Top 10 Cloud Cost Optimization Best Practices for 2024

Cloud adoption remains prominent in many business initiatives, even amid global economic uncertainty. In fact, 56% of well-established organizations boosted their cloud investments in 2023. However, despite this widespread adoption, the issue of cloud waste remains prevalent. A staggering 50% of companies continue to deplete their budgets through overprovisioning and retaining idle or underused resources (as illustrated below). 

This avoidable cloud waste also results from the absence of a cloud strategy, improper technology selection, and a lack of proactive cost optimization practices. According to Gartner, 80% of companies unaware of mistakes in their cloud adoption will overspend by up to 50% through the next year. This persistent challenge underscores the importance of making cloud cost optimization a part of your company’s cloud strategy in 2024.

To help you navigate the complex world of cloud cost optimization, we’ve compiled a list of 10 best practices to reduce costs, increase efficiency, and drive better financial outcomes in the cloud. So, let’s jump in.

1. Know Your Cloud Bill

Your cloud bill holds the key to unlocking substantial savings, enhancing resource allocation, and ensuring your organization’s financial health. The main challenge, however, is that various cloud providers use different terminology for identical services. Understanding your cloud bill’s charges can help you identify areas for cost reduction. 

Here are the most common services to keep an eye on: 

Compute costs

These costs typically represent the expenses incurred for the virtual machines (VMs) and server resources you use. The pricing could vary depending on

• Types and sizes of VMs you’re running
• Regional differences
• The use of reserved, spot, or on-demand instances

Over 50% of the State of Cloud Computing survey respondents indicate that their server utilization rate is only 20-40%. Analyzing compute costs can help you identify opportunities to resize or scale down underutilized instances. Additionally, selecting the appropriate instance type and purchasing reserved instances when suitable can lead to significant savings.

Database costs

Provisioning, managing, and utilizing cloud database services can take up a substantial portion of your budget. These costs encompass a variety of factors, including database instances, data processing, and data transfer. 

Some cloud database systems, like MS SQL, require licensing, meaning you must pay additional fees for the software. In contrast, open-source databases charge only for the computing resources the database consumes. But keep in mind that MS SQL offers a wide range of built-in features, whereas with open-source, you may need to rely on third-party extensions (which would require additional charges) or even develop custom solutions.

Storage costs

Storage consumes a solid portion of your cloud budget. Cloud providers typically offer two primary storage options: 

• Object storage — ideal for large volumes of unstructured data
• Block storage — designed for smaller, frequently accessed data

Alongside the choice of storage, factors such as backups, snapshots, redundancy options, and data retrieval and transfer fees can influence your total storage expenses.

Regularly reviewing your storage usage costs allows you to:

• Eliminate unused resources by deleting redundant data
• Archive less frequently accessed data
• Use the appropriate storage class for each data type

To do that, sort your cloud bill by usage patterns and check up on the areas with high storage consumption.

Networking costs

Cloud networking costs can vary a lot depending on

• The amount of data transferred between regions
• Data storage location
• The usage of content delivery network (CDN) services

These costs may account for a significant portion of your overall expenses, especially in scenarios involving massive data transfers, interconnectivity, and global deployments. 

Bandwidth costs

These cloud expenses are directly tied to transferring data in and out of the cloud. Using global traffic management services and adopting CDNs to cache and deliver content closer to end-users can help you minimize data transfer between regions and zones and achieve significant cloud cost savings (we’ll cover this later in the article).

Support costs

Additional fees may also apply depending on your cloud provider and the type of support plan you have. Review your support costs to ensure you are subscribed to the level of support that matches your business needs. Downgrading or upgrading support plans as needed can also help you optimize cloud costs.

Managed services costs

Many cloud providers offer managed services like databases, container orchestration, and serverless computing. These services often have a pay-as-you-go pricing model. Understanding the utilization and cost of these managed services is essential for optimization. 

For instance, some serverless providers have free quotas, making the use free of charge on low environments. But, since charging is based on the duration of code execution, using serverless for applications with long-running processes can cost much more than traditional setups.

Logging costs

Logging is a vital component of monitoring and troubleshooting, and it plays a significant role in maintaining the health and security of your systems. In practice, systems can generate a substantial volume of logs, sometimes even reaching terabytes per month. Reviewing and optimizing your log generation and retention strategy can help ensure the logged information is relevant and save hundreds of dollars each month.

