AWS Cloud Financial Management
Choosing the AWS pricing strategy that fits your business
One of the main benefits of cloud services is that it enables you to optimize costs to match your needs, even as those needs change over time. AWS offers different pricing models that facilitate payment for services on an as-needed basis, so you can focus on innovation and invention, reduce procurement complexity, and increase business agility and elasticity.
While on-demand pricing strategies (where you pay for compute capacity by the hour or second with no long-term commitments) can be useful for short-term, spiky, or unpredictable workloads that cannot be interrupted, once you achieve a steady state workload rate you may want to look for ways to save more money. And you can do this through commitment-based purchase models, such as Savings Plans and Reserved Instances.
Commitment-based pricing strategies
Savings Plans (SPs) is a flexible pricing model that can deliver up to 72% off of regular On-Demand Instances, in exchange for a commitment to use a specific amount of compute power (measured in $/hour). You can sign up for SPs for a one- or three-year term and easily manage your plans by taking advantage of recommendations, performance reporting, and budget alerts in AWS Cost Explorer.
Savings Plans are generally recommended for:
- Workloads with a consistent and steady-state usage
- Customers who want to use different instance types and compute solutions across different locations
- Customers who can make a financial commitment to use EC2 over a one-or three-year term
AWS Reserved Instances (RIs) is a discount pricing model that enables organizations to also save up to 72% on On-Demand Instances when you purchase them in advance for a fixed term of one or three years. This commitment-based offering has limited flexibility on region, instance family, and instance size, and is available for EC2, RDS, Redshift, ElastiCache, OpenSearch, and DynamoDB.
So, how else do they compare? And what does that mean for your business?
Savings Plans vs Reserved Instances
SPs and RIs are discount programs that offer the same commitment period and payment options, and share a few other similarities:
- Billing: Both are billed by $/hour.
- Payments: Each has three payment options: all upfront, partial upfront, and no upfront.
- Savings: Convertible RIs and Compute SPs offer similar savings; Standard RIs provide similar discounts to EC2 Instance SPs.
- On-Demand rates: When you exceed your usage commitment during your contract period, Amazon applies its On-Demand rates.
With Savings Plans, you are committing to spend a specific dollar amount per hour over a specific period. With Reserved Instances, you are committing to use a specific instance at a specific price over a specific time period.
Some other differences between Savings Plans and Reserved Instances include:
- Flexibility: Compute SPs offer multiple locations/regions and usage types, while RIs are assigned to a specific location/region, instance type, and operating system. You cannot change these once you’ve purchased RIs. (However, you can resell unwanted RIs or purchase convertible RIs that allow you to change the Availability Zone, instance size, and networking type.)
- Applications: RIs apply across Amazon EC2, Elasticsearch, Relational Database Service (RDS), and RedShift. Compute SPs not only apply to the amount spent on Amazon EC2, but also AWS Fargate and AWS Lambda.
- How pricing is applied: Savings Plans apply to usage that provides the largest discount first, whereas Reserved Instances apply to matching usage across accounts.
Both of these pricing strategies offer you the flexibility to choose what will be the most effective way to manage your costs and still keep the performance and capacity you require.
What purchase strategy is right for you?
But which one should you buy? How can you tell what the right purchasing strategy is for your business? In this CFM Talks session, learn about the history and purpose of RIs and SPs, get an overview of each purchasing strategy, and hear guidance on how you can decide which one is right for you.