By default, all AWS services are available on-demand and cloud users pay a monthly bill for all services used. But what happens when your AWS environment gets more complex? When you add more instances? The on-demand pricing model becomes expensive, and it’s time to reconsider how you’re utilizing AWS cost optimization techniques - especially with your EC2 budget.
One component of the AWS cost optimization pillars is choosing the right pricing model based on the predictability of your workload - and this is where Reserved Instances comes into play. EC2 instances are the foundation of AWS environments. When you have a good amount of predictability, you can save specifically on EC2 usage costs through an Amazon billing discount called Reserved Instances (RIs) applied to the use of On-Demand Instances in your account. The more Reserved Instances you purchase, the more you save through volume discounts - up to 72% in return.
In this article, we will outline the four elements that determine the pricing and discounts of a Reserved Instance, including:
Let’s discuss the two types of EC2 Reserved Instance offering classes, Standard and Convertible. Both require a one- to three-year commitment and provide discounts, but there are some key differences: modification vs. exchangeability. A Standard Reserved Instances allows you to set and modify the Availability Zone, scope, networking type, and instance size. A Convertible Reserved Instance allows you to exchange one for another with a different configuration (like instance family, operating system, and tenancy).
How do you know which Reserved Instance payment option to choose for your AWS environment? Let’s dive into the three payment options for EC2 Reserved Instances, whether Standard or Convertible: no upfront, partial upfront, and all upfront. These upfront payment options will determine your level of upfront commitment in exchange for a higher or lower discount.
The first thing to note is that pricing for Reserved Instances is determined by four attributes: instance type, region, tenancy, and platform. Next, you need to understand the three payment options for EC2 Reserved Instances, found in the AWS Management Console. Reserved Instances with a higher upfront payment will yield higher discounts.
When choosing between no, partial, and all upfront payment options for EC2 Reserved Instances, you must first consider the following elements:
It’s worth noting that when Reserved Instances expire, you will be charged On-Demand Instance rates. To avoid this change, you can queue a Reserved Instance for purchase up to three years in advance. You can also set up billing alerts so that you’re informed of when your bill exceeds a defined threshold.
Savings Plans are one pricing model that makes it easy to predict your AWS spend, offering discounts on services like EC2 in exchange for a usage commitment. To begin calculating costs, go here.
Is your current cloud cost observability platform giving you the insights you need? For true AWS cost optimization, you must understand Reserved Instances and how they factor into your EC2 spend. At Finout, we want you to know exactly where your cloud budget is being spent and the return on investment it brings. Our cloud cost observability platform provides total visibility into your cloud costs to reveal opportunities for optimization and drive informed, data-driven decision-making among engineers and finance leaders alike. Contact us today to embrace the FinOps model and take control of your cloud spend.