AWS Savings Plan: Maximize Cloud Savings

Imagine a pricing model that offers significant discounts on your compute usage in exchange for a commitment to a specific spending level. That's the core of AWS Savings Plans – a flexible, commitment-based approach to cost optimization. By opting for a one-year or three-year commitment to an hourly spend amount, you unlock discounted rates on eligible AWS services compared to the standard on-demand pricing model. The AWS Savings Plan is a flexible pricing model designed to help businesses optimize their cloud expenses by committing to a consistent usage level. Unlike traditional models, the AWS Savings Plan offers savings based on hourly usage across various AWS services, regardless of instance type, region, or operating system. By opting for the AWS Savings Plan, businesses can gain cost predictability and reduce their spending compared to on-demand pricing, making it an ideal choice for organizations looking to manage their cloud budgets effectively.

Compute Savings Plans

Compute Savings Plans offer the most flexibility among the three options. They apply discounted rates to a broad spectrum of AWS compute services, including:

• Amazon EC2 Instances: Across all instance families, sizes, operating systems, and regions, Compute Savings Plans provide discounts on your EC2 usage.
• AWS Lambda Functions: Benefit from reduced costs on your serverless compute with Lambda functions.
• AWS Fargate: AWS Fargate is a container orchestration service that becomes more economical with Compute Savings Plans applied.

This plan is ideal for organizations with:

• Diverse Workloads: If your compute needs encompass a variety of services and instance types, Compute Savings Plans offer a single, flexible solution for cost savings across the board.
• Unpredictable or Evolving Needs: When your cloud usage patterns are dynamic or you anticipate changes in your compute requirements, the flexibility of Compute Savings Plans ensures you can leverage discounts without being locked into specific instances.

EC2 Instance Savings Plans

EC2 Instance Savings Plans fall between Compute Savings Plans (the most flexible) and SageMaker Savings Plans (the most specific). They offer significant discounts (up to 72% compared to On-Demand pricing) but with a bit more structure than Compute Savings Plans. Here's how they work:

• Applies to specific EC2 instance families: Unlike Compute Savings Plans which work across all instance types, EC2 Savings Plans are tied to a chosen instance family (for example, M5 in Virginia) within a specific region. This means you get a discount for any instance within that family, regardless of size, OS, or tenancy.
• Ideal for predictable workloads: This plan is best suited for organizations with consistent compute needs within a particular instance family. For example, if you consistently use m5.xlarge instances for your web servers, an EC2 Savings Plan for the m5 instance family would provide significant cost savings.

Amazon SageMaker Savings Plans

Amazon SageMaker Savings Plans are a specialized offering designed exclusively for workloads running on Amazon SageMaker, the machine learning development and deployment service on AWS. These plans provide cost reductions for both training and inference jobs, making them a compelling choice for organizations heavily invested in machine learning:

• Machine Learning Workloads: If your cloud usage is dominated by machine learning tasks on SageMaker, these plans offer targeted discounts to optimize your machine learning spending.
• Frequent Training and Inference: Organizations that perform frequent training and inference jobs on SageMaker will see the most significant cost benefits by leveraging Amazon SageMaker Savings Plans.

To start with an AWS Savings Plan, you need to commit to a specific usage amount per hour, which you will maintain for either a 1- or 3-year term. There are three payment options available:

• Full Upfront: Pay the entire commitment amount upfront.
• Partial Upfront: Pay part of the commitment upfront and the rest on a monthly basis.
• No Upfront: Pay the commitment amount on a monthly basis.

Choosing the right commitment value for AWS Savings Plans is crucial for maximizing savings while ensuring that your cloud resources meet your business needs. Here’s how to determine the appropriate commitment value:

1. Analyze Historical Usage: Review your past AWS usage data over a significant period (e.g., 6-12 months). Identify patterns in your resource consumption, focusing on peak usage times and types of services used.
2. Understand Your Workload Requirements: Evaluate the workloads that are critical to your operations and their resource needs. Consider whether these workloads are consistent, variable, or subject to seasonal fluctuations.
3. Identify the Right Plan Type: Compute Savings Plans: Ideal for users with diverse workloads across multiple AWS services, offering maximum flexibility. EC2 Instance Savings Plans: Best for users with stable, predictable workloads that primarily utilize EC2 instances.
4. Estimate Future Growth: Consider any anticipated growth in usage due to new projects, application launches, or scaling requirements. Factor in expected changes in business operations that may impact resource consumption.
5. Calculate Commitment Levels: Use the AWS Cost Explorer to simulate different commitment levels and view potential savings. Determine the monthly or annual commitment amount that aligns with your projected usage.
6. Balance Savings with Flexibility: Ensure that your commitment value reflects not only cost savings but also the flexibility to accommodate workload changes. Avoid overcommitting, as it can lead to wasted resources and higher costs.
7. Monitor and Adjust: After purchasing Savings Plans, continuously monitor your usage against the commitment. Be prepared to adjust your Savings Plan if your resource needs change significantly.

