The DevOps Guide to Understanding AWS EC2 Pricing and Reducing Costs

Navigating the world of AWS EC2 pricing can be a daunting and time consuming task for even the most seasoned DevOps professionals. With various pricing models, instance types, and cost optimization strategies to consider, getting a firm grasp on your AWS expenses is crucial.

In this comprehensive guide, we will explain AWS EC2 pricing and provide you with practical tips and best practices to help you manage and reduce your costs.

Key Takeaways:

1. AWS EC2 pricing models: Such as On demand Instances, Reserved Instances, Savings Plans, Spot Instances and Dedicated Instances. Understanding these models can help you select the most appropriate option that results in significant cost savings.
2. Factors affecting EC2 costs: include instance size and type, region of deployment, generation of instances used and operating systems run on instances.
3. Cost Optimization Approaches: Avoid common EC2 cost pitfalls by implementing governance policies, regularly monitoring and analyzing EC2 usage patterns and associated costs, and identifying potential areas for optimization.
4. Best Practices to Optimize EC2 costs: Apply best practices for reducing AWS EC2 costs, such as resizing and optimizing instances, scheduling instances to run only when necessary, using Spot Instances for non-critical workloads, purchasing Reserved Instances, utilizing Savings Plans, and leveraging Auto Scaling.

Understanding AWS EC2 Pricing

AWS EC2 pricing models vary based on instance types, regions, and usage patterns; it is essential to understand the different pricing models before managing AWS costs.

Different Pricing Models And Their Features

When it comes to AWS EC2 pricing, understanding the various pricing models and their features can help you select the most appropriate options that can result in significant cost savings. Here is an overview of the different AWS EC2 pricing models and their key features:

By understanding and evaluating these different pricing models, DevOps teams can make informed decisions when choosing the best pricing options for their specific workloads and requirements.

Calculating AWS EC2 Costs

Calculating AWS EC2 costs can seem daunting at first, but by understanding the various factors that contribute to your overall spend, you can effectively manage and reduce those expenses. Here's a breakdown of essential elements to consider when calculating AWS EC2 costs:

1. Instance Type: The cost depends on the instance type (for example, c6a.xlarge or r6i.large), which determines the specific combination of CPU, memory, storage, and network performance.
2. Region: Different regions may have varying prices for instances due to data center location and local infrastructure costs.
3. Operating System: Prices also vary depending on the operating system that runs on your instance—AWS and Open source Linux distributions are cheaper than RedHat supported or Windows-based systems.
4. Pricing Model: Choose between different pricing models like On-Demand Instances (pay as you go), Reserved Instances (long-term commitments with discounts with flexibility), Spot Instances (bid for unused capacity), and Savings Plans (strict commitments with discounts).
5. Storage: Consider costs related to Elastic Block Store (EBS) volumes attached to your instances; remember that instance-attached SSDs, for high I/O applications, have additional charges.
6. Data Transfer: Outbound data transfer from your instance could affect your overall cost; note that inbound transfers from the Internet are free in most cases.
7. Additional Services: Using features like elastic IPs or Elastic Load Balancing will increase the EC2 cost due to their associated charges.

Bonus Tip:

One useful tool offered by Amazon Web Services (AWS) is the Pricing Calculator. This tool allows you to model various scenarios based on your unique use case and create a detailed cost estimate for each service utilized.

Strategies To Control Your AWS EC2 Costs

Implementing cost governance policies and regularly reviewing usage and costs are just a couple of the best practices outlined in this guide to help you reduce your AWS EC2 expenses.

Monitoring Usage And Cost Patterns

To effectively optimize your AWS EC2 costs, monitoring usage and cost patterns is crucial. This helps you identify any unusual behavior or spending, and take action to mitigate it. Here are some tips for monitoring usage and cost patterns:

1. Learn and use AWS Cost Explorer to understand your overall spending across different services, including EC2.
2. Utilize cost allocation tags to identify which resources are costing you the most money.
3. Set up billing alerts so you're notified when your projected spend goes beyond a certain limit.
4. Regularly reviewing your Reserved Instances (RIs) and Savings Plans (SP) utilization is essential for optimizing your AWS EC2 costs. By analyzing usage patterns, identifying underutilized resources, and adjusting reservation coverage accordingly, you can ensure that your reservations align with your actual needs.
5. Leverage automation tools like AWS Trusted Advisor to receive recommendations for reducing costs based on best practices.

By keeping a close eye on usage and cost patterns in real-time, DevOps teams can better manage their EC2 instances and optimize their cloud costs effectively over time.

Setting Up Budgets And Alerts

Setting up budgets and alerts is one of the best practices for managing AWS EC2 costs. Here are some steps to follow:

1. Use AWS Budgets: AWS Budgets help track, manage, and optimize EC2 costs by sending alerts via email or SMS when you exceed budget thresholds.
2. Set automatic alerts - Set budget threshold alerts that will notify you when you're reaching or exceeding your predefined limit.
3. Monitor your progress - Review budget reports regularly so you can identify areas where cost savings can be achieved.

