Cloud Cost FAQs: Answers for Tech-Led SMBs

Managing cloud costs can be a game-changer for tech-driven SMBs. With global cloud spending exceeding £480 billion and nearly half of businesses struggling to optimise expenses, understanding and controlling your cloud budget is essential. Here’s a quick overview of actionable insights to help you save money and align spending with your goals:

• Key cost drivers: Compute resources, storage, data transfer, and hidden fees like API calls and idle resources.
• Savings potential: SMBs can cut cloud costs by up to 36% with better resource management, automation, and strategic purchasing.
• Budgeting tips: Allocate 2–8% of gross income to IT, use accurate forecasting methods, and review budgets monthly.
• Cost reduction strategies: Optimise resources, leverage auto-scaling, and track spending with tagging systems.
• AI tools: Use AI-driven platforms for real-time monitoring, automated adjustments, and predictive cost forecasting.

Start here: Audit your cloud expenses, implement tagging to track costs, and automate resource controls. These steps will help you reduce waste and maximise the value of your cloud investment.

Cloud Cost Basics

Main Cost Components

Understanding the main components of cloud costs is crucial for managing budgets effectively, especially for SMBs. Here’s what typically makes up your cloud bill:

• Compute Resources: This covers the processing power and memory needed to run applications. Costs depend on factors like instance types, operating systems, and usage duration.
• Storage Costs: Charges for storing data, which can be broken down into:
  • Active storage (frequently accessed data)
  • Archive storage (rarely accessed data)
  • Backup storage
  • Database storage
• Data Transfer: Often overlooked, this includes:
  • Moving data between regions
  • Transferring data to and from the internet
  • Communication between cloud services

However, additional fees can unexpectedly increase your overall costs.

Unexpected Cost Sources

A study found that 72% of new cloud users in 2022–2023 went over budget, often due to unforeseen data movement charges.

"Moving data off-cloud and accessing it are key costs that go beyond mere storage, and it is these, such as egress costs, that can catch out organisations new to cloud storage."
– Antony Adshead, Storage Editor

Other hidden costs include:

• API Calls: Costs can add up quickly with high-volume requests.
• Idle Resources: Development environments left running after hours can lead to unnecessary expenses.
• Over-Provisioning: Paying for larger instances than required.
• Data Egress: Charges for moving data out of the cloud environment.

It’s estimated that 47% of cloud storage bills come from data and usage fees, including API calls, operations, egress, and retrieval costs.

Payment Options

Choosing the right payment model can help reduce these hidden costs.

To optimise costs, match your payment model to your workload:

• Reserved Instances work best for steady workloads, while Spot Instances are ideal for handling spikes without overspending.
• For Development Environments, automate the shutdown of non-production resources outside working hours to avoid unnecessary charges.

With 93% of organisations planning to expand their public cloud storage in 2024, selecting the right payment model is more important than ever.

Budget Planning

Setting Cloud Budgets

To set effective cloud budgets, start by assessing your business needs and resource usage. Industry benchmarks suggest allocating 2–8% of gross income to IT expenses, depending on your growth goals.

• Baseline Assessment: Begin by mapping your current resource usage and identifying peak periods to create a baseline.
• Strategic Alignment: Align cloud spending with your business goals. As Carolyn Bellisio explains:

"If you manage your public cloud infrastructure like an on-premises data centre, you'll end up spending more money without a doubt".

• Resource Categorisation: Break down your spending into categories like production, development/testing, storage/backup, network transfer, and support/maintenance.

Cost Prediction Methods

Predicting costs accurately is crucial. Use methods like historical analysis, growth-based forecasting, workload modelling, or commitment-based planning to forecast expenses effectively.

"There are no guarantees that cloud computing in any form will save you money… It's a matter of advanced planning and setting realistic expectations".

Budget Review Steps

Regular reviews are essential for keeping spending under control and making necessary adjustments. Vuong Nguyen emphasises:

"Cost optimization is everyone's responsibility".

• Monthly Review: Compare actual spending with projections, check resource usage, identify idle assets, and review reserved instance coverage.
• Quarterly Assessment: Update growth forecasts, evaluate long-term commitments, review storage policies, and ensure tagging compliance.
• Annual Planning: Align spending with business goals, revise reserved strategies, review vendor agreements, and prepare for major changes.

Dividing costs by business unit can improve tracking and accountability, making it easier to manage budgets in detail. This method supports precise cost analysis and better financial control.

Lower Your Cloud Bill in 2024 (5 Cost Optimization Tips)

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Cost Reduction Methods

Building on budget planning and understanding cost drivers, these methods focus on practical ways to save money right away.

Direct Savings Tips

For small and medium-sized businesses, cutting costs quickly can be crucial. In late 2023, 39% of SMBs spent up to £480,000 annually on public cloud services. Using tools from your cloud provider to analyse usage can help you adjust underused resources. For example, Conflux Technologies managed to cut their IT spending by 40% simply by allocating resources more effectively.

