Public cloud has transformed how businesses innovate and scale, but it has also introduced a new challenge: managing costs in an environment that changes by the hour. As organizations grow on Amazon Web Services (AWS), costs can quickly spiral due to complex pricing models, rapidly scaling workloads, and limited visibility across teams.
AWS cost optimization cuts waste while aligning cloud investments with business priorities. By selecting the right pricing model, rightsizing infrastructure, or even building a FinOps culture, you can maximize performance, drive value, and achieve significant cost savings.
In this guide, we’ll explore the key AWS pricing models, the latest native and third-party tools for cost management, and proven cloud cost optimization strategies to keep your AWS bill predictable, efficient, and aligned.
Why Is AWS Cost Optimization Important?
AWS cost optimization is a practice focused on identifying cloud waste, improving cost-efficiency, and increasing the predictability of cloud computing expenses. It involves building cloud-friendly architectures that scale based on demand, improving agility as businesses evolve.
Effective cost optimization empowers businesses to unlock the maximum value of their IT investments and increase cloud ROI. Additionally, the savings unlocked from optimization can be reinvested to fuel innovation initiatives, including artificial intelligence and machine learning (AI/ML) adoption and application modernization projects.
Governance and accountability is another driver for AWS cost optimization. It establishes a shared accountability for spend, preventing shadow IT and uncontrolled usage.
Understanding AWS Pricing Models
AWS offers a variety of pricing models, each designed to help balance cost efficiency, flexibility, and infrastructure control. The right match depends on your workload’s predictability, elasticity, and strategic priorities.
On-Demand Instances
On-demand instances enable businesses to pay for compute capacity as it’s used without any long-term commitments. This is a very flexible pricing model that fits unpredictable workloads that could see seasonal shifts or demand spikes. On-demand pricing can also be good for testing and development environments that may experience usage fluctuations.
Reserved Instances
Reserved instances (RIs) provide significant savings for compute capacity when customers commit to longer-term agreements of one year or five years. The discounts can lower costs up to 72%, so this is a great option for organizations that have workloads with predictable needs.
Spot Instances
With spot instances, customers can pay for unused Amazon EC2 capacity at even steeper discounts compared to reserved instances, up to 90% off. However, these instances can experience interruptions since AWS can reclaim the capacity at any time. The best use cases for spot instances are workloads that can handle some unreliability, such as big data analytics, machine learning tasks, and batch processing.
Savings Plans
AWS savings plans are similar to reserved instances, but instead of committing to a specific instance configuration, customers are committing to a consistent amount of compute spend, regardless of the compute service, instance type, or operating system. This provides greater flexibility while still offering a strong discount for a one-year or three-year commitment. Savings can go up to 66%, or up to 72% for EC2 Instance Savings Plans.
Free Tier
The AWS Free Tier is an opportunity to experiment with Amazon Web Services for six months at no cost. This pricing model equips new customers with $100 in signup credits, plus up to $100 credits for exploring select services. It also includes limited access to 30+ services like:
- Amazon Simple Storage Service (Amazon S3)
- Amazon Relational Database Service (Amazon RDS)
- Amazon Lex, an AI chatbot builder
There are some hidden costs at this free tier for additional capabilities or usage that extends beyond set limits. Currently, over 150 services are paid plan-exclusive offerings, including AWS Data Exchange (for using third-party data sets), Amazon Fraud Detector, and AWS Outposts Family (for running AWS services and infrastructure on-premises).
What Tools Does AWS Offer to Help with Cost Optimization?
There are many effective AWS cost management tools that companies can use to optimize spend. However, native AWS tools like Cost Explorer and Trusted Advisor are among the most popular and commonly used options.
AWS Cost Explorer
AWS Cost Explorer is a visualization and analytics tool that can identify rightsizing opportunities and idle instances for businesses, as well as provide termination recommendations. It allows customers to understand and manage their usage and costs over time by identifying cost drivers, visualizing spending trends, and forming recommendations based on forecasted future expenses.
