How to Optimize Cloud Spend With Reservations and Discounts

Running workloads in the cloud can provide tremendous flexibility and scalability, but it can also lead to unpredictable costs if not managed proactively. Utilizing reservations and discounts are two powerful ways to optimize cloud spending without compromising performance or availability. In this guide, I will provide an in-depth overview of how to leverage these capabilities to reduce your organization’s public cloud expenses.

Why Managing Cloud Spend Matters

With the pay-as-you-go pricing of public cloud platforms like AWS, Azure, and Google Cloud, it’s easy to spin up new resources and services as needed. However, this can result in unoptimized spending if workloads are not sized appropriately or resources are left running when not in use.

Some key reasons why actively managing cloud spend is important:

• Cost visibility – Without proactive management, you may not have full visibility into where cloud budgets are being spent. Uncovering spending inefficiencies allows you to optimize.
• Avoid overspending – Public cloud usage growth often outpaces predictions. Capping overages ensures spend aligns with budget.
• Improved efficiency – Right-sizing workloads, eliminating waste, and leveraging discounts improves cloud cost efficiency.
• Strategy alignment – Managing spend helps ensure cloud usage aligns with long-term business strategy.

Leveraging Reservations and Discounts

Two of the most impactful ways to optimize cloud spend are by using reservations and discounts. Here’s an overview of each:

Cloud Reservations

• Reserve capacity for services like VMs, databases, storage, and analytics for 1 or 3 years.
• Receive a significant discount (up to 72% for AWS) compared to on-demand pricing.
• Payment is made up front for the term of the reservation.
  -Ideal for baseline workloads with predictable and steady-state usage over time.

Cloud Discounts

• Discounts are savings offered for specific usage scenarios – e.g. pre-payment, volume discounts, managed services.
• Discounts range from 5-50% typically.
• Can be applied to many services – VMs, databases, storage, networking, analytics.
• Helpful for obtaining bulk savings on overall cloud spending.

Assessing Workloads for Reservations

When evaluating which workloads are good candidates for reservations, look for these key characteristics:

• Steady-state usage – Consistent, predictable usage without spikes.
• Persistent workloads – Workloads that will run steadily for 1-3 years.
• No immediate plans to re-architect or replace them.
• Non-time bound – Not limited to specific times of day, days per week, or months per year.
• Non geo-specific – Not restricted to specific regions or zones.

For workloads with variable usage, on-demand pricing likely makes more sense.

You can use cost management tools to analyze usage history and trends to identify steady-state workloads.

Strategies for Optimizing Reservation Usage

To maximize the value of reservations, consider these strategies:

• Purchase for entire workload – Buying reservations to cover the full capacity helps boost utilization.
• Re-assess frequently – Check utilization regularly to avoid over-provisioning.
• Allow sharing – Enable sharing reservations across accounts/groups.
• Use automation – Automated tools can help right-size and purchase reservations.
• Leverage spot instances – Supplement unused reservation capacity with discounted spot instances.

Key Steps for Purchasing Reservations

Follow these steps when procuring and managing reservations:

1. Evaluate workloads – Identify steady-state resources that are good fits for 1-3 year reservations.
2. Estimate discounts – Use cost management tools to estimate potential savings from reservations.
3. Determine durations – Choose 1-year or 3-year terms based on workload lifespans.
4. Check for unused RIs – Verify you don’t already have discounted reserved capacity available.
5. Purchase reservations – Use consolidated billing and Enterprise Agreements to maximize discount opportunities.
6. Monitor utilization – Track utilization regularly to ensure reservations are being fully leveraged.
7. Adjust as needed – Re-evaluate sizing and rebalance reservations across accounts.

Strategies for Maximizing Discounts

Some key ways to maximize cloud discounts include:

• Consolidated billing – Combine accounts under a payer account to maximize volume discounts.
• Committed use discounts – Pre-purchase capacity for deeper price reductions.
• Managed services – Leverage managed services to reduce labor costs for maintenance/support.
• Spot/preemptible instances – Use discounted short-term instances to supplement steady-state capacity.
• Dev/test environments – Optimize dev/test resources and lifespans to avoid waste.
• Third-party tools – Use cost management tools to identify optimization opportunities.

Getting Discounts for AWS

Here are some specific discount programs and purchasing options available for AWS:

• Reserved Instance Utilization – Receive additional discounts for high RI utilization.
• Savings Plans – Commit to usage level for discount regardless of actual usage.
• Enterprise Agreements – Multi-year agreements with discounted rates.
• Consolidated Billing – Single payer account for volume discounts across multiple accounts.
• AWS Marketplace – Get discounted software from software vendors.

Thoroughly evaluate discounting and agreements to ensure they align with your workload strategies and cloud initiatives.

Optimizing Over Time

Here are some tips for continuously optimizing your reservation and discount usage over time:

• Evaluate on an ongoing basis – Check utilization, resize if needed, and rebalance across accounts.
• Automate right-sizing – Use automated tools to optimize reservation quantities.
• Monitor new service discounts – Check discounts when new services are launched.
• Evaluate agreements annually – Reassess Enterprise Agreements and Savings Plans yearly.
• Delete idle resources – Monitor and terminate resources not in use.
• Share across accounts – Maximize the use of reservations by sharing them broadly.

Key Takeaways

• Reservations and discounts can significantly reduce steady-state cloud costs.
• Analyze cloud spend data to identify savings opportunities.
• Choose the right reservation terms and sizes based on stable workload requirements.
• Combine discounts and reserved capacity to maximize savings.
• Continuously monitor and optimize reservations and discount utilization over time.
• Automate reservation management tasks to maximize efficiency.

Thoughtfully leveraging reservations and discounts allows organizations to optimize cloud spending without impacting performance or availability. Dedicate sufficient technical resources to realize the full cost savings potential.