Discounts and savings

Cloud providers often offer various savings programs, such as spot and reserved instances and committed use discounts. Understanding and taking advantage of these programs can lead to considerable cloud cost savings. For example, committing to long-term usage through reserved instances can help you save up to 72% of cloud costs compared to on-demand pricing.

2. Set Cloud Budgets

Setting a realistic cloud budget lets you align your cloud expenses with your company’s financial goals and priorities. To do that right, you should continuously monitor your cloud spending to understand historical trends, patterns, peak usage periods, and areas of overspending. But that’s only the starting point.

Here are some best practices to guide you:

• Involve key stakeholders. Promote communication between engineering leaders, product leadership, and executives to understand cost requirements. Their perspectives on the project’s future features can significantly contribute to setting realistic budgets (e.g., moving from a free trial to an enterprise plan). 
• Develop granular budgets. Rather than having one large budget for all cloud services, break it down into specific categories, such as compute, storage, networking, and individual projects or departments. This makes it easier to track and manage costs.
• Implement alerts and notifications. Most cloud providers offer budget and spending alerts. Configure these notifications to trigger when spending approaches specific thresholds. This will let you step in and take corrective actions on time.

Cloud budgets shouldn’t be static. You must review and adjust them regularly to reflect changing business needs and priorities. So, as your projects evolve, you might need to reallocate budget resources to different areas.

3. Identify Idle and Underused Resources

Overprovisioning is one of the most common sins draining your cloud budget. Keeping resources you don’t use and struggling to downsize when the application demand drops leads to cloud waste and significantly racks up costs. 

CAST AI found that 37% of compute capacity is never used. Common factors contributing to this issue include forgetting to de-provision temporary servers once their tasks are completed or neglecting to remove storage associated with terminated instances. The same study states that identifying and eliminating idle and unused resources can help your company reduce monthly cloud spend by almost 50%.

So, how can you achieve this cloud cost reduction? Here are several tips.

• Use cloud provider tools. Most cloud providers offer tools and services to help you identify idle resources. For example, Microsoft Cost Management, AWS Trusted Advisor, and GCP Cost Management provide insights into underused resources.
• Monitor resource utilization metrics. A sudden drop in metrics like CPU, memory, and network activity may indicate that a resource is no longer needed.
• Implement auto-scaling. It automatically adjusts resource capacity to align with varying workloads.
• Set resource expiry policies. This practice lets you automatically terminate or de-provision resources that have been inactive for a defined period. It’s particularly useful for development and test environments. 
• Establish resource hierarchy. Implement transparent naming conventions and organize resources using tags, groups, or other available sets your cloud provider offers. This approach simplifies the management of multiple interconnected resources, making monitoring, maintaining, and optimizing your cloud infrastructure easier.

Thanks to these actions, you can proactively identify and address the issue of overprovisioning and considerably reduce cloud costs.

4. Avoid Unnecessary Data Transfers

Fact: 91% of organizations are migrating their data within existing cloud platform (between different regions and availability zones) to a new cloud platform or an on-premises solution. Such data movements are often billed separately from other services and can quickly accumulate and grow your cloud bill. 

Here are several tips on reducing unnecessary data transfers and achieving optimization of cloud spend.

• Use content delivery networks (CDNs). CDNs store duplicates of your content on servers located in various geographical locations. They reduce the need for data transfers across long distances by distributing content closer to end-users. 
• Adopt geo-replication strategies. If you need to replicate data for redundancy and disaster recovery, employ geo-replication strategies that keep copies of data in nearby or regionally aligned locations. This will minimize transfer costs while maintaining data availability.
• Implement data archiving and tiered storage. Infrequently accessed data can be archived or moved to lower-cost storage options. This helps you reduce the need for frequent data transfers associated with active storage.
• Employ data compression and optimization techniques. Data deduplication, aggregation, lossless and lossy compression, and other techniques can significantly reduce data storage, transfer, and processing requirements and thus help optimize cloud costs.
• Use dedicated lines. If your company frequently transfers large volumes of data between on-premises data centers and the cloud, consider using dedicated connections like Azure ExpressRoute or AWS Direct Connect. These connections can reduce costs and improve data transfer performance.

