AWS Savings Plans – Can You Reduce Your Cloud Costs Further?

Committing to an AWS Savings Plan is like walking a tightrope in your cost optimization efforts.

AWS Savings Plans – Can You Reduce Your Cloud Costs Further?

Every hour that your team uses fewer cloud resources than the contracted amount is an hour of lost value. And if you approach it carefully and end up under-committing, you’ll wind up paying for the resources your team needs in the highest AWS price tier.

Luckily, automated rightsizing and cloud optimization offer a way out. 

Keep on reading to find out how you could eliminate the effort around AWS Savings Plans and reduce your cloud bill even more.

The Catch-22 of AWS Savings Plan

To understand the tricky nature of AWS Savings Plans, you need to know how they work.

You buy Savings Plans based on hourly commitment. AWS uses the Cost Explorer to automatically calculate how that commitment will look like as a monthly charge on your AWS bill.

Here’s an example:

Your On-Demand monthly bill for one EC2 instance is $2,000. Let’s say that the Savings Plan combination of term and payment options gives you 30% savings. Then the recommended commitment will be c. $1.92 per hour – or $1,400 per month.

Problems begin when the hourly resource usage of the specific EC2 machine families you’re using starts to fluctuate. 

If you commit to more resources than you need, every hour your teams use less than the committed level is a waste of some of the value you paid for. If you under-commit to a Savings Plan and constantly go over it, you’ll end up paying for extra resources in the highest pricing tier, On-Demand. 

When using the AWS Savings Plan, you still get a discount on the cost of whatever EC2 instances your teams provisioned. If you over-provision an EC2 instance, you won’t be taking full advantage of the Savings Plan discount program.

And unlike Reserved Instances, you can’t resell the capacity purchased via AWS Savings Plans in the AWS Marketplace. That’s why it’s smart to buy Savings Plans incrementally. This helps to avoid over-committing to more resources than your company gets to use each month. 

I shared some more insights about these two AWS offers in this article: Do AWS Reserved Instances and Savings Plans really reduce costs?

Forecasting cloud costs is hard

AWS Savings Plans are by no means easier to manage than Reserved Instances. To reap the full benefits of them, you need the same skillset and toolkit for forecasting your AWS costs. 

Savings Plans are a great option for accounts where you’re able to predict a minimum amount of usage for the entire duration of the commitment period (one or three years). If you’re dealing with an application that has an unpredictable baseline, it’s a good practice to start by gathering usage data and then gradually committing to Savings Plans.

The above might sound straightforward, but imagine doing that at the scale of the entire enterprise. 

Large organizations may easily end up investing a lot of time and effort into the planning and procurement of Savings Plans

  1. Multiple project or application teams need to provide an estimate of how many compute resources they will require in the upcoming period. 
  2. DevOps and/or FinOps teams then need to review these plans and confirm that the planned projects actually require the requested resources. 
  3. Finally, the finance team needs to go over the specific solutions like Savings Plans and make sure that the reserved capacity matches the requirements (and won’t result in over- or under-committing).

Much of the above requires going over separate spreadsheets, reviewing historical cloud usage, and carrying out complex forecasting of the expected compute capacity needs.

If you’re running on AWS Savings Plan right now, you’ve probably done most or all of these tasks. 

Is there a way to save up even when you’ve already committed to a certain level of resource usage? There is, and it starts with rightsizing.

AWS Savings Plan won’t optimize your cloud bill on its own

Savings Plans can help to reduce your AWS bill, but you’re still the one in charge of infrastructure optimization.

That’s why rightsizing is such a critical initiative. And if you’re running a large cloud environment, you need a solution that automates rightsizing tasks for you.

Tracking down which resources are running, in which families, and which teams own them are all time-consuming tasks. And trying to make sense of all the 400 EC2 instances AWS offers (together with their pricing schemes) is no small feat. And it might take you days or weeks to analyze your inventory and utilization to learn which instances can be downgraded. 

An AI-based cloud cost optimization solution like CAST AI can quickly identify underutilized pieces of your infrastructure and downgrade or terminate assets without you having to lift a finger.

Using Savings Plans with Amazon EKS? There’s a way to cut more of your bill

This won’t get you out of your contract, but it’s the #1 option to get more out of your Savings Plan if you’re running EKS clusters.

You can get a free Savings Report to see how much you could potentially save as well as actionable suggestions to do so.

And if you want to free your team to focus on other tasks than cost optimization, there’s also the automated version. The tool will keep on optimizing your setup for optimal cost and performance automatically and you will get more out of your savings plan.

Get your free
Savings Report

Takes under 5 minutes to run,
no credit card required


FAQ

What are AWS Savings Plans?

Compute savings plans provide lower prices on Amazon EC2 instance usage, regardless of instance family, size, OS, tenancy, or AWS Region. This also applies to AWS Fargate and AWS Lambda usage. SageMaker savings plans provide you with lower prices for your Amazon SageMaker instance usage, regardless of your instance family, size, component, or AWS Region.

Once you commit to a plan, your price will stay the same through the plan term. You can pay for your commitment using the All Upfront, Partial Upfront, or No Upfront payment options.