AWS Budgets
AWS Budgets can assist organizations in creating custom budgets for cost and usage in the cloud. Using this tool, customers can also set up alerts for when spend exceeds set thresholds, either actual or forecasted. Budget types can include usage, cost, coverage from Savings Plans, and utilization of Reserved Instances.
AWS Cost and Usage Reports
AWS Cost and Usage Reports can offer a more granular view of usage, sharing detailed information on each unique charge to find specific cost optimization opportunities. Customers can add cost categories and cost allocation tags to resources and publish billing reports that detail cloud expenses in a way that is most useful to their organization.
AWS Trusted Advisor
AWS Trusted Advisor is an online tool that can offer real-time guidance to customers looking to optimize their cloud environment. The resource can rightsize EC2 instances, find idle resources, and optimize Reserved Instance purchases.
AWS Cost Anomaly Detection
AWS Cost Anomaly Detection monitors your cloud environment and can alert you to unexpected changes in usage patterns or cost spikes. From there, organizations can identify the root cause and address issues to prevent additional overspending. Alerts can be set based on customized anomaly thresholds, minimizing false positives and providing insights on activity that goes beyond expected shifts.
AWS Compute Optimizer
AWS Compute Optimizer uses machine learning to analyze usage patterns and recommend more cost-efficient instance types, including Graviton and burstable instances. It also identifies underutilized Elastic Block Storage (EBS) volumes, Auto Scaling groups, and Lambda functions that could be optimized.
AWS Cost Optimization Hub
AWS Cost Optimization Hub is a centralized hub that consolidates over 18 types of optimization recommendations from Cost Explorer, Compute Optimizer, and Savings Plans into a single interface. This reduces the manual effort of switching between tools and gives IT leaders one place to review and act on savings opportunities.
Third-Party and Multicloud Cost Optimization Tools
While AWS-native tools provide strong visibility and recommendations, many organizations adopt third-party platforms for broader cost governance and multicloud management. These tools can:
- Consolidate spend across AWS, Azure, and Google Cloud into a single view
- Deliver automated rightsizing and policy-driven cost controls
- Provide scenario modeling for budgeting and forecasting
- Offer advanced FinOps dashboards that tie cloud costs to business KPIs for effective business value realization
Popular options like ProsperOps and Apptio Cloudability can support a holistic financial operations (FinOps) culture in which finance, engineering, and business teams share accountability for cloud spend. Third-party tools offer stronger visibility into spend trends and forecasting, as well as actionable recommendations for engineers, enabling more informed decision-making and stronger alignment between business strategy and cloud execution.
8 Strategies for AWS Cost Optimization
Tools are only as good as the strategies that inform their usage. By implementing the following AWS cost optimization strategies, organizations can leave more in the budget for further growth and new business initiatives.
1. Selecting the Right Pricing Models
While on-demand resources can be helpful for unexpected workloads, Compute Savings Plans, Reserved Instances, and Spot Instances can greatly reduce costs associated with usage, and should be implemented where possible. While spot instances do come with a risk of a dramatic cost increase if the price fluctuates with market value, using spot instances and setting a lower price for workloads that aren’t as critical can be a great cost saver.
2. Rightsizing Instances
Rightsizing is when customers match their instance sizes and types with workload performance and capacity requirements at the lowest costs possible. Some rightsizing techniques can include turning off unused instances automatically with a schedule, finding and removing underutilized EC2 instances, and killing unused resources. By regularly analyzing metrics, proactively terminating orphaned resources, and implementing automation wherever possible, organizations can continue to rightsize effectively.
3. Optimizing Storage Costs
Storage can make up a significant portion of cloud spend. Amazon S3 has various storage classes that can be matched with certain data access patterns. For example, you can use:
- S3 Standard for everyday data
- S3 Standard-Infrequent Access for infrequently accessed data
- S3 Glacier for archival data
S3 Intelligent-Tiering can even be used to automatically move data between tiers based on access patterns, allowing for greater optimization without having to manually move anything.