By following these steps, DevOps professionals can stay within budget while still taking full advantage of the benefits offered by AWS EC2. Additionally, using a service like Automate from Strategic Blue will give you complete transparency into how we optimize your EC2 usage without having to do it yourselves. Sit back and watch us save on your behalf.

Implementing Cost Governance Policies 

To ensure that your AWS EC2 costs are managed effectively, it's important to implement cost governance policies to provide visibility, allocating costs to business units and technical teams. Otherwise known as FinOps, Here are some ways to do so:

1. Establish a clear cost allocation scheme: It's important to be able to track which teams or departments within your organization are responsible for which costs. This can help you identify areas where costs can be reduced and allocate resources more efficiently.
2. Set up usage limits and alerts: By setting usage limits for your AWS resources, you can prevent overutilization which could drive up costs. Additionally, you should establish alerts to notify you when usage exceeds expected levels.
3. Separate workloads belonging to different cost centers using Accounts for a 100% accurate cost allocation. Accounts are the primary route for separating costs, and can be used to separate environments and application groups.
4. Use tagging: Tagging is an essential aspect of AWS cost governance as it allows fine-grained resource allocations to be tracked easily across different services and accounts.
5. Define AWS Cost Categories for automatic rule based cost allocations, based on Accounts, Services and Tags.
6. Implement security controls: Security is crucial when implementing cost governance policies. Make sure that security groups and access control lists (ACLs) are set up correctly to minimize risks or unauthorized spend.
7. Regularly review usage patterns: Continuously monitor your workloads' resource utilization patterns so that any unusual spikes in usage can be quickly identified and addressed before they lead to unexpected charges.
8. Use automation (Infrastructure as Code) where possible: Automation can go a long way in ensuring consistent management of AWS resources while minimizing the risk of human error.

By implementing these cost governance policies, organizations can streamline their operations, reduce their overall cloud spend, and maximize return on investment from their AWS EC2 instances.

Regularly Reviewing Usage And Cost

Regularly reviewing your AWS EC2 usage and cost can help you identify potential savings opportunities. By monitoring usage patterns, you can determine which instances are being underutilized and either stop or rightsize them. For example, if you notice that a certain instance type is consistently driving up costs, you might consider switching to a different instance type or purchasing reserved instances for predictable workloads. Similarly, by regularly checking AWS Cost Explorer, you can set budgets and alerts to stay on top of your spending and ensure that unexpected charges don't catch you by surprise.

Best Practices For Reducing AWS EC2 Costs

Learn how to optimize your AWS EC2 costs by resizing and optimizing instances, using spot instances for non-critical workloads, purchasing reserved instances or utilizing savings plans, and implementing auto scaling. These powerful strategies can help you reduce cloud bills while still ensuring optimal performance.

Resizing And Optimizing Instances

To reduce AWS EC2 costs, resizing and optimizing instances is critical. Here's what you need to know:

• Consider changing your instance sizes to match your workload requirements. Rightsizing can lead to reduced costs by matching workloads with appropriately-sized instances. Use rightsizing recommendations in AWS Cost Explorer to identify opportunities to downsize or terminate instances that are underutilized. For example, moving from a 4xlarge to a 2xlarge will divide the rate by two.
• Utilize the Amazon EC2 Auto Scaling feature to manage your resource needs efficiently. Scaling up and down based on demand helps avoid overprovisioning and reduces unnecessary fees.
• Review the utilization metrics in detail using AWS CloudWatch Metrics. This service provides detailed information on CPU usage, network utilization, disk performance, and more, allowing you to make data driven decisions for optimizing instance performance while minimizing costs.

Remember that resizing and optimizing instances is an ongoing process requiring regular monitoring of usage patterns and performance data. Handling this methodically will help you control AWS EC2 costs without sacrificing application performance.

Scheduling Instances

With AWS Instance Scheduler, you can easily schedule start and stop times for your instances, ensuring they run only when necessary. This does not only pertain to non-production, even production instances might have natural windows they can be shut down. One of the easiest ways to save money is by turning off instances when they are not being used.                 For example, you can schedule instances to automatically stop outside of working hours, resulting in substantial cost savings. By leveraging AWS resource tags and Lambda functions, the Instance Scheduler efficiently stops and restarts instances based on your defined schedule. You can configure notifications and logging using Amazon SNS and CloudWatch. The solution can be easily deployed using a CloudFormation template, with configuration managed through a DynamoDB table. AWS Instance Scheduler provides flexibility, control, and significant cost savings for optimizing EC2 utilization.