Reducing unnecessary data transfers minimizes the amount of information sent over the network, which ultimately trims your bandwidth expenses. Let’s take Azure cloud development, for example. Data entry into Azure data centers is free; however, charges apply when data leaves the centers, considering additional factors in both inbound and outbound data scenarios (refer to the scheme below).

AWS cloud development has its own transfer algorithms and prices. Additionally, it also offers Transfer Acceleration for Amazon S3, allowing faster uploads to and downloads from Amazon S3 buckets.

5. Monitor Cost Anomalies

Sudden spikes in usage or unexplained increases in spending can be signs of inefficiencies, waste, or even security breaches. Implementing automated monitoring and alerting systems, such as Azure Monitor, AWS CloudWatch, or Google Cloud Monitoring, can help you identify and address these anomalies promptly. These systems employ machine learning to identify spending inconsistencies by monitoring your cloud usage patterns and associated costs.

Additionally, you can customize anomaly detection rules to match your specific usage patterns and cost expectations. Various workloads and applications may have different baseline cost behaviors. Custom rules can help you distinguish normal variations from real anomalies.

6. Identify and Minimize Software License Costs

Each cloud provider offers different licensing models for their software, and these models can significantly influence the cost and flexibility of their services. The most common licensing models are:

• Usage-based (pay-as-you-go model). It entails paying for services, features, and cloud resources your company consumes. It requires zero upfront costs and offers the convenience of adjusting usage and costs based on your specific needs.
• Seat-based (pay per user basis). With this approach, you pay for the number of users, regardless of how extensively they use the software or services. This model provides a predictable cost structure but may lead to overspending if you have more seats than you use. 

It’s also important to regularly review licensing agreements and adapt them as your company grows and your needs change. For instance, pay-as-you-go licensing can imply hidden costs when usage exceeds the allocated limits. Here are several tips to prevent such surprises:

• Monitor usage patterns. Track and analyze resource consumption and set automated alerts to notify about the thresholds approaching.
• Review license terms and conditions. Some cloud service providers charge additional fees or penalties when you exceed usage limits. 
• Consider future needs. Analyze your company’s growth and changing demands to anticipate future requirements and upgrade to a more advanced cloud license plan. 

You can also save costs by transferring existing software licenses from on-premises environments to the cloud, a process known as a bring-your-own-license (BYOL) model. However, the possibility of using BYOL depends on the rules in your software license and the cloud provider’s policies. Some licenses may have restrictions or conditions related to using that software in the cloud or require extra fees or modifications.

7. Leverage Load-Balancing

Load balancers are software programs that distribute incoming network traffic or requests across multiple servers or resources. This distribution prevents resource waste and minimizes the need to maintain excess capacity.

Load balancing can significantly optimize cloud costs by routing traffic to the nearest data center or cloud region based on the user’s geographic location. This also reduces latency and improves your software performance.

8. Use Appropriate Storage Options

Cloud providers offer various storage options and typically charge based on:

• Data amount. In general, the more data you store, the more you pay. Yet, some cloud providers offer tiered pricing, where the cost per data unit decreases as your storage volume grows.
• Level of service. High availability, low-latency access, and strong redundancy measures come in a premium package and can significantly increase cloud costs. If your data is less critical and you can tolerate longer retrieval times or less frequent backups, you can opt for a lower level of service, which is usually more cost-effective.
• Storage class. Each class accommodates different performance, durability, and access requirements, which allows businesses to tailor storage solutions to their unique needs.
• Data redundancy. The choice of replication strategy (e.g., single-region, multi-region, or cross-region replication) also impacts storage costs. More extensive replication generally increases costs because it requires storing redundant copies of data.

Periodically reassessing your storage requirements will help you ensure you’re always using the most suitable storage option as your data needs evolve.

Also, it’s worth mentioning that cloud providers like Microsoft Azure and AWS offer tiered storage solutions that automatically move data between different storage classes based on usage patterns. This helps to optimize performance and reduce cloud costs. 

Here is an example explaining Microsoft Azure storage options and their use areas.

9. Save Costs With Multicloud Deployment

A recent Forrester State of Cloud Strategy Survey found that 86% of tech leaders and decision-makers either plan for, use or expand multicloud usage. This is no surprise, as combining multiple providers allows for the most beneficial options under one roof. 