Here are two key ways to save:

• Resource Optimisation: Use cloud provider tools to monitor usage and schedule regular reviews. This helps identify and eliminate idle resources.
• Strategic Purchasing: For consistent workloads, consider reserved instances or savings plans. For less predictable needs, spot instances can lower costs by up to 90% compared to on-demand pricing.

These strategies work well alongside dynamic resource management, which we’ll cover next.

Auto-Scaling Benefits

Auto-scaling helps balance cloud costs and service quality by automatically adjusting resources based on demand. A great example is Ula, an Indonesian B2B e-commerce platform. They use ECS for container orchestration, spot instances for cost savings, and reserved instances for backup.

Cost Tracking with Tags

Beyond scaling, tracking spending effectively is another way to stay in control. Walter Derezinski, a Solution Creator, explains:

"Consider cloud tags and labels as essential tools akin to a label maker for your cloud environment. They serve as metadata for everything you manage in the cloud".

Implement consistent tagging policies and automate them to track costs by department or project. This makes it easier to pinpoint where your money is going.

Cost Tracking Systems

Accurate tracking is crucial to maintaining and improving cost-saving efforts.

Key Cost Metrics

To manage cloud costs effectively, keep an eye on these important metrics:

• Resource Utilisation Rate: Keep track of CPU, memory, and storage usage.
• Cost per Service: Break down spending for each service to understand where your money is going.
• Month-over-Month Spending: Compare monthly expenses to spot spending trends.

Setting Up Cost Alerts

Cost alerts help you avoid unexpected charges and stick to your budget. By linking your cloud provider's billing data to your monitoring tools, you can track expenses more effectively.

Here’s how to set up alerts:

• Multi-Level Thresholds: Create alerts that start with early warnings, escalate as you near your budget limits, and send urgent notifications when limits are almost reached.
• Notification Channels: Send alerts directly to team members via email, SMS, or messaging platforms.

These alerts work seamlessly with monitoring tools, offering a clear view of your cloud spending.

Monitoring Tools

Critical Cloud’s AI-driven monitoring platform offers a real-time dashboard, trend analysis, and automated cost reports at the department or project level. The AI reviews usage patterns to suggest adjustments like scheduling changes or resource resizing. Regular monitoring can also highlight unused resources, allowing for resizing and saving money.

This system helps tech-focused SMBs act quickly on data-driven insights, ensuring budgets and optimisation efforts stay on track.

AI Cost Management

With solid cost tracking as a foundation, AI tools take budgeting to the next level, offering more precision and faster decision-making.

How AI Improves Cost Management

Artificial Intelligence transforms how businesses manage cloud expenses by analysing data to uncover inefficiencies and spending patterns. These systems monitor resource use, spotting anomalies and areas for improvement that might escape human attention.

Here’s how AI-driven cost management makes a difference:

• Pattern Recognition: Analyses historical data to pinpoint peak usage times and resource needs.
• Automated Adjustments: Dynamically scales resources in real time based on actual demand.
• Eliminating Waste: Identifies idle or underused resources to cut unnecessary costs.
• Predictive Insights: Offers forward-looking projections based on usage trends.

"AI streamlines cloud cost management by controlling expenses, eliminating waste, and optimising resource use."

AI and Cost Forecasting

AI-powered forecasting helps businesses adjust budgets ahead of time and align spending with future needs. By analysing historical data, these systems predict resource requirements and potential costs.

Key benefits of AI forecasting include:

• Projections for future costs and usage
• Insights into resource utilisation trends
• Analysis of budget impacts
• Automated resource adjustments to prevent overspending
• Better resource allocation strategies
• Identification of ways to save money

With these capabilities, businesses can stay ahead of their financial planning and make informed decisions.

Summary

Here's a quick rundown of the strategies covered and a step-by-step plan to get started.

Key Points Review

Managing cloud costs well can lead to impressive returns. In late 2023, 39% of small and medium-sized businesses allocated up to £480,000 to public cloud services.

Key strategies to focus on:

• Resource Management: Adjust resources for better efficiency using right-sizing and automated scaling.
• Smart Purchasing: Use reserved instances and savings plans to cut costs.
• Monitoring and Analytics: Use AI-driven tools to track spending and predict future costs.
• Resource Tagging: Organise resources for accurate cost tracking.
• Team Awareness: Build a mindset focused on cost efficiency within your team.

Action Steps

1. Audit Your Costs
   Review your cloud spending to find and eliminate unnecessary expenses.
2. Use Strategic Tagging
   Create a tagging system to organise resources by project, department, or usage type.
3. Automate Controls
   Schedule automatic start/stop for non-critical resources and apply auto-scaling policies based on demand.
4. Monitor Costs
   Set budget limits and alerts to stay on top of spending.
5. Train Your Team
   Educate your team on cost-saving tools and strategies to ensure they use resources wisely.

Following these steps will help you build a consistent, data-driven approach to keeping cloud costs under control.