Using Spot Instances For Non-Critical Workloads

Another approach to control AWS EC2 costs is by using Spot Instances for interruptible non-critical workloads. Spot instances are excess capacity that Amazon offers at a significant discount, with prices typically 70% lower than On-Demand instances. While these instances can be interrupted when AWS needs the capacity back, they offer an opportunity for considerable cost savings. DevOps teams can use Spot Instances for non-critical workloads such as batch processing or testing environments where interruptions won't cause any significant disruption to business operations. You could also utilize tools like AWS Auto Scaling with Spot Fleets which helps maintain application availability by automatically scaling spot fleet capacity in proportion to demand while minimizing cost.

Purchasing Reserved Instances

Reserved Instances are an excellent way to reduce your Amazon EC2 costs significantly. Essentially, purchasing reserved instances means committing to a certain instance configuration (type and region) for a 1-year or 3-year term with billing discounts applied to running On-Demand Instances within that configuration. For example, if you have a predictable workload that doesn't fluctuate much throughout the year, purchasing reserved instances can provide substantial long-term cost savings. Convertible RIs are the key to even greater flexibility, allowing customers to modify their instance attributes, such as instance size or region, over time, providing them with the ability to adapt to changing workload demands.

Utilizing Savings Plans

Another effective strategy for controlling AWS EC2 costs is by utilizing Savings Plans. This flexible pricing model can provide up to 72% savings on AWS usage compared to On-Demand prices. For instance, if your organization has predictable compute needs and can commit to using a certain amount of compute hours per month over the next year or three years, then you may find significant cost savings by purchasing an appropriate Savings Plan compared to using On-Demand instances. The Active Savings Plans are automatically applied to eligible AWS usage and reduce your bill accordingly and can be used across multiple accounts within an organization.

Utilizing Auto Scaling

One effective strategy for DevOps teams to control their AWS EC2 costs is by utilizing Auto Scaling. By setting up dynamic scaling policies, you can automatically adjust the number of instances running in response to changes in demand for your application. For example, let's say you're running a web application that typically experiences high traffic during specific times of the day. With Auto Scaling, you can configure policies to scale out your compute capacity during those peak hours and then scale back down when traffic subsides. It's worth noting there are no additional charges for using AWS Auto Scaling. You only pay for the Amazon CloudWatch monitoring fees and AWS resource usage required by your applications.

License management

When using Windows or other licenced operating system or databases in a high persistence mode, it may be more cost effective to purchase the licenses and support directly from the vendor. You can then use bring-your-own-license (BYOL) EC2 instances to reduce your overall cost of service.

Common AWS EC2 Cost Pitfalls To Avoid

Avoid common AWS EC2 cost pitfalls by implementing cost controls, regularly reviewing usage and cost, and avoiding overutilization of resources.

Overutilization Of Resources

To avoid overutilization of resources and optimize costs, you should regularly monitor your usage patterns and adjust your resource provisioning accordingly. You can also use AWS tools like Auto Scaling to automatically adjust capacity based on resource demands. Additionally, implementing policies and guidelines around resource utilization can help prevent wasteful spending.

Failure To Set Up Cost Controls

One of the most common mistakes that can lead to ballooning AWS EC2 costs is failing to set up adequate cost controls. For example, without establishing budgets and alerts, it's easy for team members to inadvertently spin up instances with high compute power and high cost or keep low-utilization ones running unnecessarily long. To avoid these pitfalls, it's crucial for DevOps teams to establish clear guidelines around managing AWS EC2 usage and spending. This may involve creating automated workflows that flag abnormal utilization patterns or unauthorized resource requests.

Lack Of Cost Optimization

Lack of cost optimization is a common pitfall that can lead to overspending on AWS EC2. This occurs when users fail to review usage patterns regularly and take steps to optimize their resources. One effective strategy for optimizing costs is using Reserved Instances (RI) and Savings Plans. They offer significant discounts on hourly rates compared to On-Demand instances, allowing users to save up to 70% of the total EC2 cost. Another way is by right-sizing instances, which involves analyzing CPU utilization over time and selecting an appropriate instance type that matches the workload requirements while reducing unnecessary costs. To prevent lack of optimization in your AWS EC2 environment, you should monitor usage closely and implement governance policies such as setting up budgets and alerts through the AWS Cost Explorer tool.

Conclusion And Final Thoughts

In conclusion, understanding AWS EC2 pricing and controlling cloud costs can be a daunting and very time consuming task for DevOps teams. This is where Strategic Blue can take the burden of commitment management with our service Automate, we can save up to 50% on your cloud spend giving you Reserved Instance and Savings Plan savings without the management overhead or the constraints of standard 1- and 3-year commitment terms. We’ll release your time and money so that your team has the freedom to focus on priorities like innovation, growth, or other areas of cost optimization. This complete guide has covered all aspects of AWS EC2 pricing, including different pricing models, best practices for cost reduction, common pitfalls to avoid. By implementing these strategies and tools like AWS cost explorer and data transfer pricing insights, businesses can optimize their cloud spending while still enjoying the benefits of cloud.