Yet, in small or medium-scale projects, managing multi-cloud deployments can often introduce unnecessary complexity and logistical challenges that may outweigh the potential benefits.

Here’s a comparison table that highlights how single-cloud and multi-cloud deployments can impact cloud costs:

10. Optimize cloud costs at every software development stage

Incorporating cloud cost optimization into the software development lifecycle (SDLC) is crucial to maintain financial stability. Since lower environments typically don’t experience the same high workloads as production, you can implement specific cost-saving measures during development and testing.

Here are several tips for optimizing cloud costs through your SDLC:

• Planning. This stage sets a base for your future software product. Consider practices like prototyping and load analysis to build a system that is horizontally scalable, resilient to load increase, and optimized by cost perspective.
• Development. Set up Infrastructure-as-Code (IaC) CI/CD pipelines that take input parameters specifying resource requirements, such as the number of CPUs, memory size, or service plan type. It helps create various environments with customizable sizes. It’s particularly beneficial since lower-level environments need fewer resources than the production environment. Use automated scripts to start and shut down resources on a schedule or after completing specific tasks.
• Testing. It’s a wise practice to include a performance testing phase in your development process. During this stage, you can assess performance factors like scalability, the maximum number of requests a computing unit can handle, system stability, and the amount of data transferred. This evaluation helps you estimate the cloud costs before moving to the production environment.
• Deployment. Implement infrastructure as code (IaC) and automation tools to provision, configure, and manage resources. Automation reduces the risk of manual errors and ensures that resources are only active when needed.
• Monitoring and maintenance. It’s essential to regularly monitor performance and financial metrics following the release of a new software version. This helps identify potential cost inefficiencies and suboptimal parts of the system, which can be improved and optimized in the next iteration.

This approach will result in notable cost savings over time and help you make cloud cost optimization an integral part of your software development process.

Having explored the ten best practices for efficient cloud cost optimization, it’s clear that managing cloud expenses is a multifaceted challenge that demands vigilance and strategy. However, there’s an operational framework that can bring a comprehensive approach to this endeavor. Let’s discover it.

Using FinOps for Efficient Cloud Cost Optimization

The FinOps (Financial Operations) framework encompasses financial management, resource management, and operational best practices to maximize business value from the cloud. It combines people, processes, and technology to drive financial awareness and accountability and optimizes resources, pricing, and architecture.

FinOps is a cycle process that consists of three phases:

• Inform. The primary focus of this phase is gathering and analyzing data related to cloud usage and expenditures. Key activities include cost monitoring, resource tagging, and forecasting.
• Optimize. This phase aims to identify opportunities for cost reduction and efficiency improvement. This is where you take action to manage and reduce your cloud expenses. Key activities include rightsizing resources, exploring cost-saving options, data transfer optimization, and implementing policies.
• Operate. It focuses on sustaining cost management and optimization so your company can maintain optimal cloud usage and cost efficiency on an ongoing basis. Continuous cost monitoring with periodic reviews is the key activity here. It allows you to adapt the company’s cloud cost optimization strategy to changing requirements, new cost-saving opportunities, and evolving business needs.

As you can see, cloud FinOps is an ongoing iterative journey. Cultivating a culture of cost awareness and actively involving your software development partner are critical factors in ensuring its success. With all these components in place, you can keep cloud spending transparent and ensure cost optimization remains a central focus of your cloud operations.

Summing Up

Rising cloud prices and seemingly limitless data management and storage capabilities can strain effective cost management in 2024, leading to overprovisioning, idle resources, and unnecessary expenses. Implementing cloud cost optimization best practices can help your business improve budget allocation and ensure more cost-effective and sustainable cloud usage.

Making FinOps an integral part of your cloud cost management and monitoring can greatly improve your organization’s financial health and cloud efficiency. FinOps practices involve cost accountability, transparency, and optimization, enabling better control over cloud spending and facilitating informed decision-making. 

At Leobit, we promote a culture of cost-conscious coding and leverage serverless or auto-scaling features when appropriate. We strongly focus on FinOps and incorporate cloud cost optimization services into software development to increase the return on your cloud investments. Contact us to explore cost-saving opportunities to enhance your cloud operations.