Cloud spending will make up for 14% of total enterprise IT spending in 2024–up from 9% in 2020. As the demand for the cloud is increasing, so are the cloud costs. However, organizations are now realizing that high cloud costs make up an increasing part of their total IT spending. 

But here’s an even more shocking statistic: According to a report by Gartner, over 70% of cloud costs are wasted. 

As a result, it has become more important than ever for organizations to pursue effective cloud cost analysis and continually monitor cloud spending. This blog will cover what cloud cost analysis is, and the best practices to implement the same. 

What Is Cloud Cost Analysis?

What Is Cloud Cost Analysis

Cloud cost analysis provides in-depth insights into where your cloud budget is being spent and whether you are able to use the present resources efficiently or not. It gives you an understanding of the costs associated with your overall cloud infrastructure. Ideally, cloud cost analysis involves monitoring how much you’re spending on different services or resources and looking for opportunities for cost control.

Why is Cloud Cost Analysis Important?

Cloud cost analysis is absolutely key to managing your cloud bill — key benefits include:

  • Identifies overspending and waste – Helps spot unused or overprovisioned resources, to cut costs and improve ROI
  • Improves financial transparency & accountability – With mapping of costs to teams, departments or projects, offers clear visibility into where and how cloud budget is spent.
  • Supports better budgeting and forecasting – Enables more accurate planning for future cloud expenses.
  • Aligns cloud spend with business goals – Ensures cloud investments support strategic objectives and allows you to calculate cost of goods sold (COGS), total cost of ownership (TCO) and other key metrics
  • Promotes proactive cost management – Encourages regular reviews and ongoing optimization.

What Is Cloud Cost Optimization?

What Is Cloud Cost Optimization

Cloud cost optimization is the continuous process of refining and improving your cloud system to minimize overall costs. Cost-optimized cloud operations can fully utilize the available resources and meet all the functional requirements while keeping the lowest price point possible. 

Cloud cost optimization at its basic level includes:

  • Establishing a data-driven purchasing strategy, optimizing pricing and discount models to save on the overall bill
  • Analyzing all the existing resources for efficiency and utilization & acting on insights to optimize compute
  • Using automation tools to rightsize resources, optimize storage, schedule resources

Cloud Cost Analysis vs Cloud Cost Optimization

Cloud cost analysis is the essential first step that understands what’s being spent, and uncovers opportunities and inefficiencies. Cloud cost optimization acts on those findings to implement cost-saving measures and refine cloud operations. Together, they form a continuous cycle—analysis provides the data, and optimization uses it to drive ongoing improvements in cloud cost efficiency.

Infographic - cloud cost analysis stats

Cloud Cost Analysis Components

The key components include:

Infrastructure Cost

This includes core compute resources like virtual machines, containers, and managed services (e.g., ECS, EKS, or Lambda). Infrastructure often makes up the bulk of cloud spend and is highly variable depending on provisioning choices and scaling strategies.

Data Transfer Cost

Data transfer charges are incurred when data moves across regions, Availability Zones, or to/from the internet. These costs are easy to overlook but can spike quickly depending on workload architecture, especially for distributed systems and analytics pipelines.

Licensing Cost

Many cloud services come bundled with software licenses, such as Windows Server or SQL Server on EC2. In some cases, you may also bring your own license (BYOL) or use third-party software via the Marketplace, which can add significant overhead.

Storage Cost

Storage charges include object storage (like S3), block storage (like EBS), and file storage (like EFS), along with associated access and retrieval fees. Long-term data retention or unmonitored growth can quietly inflate your bill over time.

Additional Services Cost

Other costs come from auxiliary services like monitoring (e.g., CloudWatch), automation (e.g., Step Functions), DNS (e.g., Route 53), and support plans. While typically smaller line items, they can add up—especially in multi-account or multi-team environments.

Best Practices For Cloud Cost Analysis

Best Practices For Cloud Cost Analysis!

1. Understand the anatomy of your cloud bill 

Cloud billing data can be extremely complex– AWS has over 200,000 SKUs for individual products, some of which are even billed at per-second resolution. Behind every spending is a complex interconnection of cloud charges like data transfer, gigabytes of storage, and instance hours. 

That is why the first step towards cloud cost optimization should be understanding and analyzing your current cloud bill. You can only cut down on costs when you know where you are spending right now and why. 

In your cloud bill, every row will include details about the resource used and its usage quantity. Ideally, these are the attributes you will see in your cloud bill: 

  • Amount of resources used 
  • The total time period the resource was used 
  • Rate charge 
  • Location of the resource 
  • Resource ID 
  • Other metadata attributes like project or account

Understanding your cloud bill allows you to detect even the smallest changes in your cloud usage. Cloud usage bills give you power through the granularity of data and help you address small issues before they cause huge problems and lead to overspending.

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2. Compare value Vs. cost 

When it comes to cloud analysis, it’s important always to remember that this whole process isn’t just about cutting down costs. It’s about identifying areas of waste and ensuring you can get the maximum value for every dollar spent. 

Instead of fixating on cost-cutting and reaching a hypothetical budget number, focus on these questions instead:

  • What are the main services/products you provide to your customers?
  • How much does it cost to provide those services through the cloud?
  • Is there a way to optimize the spending per unit to make sure you get more value at the least cost possible?

3. Leverage Reserved Instances (RIs)

If you are using AWS, you may already know that Amazon EC2 Reserved Instances are one of the best and most obvious ways to control computing costs. EC2 provides 72% more discounted hourly rates as compared to On-Demand instance pricing. 

