Savings Plans: What You Need to Know
Introduction
Amazon Web Services (AWS), a popular leading cloud service provider, offers a wide range of services tailored to meet diverse business needs. Businesses of all sizes can use AWS to scale and or manage their IT resources efficiently, like having a toolbox of services that one can use whenever they are needed.
Despite the great flexibility and scalability that it offers, businesses utilizing AWS often experience challenges in managing and optimizing their cloud costs. AWS Savings Plans are designed to address these issues, providing significant discounts on the business’ AWS usage in exchange for a commitment to a consistent amount of usage over a period of one or three years.
Understanding AWS Savings Plans
What are AWS Savings Plans?
AWS Savings Plans function by offering discounts on an hourly rate for a particular instance or resource’s usage. It offers a flexible pricing model that provides savings which allows the business to save up to 72% on the AWS usage compared to on-demand pricing by committing to a consistent amount of usage (measured in $/ hour) for a period of one year (defined as 365 days) or three years (defined as 1,095 days). With this, the business could receive lower rates on AWS compute usage and reduce the overall cloud expenditure.
Types of AWS Savings Plans
AWS Savings Plans are a flexible pricing model that allows businesses to save up to 72% of their AWS usage. These savings plans offer three types of pricing models:
- Compute Savings Plans. These plans offer the most flexibility and apply to a wide range of AWS services. It offers 66% off of On-Demand rates which automatically apply to Amazon EC2, AWS Lambda, and AWS Fargate, regardless of instance family, OS, tenancy, or region. With Compute Savings Plans, one can move a workload, shift usage, or migrate applications from Amazon EC2 to Amazon ECS using Fargate at any time.
- EC2 Instance Savings Plans. These plans provide the lowest prices but are less flexible. They automatically apply to a specific Amazon EC2 regardless of size, OS, and tenancy within the specified family in a region. With these EC2 Instance Savings Plans, one can change instance size within the instance family, change the operating system, or move from Dedicated tenancy to Default and continue to receive discounted rates with savings of up to 72% off of On-Demand.
- SageMaker Savings Plans. This type of plan provides lower prices for Amazon SageMaker instance usage, regardless of the instance family size, component, or AWS Region with savings of up to 64% off on-demand rates. With SageMaker Savings Plans, one can move a workload, shift, or migrate usage from Training to Inference at any time and continue to receive benefits.
How AWS Savings Plans Work
When the business commits to a certain Savings Plan, AWS will automatically apply the discounted rates to usage, helping the business achieve its savings goal without the need to change the architecture or manage complex Reserved Instances. The key to how AWS Savings Plans work is through analyzing the historical usage patterns to determine the amount of hourly commitment that aligns with the business needs.
How to Calculate Bills with Savings Plans
Calculating bills with Savings Plans is broken down as follows:
- Commitment. When a Savings Plan is purchased, an hourly spending commitment is made, for example, $7.77 per hour for one year. This commitment represents the maximum amount the business is willing to spend.
- Discounted Usage. All compute usage up to the commitment is available at a discounted rate. Savings Plans apply automatically to eligible usage after Amazon EC2 Reserved Instances (RIs) are applied.
- Threshold Exceedance. If ever there are instances where the usage exceeds the committed threshold, AWS will only charge at the regular On-Demand rate for the additional usage.
Benefits of AWS Savings Plans
AWS Savings Plans offer several benefits that are useful for the business. The key benefit of using AWS Savings Plans is that they only collect payment for the instances used, so there is no need to worry about paying for unused capacity or resources.
- Cost Savings. AWS Savings Plans offer consistent savings on cloud computing costs for businesses in order to achieve significant cost savings (customers can receive discounts of up to 72%) compared to On-Demand pricing. This predictability allows businesses to plan their budgets more efficiently and allocate resources to other more important aspects of the business operation.
- Flexibility. One of AWS Savings Plans' significant advantages is their flexibility. Users can choose between Compute Savings Plans which apply to any AWS compute usage, and EC2 Instance Savings Plans, designed for specific instance families within a region. This flexibility allows businesses to adapt their cloud architecture as their needs evolve, without compromising on cost savings.
- Simplicity. Automatic application of discounted rates through simplified billing. AWS Savings Plans simplify the billing process by consolidating discounts and usage charges into a single invoice. This approach makes it easier for businesses to understand their cloud spending and identify areas for optimization.
- Integration. Get recommendations based on usage to maximize savings. One of the powerful tools that provides businesses with insights into their cloud spending is AWS Cost Explorer. If integrated with AWS Savings Plans, businesses can analyze their savings plans, and utilization, identify opportunities for additional savings, and forecast future costs more accurately.
What are the Best Practices for AWS Savings Plans
Here are some of the best practices for AWS Savings Plans:
- Monitor and Analyze Usage. Regularly review AWS usage patterns to ensure commitment aligns with the actual consumption.
- Leverage AWS Cost Management tools. Use AWS Cost Explorer and AWS Budgets to track and manage cost effectively.
- Adjust Commitments as Needed. Be prepared to adjust Savings Plan commitments as business needs evolve.
Common Mistakes to Avoid
Avoiding common pitfalls such as overcommitting resources or ignoring changes in usage patterns is a must. It is important to regularly reassess the usage of the business and adjust Savings Plans accordingly to ensure that the business continues to meet its needs.
Conclusion
AWS Savings Plans offer an effective way to reduce cloud costs while maintaining flexibility. By understanding the different types of plans, how they work, and how to implement them, businesses can make the most of their AWS investments. Consider evaluating current usage and explore the AWS Savings Plan to start saving today. Visit Octo to learn more.