Organizations should regularly review and delete unattached EBS storage volumes not being used. It’s also important to be mindful of data transfer costs. Egress charges, which are imposed when moving data out of AWS, can be particularly costly. Data transfers kept within the same region or Availability Zone can reduce costs, as can compressing data for transfer.
4. Automate Auto Scaling and Scheduling
AWS Auto Scaling adjusts compute resources in an application to minimize costs without sacrificing performance. Dynamic scaling can help organizations pay for the resources they need without over-provisioning. This can also be done on a time-dependent basis. Apply scheduling policies to power down non-production environments after hours or scale infrastructure for seasonal traffic.
5. Implementing Cost Allocation Tags
To track usage and costs in AWS, you can add tags to resources such as S3 buckets and EC2 instances. You can then generate a report to see usage based on these tags. Tying business information to cost and usage data through cloud tagging can help you identify opportunities to add or remove resources.
6. Monitoring for Continuous Improvement
Companies cannot, and should not, take a “set it and forget it” approach when it comes to public cloud. To ensure true AWS cost optimization, organizations need to regularly reassess their AWS architecture, instance usage, and related spend to confirm they are using their resources efficiently.
You can set up AWS Budgets, Cost Anomaly Detection, and CloudWatch alarms to proactively alert teams about spending deviations. Integrate alerts into workflows (Slack, Jire, ServiceNow) for fast remediation.
7. Build a FinOps Culture
Budgeting shouldn’t just be left to IT teams. Everyone in the organization should be part of a FinOps culture that brings together finance, technology, and business to optimize IT costs. All parties should understand cloud economics and be accountable for their cloud costs. Cloud FinOps, paired with resource tagging, can enable shared responsibility and improve an organization’s ability to manage cloud costs.
8. Leverage Third-Party Tools
Third-party cloud cost optimization tools that deliver more advanced reporting capabilities, deeper insights into AWS usage through consolidated dashboards, and recommendations for cost-saving opportunities. The ideal tools should provide cost and usage data, as well as optimization recommendations.
Third-party tools can also have multicloud management capabilities for companies wanting a single dashboard for multicloud scenarios. They can often be more detailed, scalable, and/or customizable.
Prove Your ROI with AWS Cost Optimization Expertise
Beyond monitoring dashboards and cutting unnecessary costs, managing AWS requires a disciplined approach, deep expertise, and ongoing governance. When organizations struggle to dedicate the bandwidth or develop the specialized skillset needed to continuously optimize costs, TierPoint offers the support needed, so businesses can focus on growth.
As an AWS Advanced Tier Managed Service Provider, TierPoint combines certified AWS expertise with proven methods that help clients:
- Identify waste and overspend through detailed assessments, rightsizing, and workload analysis
- Maximize pricing model benefits by applying the right mix of AWS’ main pricing models
- Strengthen cost visibility and accountability with resource tagging, reporting, and FinOps best practices
- Automate cost controls with policies, anomaly detection, and continuous monitoring to prevent budget surprises
- Align spend with strategy by reinvesting savings into modernization, security, and innovation initiatives
With TierPoint, cost optimization isn’t a one-time project. It’s an ongoing practice built into your AWS environment. Start proving your ROI by ensuring every dollar invested in the cloud directly supports your business priorities, from improving agility to funding innovation.
FAQ
To optimize costs in AWS, organizations can rightsize resources to match their actual needs, leverage appropriate pricing models for workloads, and consistently monitor usage to find and mitigate waste. Strong tagging strategies and budgets with alerts can also control spending and provide necessary visibility.
Reserved instances involve specific instance configurations that you can commit to for a one-year or three-year term at a significant discount. Often, discounts can go as high as 75% compared to standard on-demand pricing. For organizations that have predictable, long-running workloads, this can be a cost-effective strategy to include in their overall AWS budgeting approach.
AWS Cost Explorer is a tool available to customers that can help them understand, visualize, and manage AWS usage and costs using customizable reports. Cost Explorer can allow you to more easily rightsize resources, view coverage and utilization for different pricing models, and access recommendations for future purchases that may further reduce spending.