What’s the difference between cloud cost rate optimization and usage optimization?

In today's digital landscape, the cloud has become an essential tool for businesses of all sizes. It offers unparalleled flexibility, scalability, and (if used well 🙂) cost-efficiency. However, understanding how to get started with cloud cost optimization and how to prioritize and distribute efforts can be a challenge.

In this blog, we'll delve into the key differences between cloud cost rate optimization and usage optimization, helping you understand how each strategy contributes to your overall cloud cost management efforts. While these terms may sound similar, they refer to distinct approaches to controlling cloud expenses.

The terminology in this article primarily references AWS terms but the concepts discussed apply to all cloud providers.

Cloud Cost Rate Optimization:

Cloud cost rate optimization fundamentally involves identifying and implementing measures to reduce the price per unit of cloud resources consumed.

Key aspects of cloud cost rate optimization include:

1. Reserved Instances and Savings Plans: By committing to a predefined usage volume or duration, businesses can secure lower rates for cloud resources. Providers like Amazon Web Services (AWS) offer Reserved Instances (RIs) or Savings Plans, allowing users to make upfront commitments in exchange for discounted pricing. Levers that influence the saving % are the year of term and payment schedule.
2. Spot Instances: Spot Instances are spare computing resources offered at significantly lower prices compared to on-demand instances. Cloud cost rate optimization involves leveraging Spot Instances for non-critical workloads or instances that can tolerate interruptions. Here you can see current and historical Spot prices.
3. Enterprise Discount Program (EDP): For enterprise companies (what this means varies between geographies) AWS offers “up to a 75% discount compared to on-demand pricing”. This typically involves multi-year commitments and sometimes involves marketing collaboration and exclusivity clauses.

Cloud Cost Usage Optimization:

Usage optimization, on the other hand, focuses on controlling cloud costs by minimizing unnecessary or inefficient resource consumption. It involves identifying wasteful practices, optimizing workflows, and implementing automated solutions to reduce usage and improve resource efficiency.

Key aspects of usage optimization include:

1. Resource Monitoring and Analytics: Usage optimization relies on robust monitoring tools that provide insights into resource consumption patterns. By tracking metrics like CPU utilization, network traffic, and storage usage, businesses can identify underutilized resources and make informed decisions to optimize their usage.
2. Automation and Scaling: Implementing automated processes and scaling strategies allows businesses to dynamically adjust resource allocation based on demand. Autoscaling ensures that resources are provisioned or de-provisioned as needed, minimizing waste and optimizing costs.
3. Application Performance Optimization: Optimizing application performance plays a significant role in usage optimization. Fine-tuning applications, eliminating bottlenecks, and reducing latency can enhance resource efficiency, resulting in cost savings.
4. Resource Right-Sizing: This strategy involves analyzing the resource utilization of cloud instances and downsizing or upsizing them as required. By aligning resource allocation with actual usage, businesses can optimize costs without compromising performance.
5. Eliminate “Zombie” Resources: There’s various waste that builds up over time due to infrastructure changes that leave behind resources that are being paid for but not used. Unattached EBS volumes, unused load balancers, and unused Elastic IPs, among others. This strategy involves seeking and eliminating this waste.

Which should you tackle first - Usage or Rate Optimization?

This is not a trivial question. The unsatisfying but truthful answer is that both rate and usage optimization is an ongoing processes. This also often depends on company culture and agility in acting on cost-saving opportunities.

The benefit of some rate optimization approaches (e.g. RIs, SPs, and EDPs) is that they can provide impactful, zero-engineering-effort savings which means you can implement them quickly.

This said, paying for a committed use of spend that is being wasted is technically lowering your bill but you still potentially have a lot of waste. You don’t want to buy RIs for a bunch of zombie EC2 instances…

If you’re just getting started, ideally you can:

• Do an initial wave of usage optimization to achieve quick wins (eliminate zombie resources, obvious rightsizing, scheduling, etc - what at Cloudthread we’d define as Easy)
• Do a baseline of rate optimization to achieve those savings asap
• Incorporate more involved usage and rate optimization opportunities into your planning
• Finalize your rate optimization coverage
• Have a system in place to consistently surface any cloud cost waste that surfaces as you grow

How can Cloudthread help?

Cloudthread’s focus is on making Usage Optimization for organizations easy.

The platform provides always-on cloud cost waste analytics, aggregating native engine savings opportunities (e.g. Compute Optimizer) and Cloudthread computed savings opportunities (30+ as of June 2023, full list in docs).

But often recommendations aren’t enough, so the platform provides features to convert this opportunity into engineering action and analyze savings initiatives.

Cloudthread then provides reports that give an overview of cost-saving action progress and any new cloud cost waste that is created as you grow.

If you’re interested, we’d be happy to help.