instances:
    Choosing the right-sized instances can save you a lot of money. You should evaluate your workload and choose instances with the appropriate amount of CPU, memory, and storage.

  3. Optimize Your Storage:
    AWS provides multiple storage options, and you should choose the one that best suits your needs. For example, you can use Amazon S3 for infrequently accessed data or Amazon Glacier for archiving.

  4. Leverage Automation:
    Automation can help you save a lot of time and money. You can use AWS Lambda to automate tasks, such as stopping or starting instances, based on predefined triggers.

AWS Cost Optimization Best Practices to Follow

AWS Cost Optimization Best Practices

Here are some additional best practices to optimize your AWS costs:

  • Use AWS Cost Explorer to identify cost-saving opportunities.

  • Implement tagging to help you organize and track your resources.

  • Use AWS Cost Anomaly Detection to identify any unusual cost patterns.

What are the AWS Reserved Instances?


Amazon provides a Reserved Instance model that allows you to reserve instances for 1-3 years and receive discounts of up to 75% on the hourly charge for instances. While this model can result in significant cost savings, it also comes with some limitations.

One key limitation of the Reserved Instance model is that it reduces the flexibility of the Amazon offering. If you need to scale down, you cannot get rid of the reserved instances, and scaling up will require consuming resources on-demand at a higher cost. However, despite this limitation, the Reserved Instance model can still provide benefits, such as advanced automation options and access to a rich ecosystem of services provided by Amazon.

The Reserved Instance model is suitable for organizations that are primarily running existing or legacy enterprise applications on the cloud. It is also suitable for applications that have predictable usage patterns, which can be planned for a long time in advance or have a predictable growth trend.

The Reserved Instance model offered by Amazon can provide significant cost savings, but it also comes with some limitations that can reduce flexibility. To determine if this model is suitable for your organization, consider the nature of your applications, their usage patterns, and your overall cloud infrastructure strategy.

What are the AWS Spot Instances?


Spot instances are a unique pricing model offered by Amazon Web Services that can help organizations achieve significant cost savings on their cloud infrastructure. Spot instances are only available for Amazon EC2 and offer the deepest discounts available on Amazon, up to 90% from on-demand instance pricing.

With Spot instances, you can bid for spare computing capacity on Amazon’s open market. The pricing for spot instances may change every five minutes, and if your price bid is above the current market price, you will receive the spot instance. However, it’s important to note that the Amazon EC2 Spot service can interrupt your instance if capacity is not available or if the current spot price exceeds your maximum price.

While the Spot instance model can provide significant cost savings, it is best suited for organizations that have advanced cloud-native development capabilities. These organizations should have the ability to dynamically cluster, start, stop, and migrate applications as needed. Spot instances are best suited for applications that are stateless and either highly distributed or run non-time-critical workloads. Examples of such applications include overnight batch processing of analytics data or other non-critical workloads.

In conclusion, Spot instances can provide an excellent cost optimization strategy for organizations with the right capabilities and workload characteristics. By taking advantage of the deep discounts available through the Spot instance model, you can save significant amounts of money on your cloud infrastructure costs while still achieving the performance and scalability you need for your applications.

What is AWS Trusted Advisor?


Amazon Web Services (AWS) provides a powerful cost optimization tool called AWS Trusted Advisor. This automatic tool offers guidance on best practices for Amazon services and covers five different areas, one of which is cost optimization.

Within the cost optimization area, AWS Trusted Advisor provides automated optimization recommendations related to various aspects, including EC2 reserved instance optimization and lease expiration, low utilization of EC2 instances, idle load balancers, underutilized EBS volumes, unassociated elastic IP addresses, idle DB instances on Amazon RDS, redundant Route 53 latency resource record sets, and underutilized Amazon Redshift clusters.

By using AWS Trusted Advisor, organizations can identify cost optimization opportunities in their AWS infrastructure and take steps to implement these recommendations, resulting in significant cost savings. The tool provides clear guidance on best practices for managing costs in the cloud and can help businesses improve their overall cost efficiency and performance.

In conclusion, AWS Trusted Advisor is an invaluable tool for organizations looking to optimize their AWS infrastructure costs. With its automated recommendations related to cost optimization, businesses can easily identify opportunities to reduce costs and improve their overall cloud infrastructure management. By utilizing this tool, organizations can save money and improve their cloud infrastructure performance, making it a valuable asset for any business using AWS.

AWS Cost Optimization Guide

aws cost optimization guide


Step 1: Control Costs

  • Create a budget plan to guide AWS resource spending and keep costs under control.

  • Analyze your costs using the Cost and Usage Report in the AWS Console to identify areas where cost optimization is needed.

  • Use AWS Trusted Advisor to view cost estimates and identify unused resources that can be removed.

