Some Ideas on How to Quantify Your Ongoing AWS Cost in Your Business
The CFO walks into your office, doesn’t even close the door, points at a piece of paper in their hand and yells, “How did you spend this much on AWS?”. Sound familiar?
For those new and mature AWS customers this is a common story. At the flip of a switch, you can turn on the most powerful platform known to man today. The beauty is just as quick, that same switch turns it all off again. All of it is under your control.
Really the CFO is looking at the wrong number and only half the picture. He or she is asking the wrong question. Instead the CFO should be asking are these AWS costs aligning with our business goals and value to our customers? Or in other words, what should our AWS cost be? This is a harder question to answer but ultimately the one that is going to bring a lot of clarity to the CFO and business and avoid any financially challenging discussions.
To get there you need to start measuring unit costs which align with the strategic drivers of your organization. This will map every dollar spent on AWS with what is making your business successful. Because the Cloud is a utility running on operating expenses and not a capital expense, you get to measure and track this against your business. This really is a hidden advantage of Cloud and organizations are still coming to grips with this.
Lets jump into understanding what are the key areas or measures driving your organisation. On a very basic level you measure revenue and margins, these are valid indicators, although they are often lagging. If you’re a SaaS provider likely you’re watching the number of users or subscribers on your platform. If you’re in the trucking industry, maybe it’s the number of trips each truck takes, or in the gaming industry maybe it’s the number of online users. It may also be the number of employees if you’re in the professional services business. Any measure that is driving your business and a leading indicator could be used.
Now let’s take that measure and work on creating a unit cost. This is the key. Example, today your monthly AWS costs are $10,000, and you have 10,000 users on your platform, your unit cost is $1 ($10,000/mnt / 10,000 monthly users). As your user count grows, technically you could expect that your Cloud usage will grow too. However your unit cost should stay relatively constant, or be driven lower or higher based on what it takes to support each user. You now have this insight. By watching this unit cost you can start driving the cost down based on economies of scales, new architecture or by whatever means. Or understanding why that cost went up when you made investments into Delivery Pipeline, Security or Monitoring etc.
Another simple example is to measure your AWS cost against revenue. This should be revenue specific to a product or service or whatever is directly related to the AWS cost. Like if your company is doing e-commerce, just use the revenue derived from the e-commerce division in your business to derive your unit cost. The measure would be revenue from ecommerce, say $1M/ month/ Cost of AWS related to ecommerce $10,000/month. You would arrive at a percentage of revenue, in this case 1%. This is a loose measure as there could be lots of outliers that could throw this out of whack, however it can be a good basis to start. You could also use number of items sold, or number of SKUs listed instead.
What if your AWS environment is hosting many workloads across divisions and products. How do you make sure you are aligning the appropriate AWS cost with the key drivers. AWS has created the ability to tag almost all resources within your environment. By being disciplined, and enforcing tagging, you can track down to the cent exactly what resources are being consumed by area in your business.
This goes along with constantly monitoring your environment and making sure you are taking advantage of AWS’ various pricing methods like reserved instance discounts and spot pricing. These are areas and subjects for blogs on their own.
The idea is to find the right measure or measures that drive your business and make the conversation easier between you, the CFO and stakeholders. The fact that you are spending more or less on AWS should not be the focus, it should be actions you are taking to drive your business and if you’re spending more on AWS because you have more happy users and customers, that is a positive result. Measure that result as a unit cost!
Optimizing costs on AWS is a deep subject and one of the four pillars of architecting for success on AWS. Cost is seldom handled alone. If you’re looking for advice please reach out and let us know. We have lots of experience at TriNimbus working with many different customers and environments optimizing AWS.