There are multiple ways to enable a Savings Plan:

1. Individual Account Level: Apply the Savings Plan directly to a specific AWS account.
2. Organization Level: If your accounts are part of an AWS Organization, you can apply the Savings Plan at the master account level, making it available to all member accounts.

If your account is under a billing panel and you lack the necessary permissions to enable a Savings Plan, you can still enable it on one account and set the preference to share the Savings Plan across other accounts within your organization.

Commitment Calculation

Review AWS Recommendations: AWS recommends a 1-year term with a commitment of $1 per hour, which translates to a potential saving of $200, bringing your costs down to $800 per month.

Consider a Buffer: Given the potential for future changes (e.g., cleaning up instances or migrating hardware), it’s prudent to avoid overcommitting. A 60% buffer is advisable to ensure flexibility.

Commitment Calculation with Buffer: Instead of committing to $1 per hour, commit to $0.60 per hour. This buffer ensures that you won’t overcommit and provides room for potential reductions in your instance usage.

When calculating the cost for AWS Savings Plans, incorporating a buffer allows you to account for potential increases in usage beyond your base commitment. Here’s how to do it:

1. Analyze Historical Usage: Review your past AWS usage data to identify average monthly costs and peak usage times.
2. Determine Base Commitment: Establish your baseline commitment based on historical average usage. For example, if your average monthly spend is $1,000, this will serve as your base.
3. Add a Buffer:
   • Decide on an appropriate buffer percentage to accommodate potential increases. A common approach is to add a buffer of 10-20%.
   • For example, if your base commitment is $1,000 and you choose a 20% buffer, your total commitment would be $1,200.
4. Calculate Total Cost: The total cost for your Savings Plan would then be based on this buffered commitment, allowing for more flexibility without incurring additional on-demand charges.

Benefits of a Buffered Commitment

• Flexibility to Scale: A buffered commitment provides the flexibility to scale up resources as needed without exceeding your commitment. This is particularly useful for businesses with fluctuating workloads.
• Reduced Risk of Overages: By incorporating a buffer, you mitigate the risk of exceeding your commitment and facing on-demand pricing, which can lead to unexpected costs.
• Enhanced Budget Management: A buffered commitment helps in budgeting more effectively, allowing for planned expenses that accommodate growth or seasonal demand spikes.
• Improved Resource Allocation: With a buffer in place, teams can allocate resources more confidently, knowing they have the capacity to handle increased demand without immediate cost implications.
• Better Alignment with Business Goals: This approach ensures that your cloud spending aligns with business objectives, supporting growth initiatives while controlling costs.

Measuring the return on investment (ROI) of AWS Savings Plans helps organizations evaluate their cost savings and overall financial impact. Here’s how to calculate the ROI for AWS Savings Plans effectively:

1. Define Key Metrics
   • Total Savings: The difference between what you would have paid for on-demand resources and what you actually paid with Savings Plans.
   • Investment Cost: The total cost of the Savings Plans purchased over the commitment period (monthly or annually).
2. Gather Usage Data: Analyze your historical AWS usage to establish a baseline. Use AWS Cost Explorer to identify your average monthly spend on services that are covered by Savings Plans.
3. Calculate Projected Costs Without Savings Plans:

   Estimate your costs based on on-demand pricing for the resources you plan to use. Multiply the average monthly spend by the total number of months in your commitment period.

   Projected Cost (On-Demand) = Average Monthly Spend × Commitment Duration (months)

4. Calculate Actual Costs with Savings Plans:

   Determine the total amount spent on the Savings Plans over the same commitment duration.

   Actual Cost (Savings Plans) = Monthly Cost of Savings Plans × Commitment Duration (months)

5. Determine Total Savings:

   Subtract the actual cost with Savings Plans from the projected on-demand cost.

   Total Savings = Projected Cost (On-Demand) − Actual Cost (Savings Plans)

6. Calculate ROI:

   Use the formula for ROI to measure the value of your investment in Savings Plans.

   ROI = (Total Savings / Investment Cost) × 100

   This percentage indicates the effectiveness of the Savings Plans in terms of cost reduction.

7. Consider Additional Benefits: Factor in any qualitative benefits of using Savings Plans, such as improved budgeting, resource flexibility, and reduced administrative overhead.

With the AWS Savings Plan, organizations can save up to 72% on their AWS usage, allowing for significant financial flexibility and scalability. This plan is ideal for those with predictable workloads or long-term projects, as it provides high-value savings across multiple AWS services. By implementing the AWS Savings Plan, companies not only reduce costs but also enable smoother budget allocation and increased investment in innovation.