How do AWS Savings Plans work?

Amazon Web Services includes different pricing models for its cloud computing services. One such model is Savings Plan, which offers lower prices compared to On-Demand pricing in exchange for a specific usage commitment for a one or three-year period.

Customers can sign up for term plans in AWS Cost Explorer and manage them by taking advantage of recommendations, performance reporting, and budget alerts.

Savings Plans has two steps: customize your Savings Plans recommendations based on your requirements and purchase a plan. The recommended hourly commitment is calculated based on historical On-Demand usage and your choice of plan type, term length, and payment option.

Which AWS services are eligible for a compute Savings Plan?

Compute Savings Plans provide discounted pricing for usage across Amazon EC2, AWS Lambda, and AWS Fargate. The EC2 Instance Savings Plans apply to EC2 usage, and Amazon SageMaker Savings Plans apply to Amazon SageMaker usage.

What is the difference between AWS Savings Plans and Reserved Instances?

Reserved Instances allow you to buy capacity upfront in a specific availability zone for a much lower price than On-Demand. Expect to commit to a specific instance or family – you can’t change later, even if your requirements evolve.

AWS Savings Plans make you commit to using a specific amount of compute power (measured in dollars per hour) over the period of 1 or 3 years. All usage is covered by the Savings Plan and anything extra is billed at the On-demand rate. Unlike Reserved Instances, you don’t commit to specific instance types and configurations (such as OS or tenancy).

AWS Savings Plans vs. Reserved Instances – which one should you choose?

Reserved instances lock you into a specific instance type for 1 or 3 years where you pay a discounted price for that instance for the term of the reservation. If you need to change your instance type, you’ll have to pay the full on-demand price.

With Savings Plans – depending on which plan you choose – you can take advantage of a discount without committing to using it on any specific instance type. Savings Plans can be applied to Fargate as well as EC2 but not to RDS.

With reserved instances, you don’t get the benefit from switching instance types or families since you’re committed to 24/7/365 usage of a specific instance type.

What is the AWS Savings Plans pricing?

You can choose from three different payment options: No Upfront, Partial Upfront, or All Upfront. Discounted prices are only available with the All Upfront payment option. After signing up for a Savings Plan, you can view the discount offered by your active plan either on the Pricing page or using APIs/CLI.

What is the commitment period for AWS Savings Plans?

You can run AWS Savings Plans for one or three years.

What are the risks of AWS Savings Plans?

By choosing AWS Savings Plans, you’re running the risk of locking yourself in with the cloud vendor. You’re also committing to use resources that might not make sense for your business in a year or two. In the cloud world, a lot can change in three years – and you might get stuck with the cloud provider’s offer while others are more cost-efficient or offer the exact capabilities you need to grow.

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Edd
2021-07-19 1:08 PM

good to know cloud bill can be cut even further

terry p.
2021-07-20 12:28 PM

would it cut to the same amount if I skipped aws savings plan and did cost optimization with CAST?

Allen CAST AI
2021-08-24 8:41 AM
Reply to  terry p.

Hey there terry. Cast usually cuts 60-90% of your cloud bill so amazons savings plans are far from close to these cost-saving numbers. So the short answer is yes it would and you would save more without any long term commitments!

Jim
2021-08-24 8:50 AM

Savings plan sounds great for situations where you know the load your services is going to endure during that period of time, but since most of us doesn’t, that doesn’t sound so appealing

Spot instances all the way
2021-08-24 9:03 AM

I would go with spot instances any time since our team has the skill to dance around the short notices and our loads do fit this style of instance. Savings plan looks like just a bigger commitment for less benefit to be honest..

Gerard Konzi
2021-08-31 7:19 AM

I feel like the savings plan was a bit rushed decision on our teams end and now we are kind of stuck with it finding other better solutions like CAST..

Marcin
2021-08-31 7:28 AM

Gradually collecting usage data to commit to aws savings plan is a great tip since if you’re unable to forecast anything that might be thrown at your infrastructure at holidays or other internal or external major events, then using savings plan will be hard and paifull..

tom
2022-02-11 10:54 AM

I appreciate your insights in to savings plans but I’ll stick with them for now since we arent forcasting any big upcoming changes in the org

Herald
2022-02-11 11:03 AM

We barely dodged aws savings plans and it would have hurt us a lot since we downscale at night everything almost to only a few nodes in our clusters. That would have cost us a lot of unproperly used money

Kiligan
2022-02-21 9:15 AM

Savings plans are a bit evil though it does save you up a bit if you don’t scale your business or if your business doesn’t decline…

Leni
2022-03-09 6:50 AM

We’ve been using savings plants for a year now and it seems to be a hit or miss in some cases…

anon
2022-03-09 6:55 AM

We’re stuck with too much purchased capacity most of the times and missed the goals that we planned furthermore increasing our cloud bill…

Martin
2022-03-09 7:17 AM

Ec2 savings plan locked us in to a compute family that we are not in demand for now and feel like wasting our resources. Also, just fyi, you cannot change regions for those savings plan families

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