The cloud offers incredible benefits: on-demand computing power, the ability to scale resources up or down as needed and a pay-as-you-go model that promises cost efficiency. However, for the managed service providers (MSPs) who help their clients navigate the cloud, managing these costs can be more complex than it seems.
Without careful planning and effective management, cloud spending can consume a significant part of a company's budget. The good news is that MSPs can help their clients tackle these challenges effectively by implementing cloud cost optimisation best practices.
In this guide, we'll explore the importance of optimising cloud costs, the challenges MSPs face in managing these expenses and the best practices for keeping costs under control. We'll also discuss how proper billing strategies can transform your cloud cost management.
Ready? Let's get started!
Optimising cloud costs is an ongoing process, not a one-off task. It offers numerous short- and long-term benefits, from reducing unnecessary spending to keeping your business competitive. Here are the top reasons why optimising cloud costs is so important for MSPs:
1. Reduce unnecessary expenditure:Without careful monitoring, cloud spending can quickly become an unmanageable drain on your budget. When focusing on cost optimisation, you can identify and eliminate wasteful spending, freeing up funds for critical business areas such as innovation and talent acquisition.
2. Ensure resource efficiencyEffective cost optimisation involves rightsizing your cloud resources. This means using the right amount of resources for your needs. Furthermore, this helps to avoid over-provisioning and paying for idle capacity, and ensures that you only pay for what you use.
3. Achieve budget control and predictabilityAn optimised cloud budget is more predictable, allowing you to accurately forecast your spending. This predictability prevents financial surprises, making it easier to plan strategically and allocate resources in a more efficient way.
4. Improves visibility and transparencyCloud cost optimisation provides detailed insight into where and how your cloud budget is being spent. This transparency improves accountability and helps align technology investments with business goals so that spending supports strategic objectives.
5. Boost profit marginsYou can directly impact your cost of goods sold (COGS) and improve your margins by optimising cloud costs. Lowering COGS leads to higher gross margins, which are vital for funding growth, attracting investors and securing favourable financing terms.
6. Foster a cost-conscious cultureA culture of continuous improvement is fostered by treating cloud costs as a critical metric. When teams understand the financial impact of their decisions, they can make informed choices that reduce costs without compromising performance or innovation. This ongoing attention to cost efficiency encourages smarter cloud usage and supports long-term business sustainability.
Now that you are aware of the importance of optimising cloud costs, let's understand why it is so difficult for MSPs to control them.
According to Flexera's 2024 State of the Cloud Report, managing cloud spend remains a major concern for many organisations, including MSPs. Helping customers control cloud costs is a challenge for a number of reasons. Understanding these challenges is the first step towards managing costs better.
Let's explore the main reasons why MSPs find controlling cloud costs so difficult:
Complexity in billing structure: MSPs often manage a variety of cloud services for their clients, each with its own pricing model and billing structure. There are different charges for different services and resources, and hidden costs such as data transfer fees, storage costs and API requests can be easily overlooked. To fully understand all costs, MSPs need to analyse invoices carefully and regularly.
Multiple cloud services: Many MSPs work with clients who use several cloud platforms, such as AWS, Azure and Google Cloud. Each service has its own pricing model and billing structure, making it complex to track and analyse costs across all services. MSPs need to navigate these multi-cloud environments efficiently to help their clients optimise costs.
Resource waste: It is sometimes the case that cloud resources are left running even when they are not needed, which can add significantly to costs. It can be difficult to find and shut down unused resources without having the right tools in place.
Here are the top 10 best practices to help you optimise costs:
Cloud providers such as AWS, Azure and Google Cloud offer detailed billing reports that can be complex. Regularly reviewing these reports can help you understand where your costs are coming from, such as specific services or applications that are consuming more resources than expected.
Analysis of this data can help you identify and address inefficiencies, avoid paying for unnecessary services, and make informed decisions about whether to scale up or down resources.
Analysis of this data can help you identify and address inefficiencies, avoid paying for unnecessary services, and make informed decisions about whether to scale up or down resources.
Metrics like unit cost (e.g., cost per API call or per user) and idle cost (baseline cost with no user load) help teams understand and manage costs effectively. This approach ensures that cost efficiency is a priority alongside other metrics like performance and uptime.
Offering each team customised data views allows them to make informed decisions. For example, if engineers notice that costs are rising during certain processes, they can examine and optimise these workflows. Conversely, the finance department can use data to project future costs and align them with the company's growth plans.
Right-sizing is about matching the size of your cloud resources to the actual needs of your applications - not over-provisioning. Over-provisioning leads to wasted resources, while under-provisioning can degrade performance. You can ensure that you only pay for what you need by continuously monitoring resource usage and adjusting accordingly.
Cloud provider tools can help by recommending the most cost-effective instance types based on historical usage data.
Data transfer costs can accumulate quickly, especially in multi-cloud or hybrid environments where data is often moved between on-premises systems and the cloud or between different cloud regions. To control these costs, MSPs should minimise unnecessary data transfers and consider using direct connections for large volumes of data transfers.
To control these costs, organisations should minimise unnecessary data transfers and consider using direct connections for high-volume data transfers. Understanding your cloud provider's pricing model and optimising data flow can lead to significant savings.
Cloud providers offer several cost-saving options, such as Reserved Instances, Savings Plans and Spot Instances. As an MSP, it is your responsibility to advise your customers on these options.
Reserved Instances and Savings Plans offer significant savings for predictable workloads, while Spot Instances offer up to 90% discounts for flexible, non-critical tasks. Once you analyse the historical usage and workload patterns, you can recommend the most appropriate cost-saving plans for your customers to achieve significant discounts and predictable cloud spending.
Promoting a cost-conscious culture involves educating employees on the impact of their actions on cloud costs and encouraging them to think about cost efficiency. This can be achieved through regular training, transparent reporting and encouraging cost-saving initiatives.
When teams understand the financial impact of their decisions, they are more likely to take control of cloud spending, leading to a more sustainable and efficient use of cloud resources.
As an MSP, it is essential to manage customer relationships effectively when it comes to cost optimisation. Communicate regularly with your customers about their cloud spend, provide insight into cost-saving opportunities and offer proactive recommendations. Building a strong partnership helps ensure that customers are informed, engaged and empowered to make cost-effective decisions.
Identifying, assessing and monitoring opportunities for optimisation and cost optimisation is time-consuming and labour-intensive. The automation of these processes allows MSPs to quickly identify and respond to unusual spending patterns, for example, suddenly increased resource consumption due to an error or an unanticipated surge in user activity.
Applying the best practices above can help control your costs, but automating and refining your billing processes takes cost management to the next level! Here’s how optimising your billing can make a difference:
CloudBilling addresses all of the above. We help MSPs better understand their cloud costs, identify savings opportunities and manage budgets effectively through accurate and transparent billing.
Book a demo today to start optimising your cloud costs and see the difference for yourself!