Step 2: Optimize Compute Instances

  • Use instances on EC2 or any other service that fits your requirements to optimize computing instances.

  • Purchase reserved instances for a reasonable period and avoid keeping unused instances longer than necessary.

  • Use the latest instance types, which typically provide higher efficiency or better performance at a lower price.

  • Carefully select which workloads to run on reserved instances and which to run on on-demand instances to optimize costs.

  • Consider the use of spot instances for workloads that don’t require high reliability.

  • Schedule instances to ensure they run only during business hours or when needed. You can achieve this automatically using AWS Instance Scheduler or other tools.


Step 3: Optimize Storage and Other Resources

  • Avoid orphaned EBS volumes by checking the Delete on Termination checkbox when creating EC2 instances.

  • Keep EBS snapshots for only a few weeks in most cases and delete them as new ones are created.

  • Terminate unneeded resources, such as database volumes and Elastic IPs that are not used to optimize costs.

  • Store production files in S3 and move them between storage tiers based on activity, or dynamically using S3 Smart Tiering to optimize storage costs.

  • Archive infrequently used data in S3 Glacier and back up your long-term archived data in Glacier Deep Archive.

By following this cost reduction checklist, you can effectively manage your AWS resources and optimize costs while achieving the best performance and efficiency possible.

AWS Cost Optimization – Quick Wins


Achieving cost optimization on AWS requires identifying areas where costs can be reduced, implementing best practices for cost management, and taking advantage of cost-saving opportunities. Here are some tips for implementing AWS cost optimization best practices:

Tip 1: Identify Amazon EC2 Instances with Low Utilization

  • Use AWS Cost Explorer to access the Resource Optimization report, which shows idle or underutilized EC2 instances.

  • Drive cost reduction by stopping these instances or switching them to a smaller instance size to optimize costs.

  • Automatically stop underutilized instances using the AWS Instance Scheduler, or automate the scheduling of instances using AWS Operations Conductor to improve efficiency.

  • Use the AWS Compute Optimizer to access additional recommendations for EC2 instances, such as downsizing instances across instance families or switching to more powerful instances to avoid performance bottlenecks.

  • Use efficient Auto Scaling group practices to optimize usage and ensure efficient use of resources.

Tip 2: Use or Sell Underutilized Reserved Instances

  • Reserved Instances can significantly reduce costs on Amazon, but only if they are used effectively.

  • Avoid losing your investment in idle reservations by making use of them for a new application or an existing application running on more expensive on-demand instances.

  • Sell your RIs in the Reserved Instance Marketplace if they are not being utilized effectively.

Tip 3: Use Amazon EC2 Spot Instances for AWS Cost Reduction

  • Use Spot Instances for fault-tolerant workloads to reduce EC2 costs by up to 90% and achieve significant cost savings.

  • Keep in mind that spot instances can be interrupted at two minutes’ notice, so use them for big data, containerized workloads, CI/CD, web servers, and development/testing applications.

  • Use the Spot Fleet feature to run both on-demand and spot instances in the same Auto Scaling group, letting you reserve some on-demand instances which cannot be interrupted for critical components.

By following these best practices, organizations can achieve effective cost optimization on AWS, reducing costs and improving overall cloud infrastructure management. Implementing these tips will help businesses identify and take advantage of cost-saving opportunities, ultimately resulting in more efficient and cost-effective cloud infrastructure management.

FAQ on AWS Cost Optimization:


Q. How can I estimate my AWS costs?


A. You can use the AWS Simple Monthly Calculator to estimate your AWS costs based on your usage.


Q. How often should I monitor my AWS usage?


A. You should monitor your AWS usage on a regular basis, such as daily or weekly, to identify any potential cost-saving opportunities.


Q. Is it possible to change the pricing model after purchasing an instance?


A. Yes, you can change the pricing model of a Reserved Instance, but you may incur additional charges.


Cost optimization is an essential aspect of AWS management. By understanding the three pricing models of AWS and implementing the four best practices of cost optimization, you can save significant amounts of money while maintaining or even improving the performance of your applications.

By using tools like AWS Cost Explorer and implementing tagging and automation, you can identify and reduce your AWS costs, which can positively affect your business in the long run. Keep in mind that cost optimization is an ongoing process, and you should continuously evaluate and adjust your AWS usage to ensure that you are maximizing your investment.


By following the best practices outlined in this article, you can optimize your AWS costs and achieve the maximum value for your investment in the platform. With a solid understanding of the pricing models, tools, and best practices, you can get the most out of your AWS infrastructure while minimizing your costs.

Whether you’re running a small business or a large enterprise, cost optimization in AWS is crucial for success. Take advantage of the tools and strategies available to you and watch your AWS costs decrease while your performance improves.