Cloud Cost Optimization: 10 Strategies & Best Practices

Cloud computing has empowered organizations to scale their operations in unprecedented ways. By 2026, Gartner predicts that 75% of organizations will adopt this digital transformation model — utilizing the cloud as a vital groundwork.

But with substantial growth opportunities for businesses and organizations comes growing cloud expenditures that can quickly consume budgets.

Let’s explore cloud cost optimization strategies and management techniques to get the most out of your investment.

What Is Cloud Cost Optimization?

When we talk about cloud cost optimization, we’re referring to the process of selecting proper cloud services for your business to avoid extra costs for storage and use.

Opting for cloud use eliminates the need for in-house servers, which require infrastructure that can be costly to maintain and may leave valuable information more susceptible to cyber harm. Instead, cloud optimization allows a business to minimize risk while expanding reach.

FinOps, short for financial operations, is a management practice that promotes shared responsibility for this cloud computing infrastructure.

A highly recommended best practice is to form a technical team that is responsible for monitoring and tuning cloud operating models and FinOps practices. That team should be tasked with spreading cloud spend awareness throughout the organization and helping to build proper practices that reel in overspending.

10 Steps To Cloud Cost Optimization

Cloud cost optimization is critical for organizations to stay on-budget and maintain overall efficiency. Consider these strategies to help you along the way.

1. Rightsize Instances and Services

Selecting the appropriate instance types and sizes can come with considerable cost benefits. Tools like AWS Cost Explorer and Trusted Advisor can guide you in selecting the best configurations based on your usage patterns.

But there are still some challenges to overcome. AWS offers more than 300 different instance types designed to meet the needs of a variety of workloads. Experienced cloud solution architects can step in to determine the right configuration for the classes of workloads within your organization.

2. Reserved and Spot Instances

Before you can reduce cloud costs, you must understand AWS pricing models. Each comes with its own advantages and disadvantages, which can significantly affect your monthly bill.

AWS offers pricing options such as:

• Pay-as-you-go
• Reserved instances
• Savings plans
• Spot instances

Reserved instances, for example, are ideal for predictable workloads and come at a lower cost than on-demand instances.

Spot instances are often best for workloads that are not time-sensitive and can be terminated at any point. They are substantially cheaper than on-demand instances.

3. Release Idle Elastic IP Addresses

AWS accounts are allowed up to five elastic IP addresses per region, allowing software and instances to remain available in the event of a failure by automatically remapping IPs to other instances.

However, AWS charges for these elastic IP addresses, even if they are not used or idle.

4. Using Auto-Scaling

Auto-scaling is a way to dynamically adjust the number of instances based on demand, ensuring that you pay only for what you use.

A key benefit of the cloud operating model is that it enables companies to rapidly develop, experiment, and deploy infrastructure. And a best practice of running intelligently in the cloud is to leverage infrastructure as code (IaC) tools such as AWS CloudFormation or HashiCorp Terraform to automate infrastructure provisioning.

This practice not only rightsizes the infrastructure to your latest needs, but it also avoids manual tasks and errors in the process.

The best way to rightsize your cloud infrastructure is to build Continuous Integration and Continuous Deployment (CI/CD) pipelines that fully automate the management process.

5. Data Transfer and Storage Optimization

Reducing data transfer costs and optimizing storage solutions can lead to significant cost savings. To start, using Amazon S3’s lifecycle policies can automatically move older data to cheaper storage options.

6. Reducing Server Costs

Serverless architecture, although initially cost-effective, can become expensive as a company scales. These strategies can help reduce costs:

• Rightsize Lambda functions’ memory configuration.
• Understand the Lambda Concurrency model and be aware of the number and types of concurrent executions in your software.
• Optimize DynamoDB costs by choosing the right capacity mode for your requirements, either On Demand or Provisioned.
• Manage third-party services, such as Auth0. These can often include hidden costs in a serverless architecture.
• Leverage AWS Savings Plan for Lambda.
• Always delete unused resources, including Lambdas.

7. Licensing Assessment

Software license fees can represent a large part of cloud operating costs. Managing and tracking these licenses is difficult when done manually, so it is no surprise that many organizations pay for a significant number of untracked and unused licenses. The goal is to provide the lowest possible total cost to ownership when operating on AWS.

8. Implementing Cost Allocation Tags

Tags help to categorize and track your AWS resources, making it easier to allocate costs to different departments or projects. The goal of tagging is to help you understand why and how your cloud spend is changing. By doing this, you can pinpoint areas in your AWS cost and usage report to reduce unnecessary expenses and maximize profitability.

There are two types of tags: AWS-generated and user-defined cost allocation tags. Both types require activation via the Billing and Cost Management Console.

9. Cost Monitoring and Governance

Utilizing AWS Cost Explorer, AWS Budgets, and third-party tools can help set budgets and monitor expenditures in real-time.

10. Modernization

Modernizing software is one of the most effective ways to dramatically lower the operational cost in the cloud (OPEX). It does, however, require an upfront investment of software development cost (CAPEX).

Modernization is essentially refactoring your software to be more cloud native. Bring technologies such as containerization and serverless architecture to dismantle monolithic applications and expensive EC2s.

Automate the right-scaling of your resources with Infrastructure as Code (IaC) using DevOps CI/CD pipelines to implement Infrastructure as code, automated testing, and monitoring and observability.

Examples of Cloud Cost Optimization

Cloud cost optimization will look different in practice for each organization, but the results are typically significant. Let’s take a look at the benefits seen among some of well-known companies:

• Airbnb achieved a 27% saving in storage cost and a 60% savings in Amazon OpenSearch service cost, two key cost drivers in their platform.
• Working with AWS, Adroll was able to seamlessly scale their infrastructure, better serve their customers around the globe, reduce their fixed costs by 75%, and reduce their operational costs by 83%.
• Lyft was able to cut costs by 40% in six months using AWS Cost Management solutions and by gaining insight into their use of EC2s, S3 storage, and DynamoDB.

Ready to see how you can reduce cloud costs? Partnering with VividCloud is the first step. As a proud AWS Advanced Tier Services partner, we can help you with your cloud cost optimization, migration, and modernization initiatives. We bring the cloud and IoT expertise you need to transform your business.