Cloud Economics: Cost of Cloud Services Explained

Sep 13th, 2022
Cloud Economics: Cost of Cloud Services Explained
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Is your cloud bill one of the biggest business expenses and also one of the hardest to manage? With FinOps Dashboards, it doesn't have to be that way.

A SaaS company's cloud infrastructure is usually its second highest expense after manpower. Now, that fact would have you think most companies are in control of their cloud spending, but that's rarely the case.

Sure, somebody might sift through Excel sheets once a month trying to figure out where the money goes and why, but that's usually a response to one of the following events: 

- They're trying to unravel a technical debt that is eating away at the company margins.

- There's a $300,000 bill from AWS EC2 and no one knows what part of that bill goes into powering the product.

- An unexpected cost spike has caught the attention of the CTO/CFO.

All of this is to say that cost should never become an afterthought. Carmakers talk about the cost of raw materials before building their vehicles. Why aren't companies discussing different price points at which they can build apps?

Using FinOps to Promote Shared Ownership of Cost

In recent years, a new framework called FinOps has emerged to help teams make a cultural shift towards financial accountability. FinOps advocates data-driven spending decisions and has six key principles:

  • Teams need to collaborate
  • Everyone takes ownership of their cloud usage
  • A centralized team drives FinOps
  • Reports should be accessible and timely
  • Decisions are driven by business value of cloud
  • Take advantage of the variable cost model of the cloud

At Finout, we're building immersive dashboards to let FinOps teams take control of their cloud costs.

The idea is simple. Show a clear overview of all the cloud services a company is paying for and let everyone slice and dice this data down to the smallest possible units. From the cost of each pod in AWS to the price of an individual Snowflake query. 

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Once teams have granular visibility of their spending, let them build custom dashboards to track things that matter to them. They can then optimize cloud spend by answering key questions, such as:

Are We Running Within Budget?

Imagine you're working in a machine learning team that's experimenting with a new tool to give the business a unique competitive edge. Let's also say you were given a weekly budget of $1000 to launch your infrastructure on AWS.

You will care on a daily basis whether you're sticking to your budget. So you create a dashboard that lets you monitor EC2 spending and sends a Slack message if your usage exceeds $1000. Likewise, you're also able to spin up a new instance if you find that you've been underspending.

Where Does it Make Sense to Reduce Spending?

Now let's take on a role of a product owner. You might discover a feature that is responsible for a high percentage of the overall spend but a small chunk of revenue.

If there's no reason to keep the feature running, you can deprecate it to reduce spending. Besides immediate cost savings, you're now creating a competitive culture where teams aim to be the best in boosting the spend-to-income ratio.

How Much is this Customer Costing us?

Knowing the price you pay to support a particular use case lets you work out who your most profitable customers are. These are invaluable insights that can steer key product development, sales, and marketing decisions.

Before Hunters, a cybersecurity company, came to Finout, no one knew which customer was responsible for what charges on their monthly cloud bill. After the implementation, the team was able to monitor changes in customer usage in real-time, ensuring that any spikes in spending are based on customer or business needs.

"When onboarding a new customer, I’m calm as I can see exactly how much they cost me in real-time and understand what’s the best pricing offer I can give them. There isn’t anything like that in the market.” Tomer Kazaz, Hunters’ Co-Founder and CTO, said.

Getting a Grip on Your Cloud Spending

With cloud costs set to constitute most of IT expenses by 2025, it's important that companies start taking heed of their spending.

The right place to start is with your culture. Making a shift towads FinOps requires a shared willingess to improve profit margins and make data-driven business decisions.

Finout is the only tool on the market that lets teams build their own dashboards for cloud cost management, and it's by far the easiest and most intuitive to use.

See it in action with yourself — book a demo with one of our FinOps Certified Professionals.

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