But before you jump on the RIs bandwagon after looking at the discounted rates, keep in mind that there are also some disadvantages of RIs:

  • Predicting usage over one or even three years can be difficult, especially if no historical data is available.
  • With businesses wanting to move to the public cloud due to the scalable pay-as-you-go model, capital costs with RIs may end up taking them back to sunk costs and long-term commitment contracts.
  • Creating extra capacity for a particular type of instance can be costly, complicated, and time-consuming.  

The most optimum use cases for RIs are for applications with stable usage patterns, which will, in turn, allow you to achieve the highest savings with stable ROI while lowering unused resources in the future.

To get the most out of RIs and optimize cloud costs, keep these best practices in mind:

  • Prefer to buy reserved capacity only for instances that are always running.
  • For instances with stable usage patterns that aren’t always running, buy only the minimum number of RIs you will need to keep the application running.Centralize RIs to ensure if one team isn’t using the resource, other teams can use it. 

Leverage Reserved Instances (RIs)

nOps provides RI commitment management through ShareSave. You get automated, real-time and risk-free lifecycle management of EC2 and RDS commitment. The goal is to help you save more without risking overcommitment of RIs. The optimization by nOps gives you the flexibility to switch different commitments and types–as and when needed. 

nOps provides RI commitment management

4. Consider AWS Saving Plans 

AWS Saving Plans offer wide savings over On-Demand EC2, but they require a minimum amount of computing power commitment. The price rate is usually measured in dollars per hour over a period of one or three years. Also, any additional usage over the committed minimum amount is charged according to the standard on-demand rate. AWS Saving Plans are also not applied to existing RIs.

Here’s how AWS Savings Plans work:

Consider AWS Saving Plans 

There are two types of Savings Plans available:

Compute Savings Plan: These plans offer the most flexibility and can reduce overall costs by over 66% compared to Convertible RIs. These plans get automatically applied to EC2 instance usage regardless of the region. 

EC2 Instance Savings Plans: These can apply to any instance family within a specified region and provide discounts of up to 72% compared to Standard RIs.

While AWS Saving Plans and RIs may seem similar, the two have some key differences. 

EC2 Instance Savings Plans

5. Create schedules

Since you pay by the hour for running public cloud instances, the less time they run, the more money you save. While many workloads don’t need to run 24/7, it’s easy to forget to shut them down. 

For instance, some instances that may only be required to be run on weekdays can be powered off on the weekend. 

You can automatically create a schedule that shuts down and restarts instances to ensure that they are not left running overnight on weekends and thus save on costs.

6. Establish a tagging policy 

Cloud cost optimization can only be successful in an organization if you create a culture of financial and resource usage transparency. Before you go into the ‘how’ of cutting down cloud costs, you need to make all the stakeholders aware of the ‘why’ behind cloud cost optimization. 

Cost allocation tagging doesn’t just help you get a granular idea about your cloud spending across different teams and departments, but it also makes people aware of how many resources they are using. 

A company-wide tagging policy will lead to continuously enforcing tags and monitoring monthly cloud expenditures. You can then use tags to generate showback or chargeback reports to make departments aware and responsible for their cloud usage.

With nOps Tag Explorer, you can assess tags currently attached to resources and even detect untagged ones. You can use tags to better understand the cost of all resources, environments, departments, projects, teams, and customers. You can also create showback and chargeback cost allocation reports for any period to better understand your organization’s overall cloud spending. 

7. Look into reducing EBS costs 

Amazon Elastic Block Storage (EBS) is a high-performance block storage service that is designed to specifically work with EC2. You can attach multiple EBS volumes to a single instance if all the resources present are in the same availability zone.

Look into reducing EBS costs

Image Credits: AWS

Here are some ways you can reduce EBS costs:

  • Find detached EBS volumes: Look for any EBS volumes that do not get automatically deleted when the EC2 resource they are attached to gets terminated. To find and detach EBS volumes, look for the AWS attribute ‘state’, which is set to ‘available.’ 
  • Find underutilized EBS volumes: Identify underutilized EBS volumes by changing their volume type or downsizing them. To determine the EBS throughput, you can monitor the read-write access of EBS volumes. 
  • Look for EBS volumes attached to stopped EC2s: While you only get charged for EC2 instances when they are running, EBS volumes continue to retain information even when the instance they are attached to gets stopped–and you continue paying for those EBS volumes. If EC2 instances have been stopped for a long, it is better to create an EBS snapshot instead and delete the volume. That is because Amazon EBS snapshots get billed at a much lower rate than EBS volumes. 

8. Optimize data transfers

Data transfers are an often overlooked factor that contributes to increased AWS cloud bills. The total data transfer costs can increase significantly depending on the data type and your users’ average usage patterns. That is why creating a data transfer strategy is important to ensure you are always within your budget. 

To decrease data transfer costs, start by looking into your AWS bills to discover cost patterns and spending trends. Then focus on the following cost-saving strategies for optimum and cost-effective data transfers: 

  • If possible, keep data within the same availability zone and region. 
  • Use a less expensive region for data transfers. (Make sure to check the data transfer costs for different regions). 
  • Use a content delivery network (CDN) to lower data transfer costs while also ensuring fast delivery to end customers. 

8. Leverage Spot Instances 

AWS EC2 Spot Instances are unused EC2 instances that are 90% cheaper than On-Demand instances. AWS sets the hourly spot price for each Spot instance type based on their availability zone, supply, and demand. Spot instances can be a great cost-effective solution if you can be flexible about the availability of your applications. 

Spot instances are ideal for error-tolerant, stateless, and flexible applications like background processing, batch jobs, and data analysis. You can also easily combine spot instances with Savings Plans, RIs, and On-demand instances. 

Spot instances are ideal for error-tolerant,

How Can nOps Supercharge Cloud Cost Analysis?

How Can nOps Supercharge Cloud Cost Analysis?

Tired of juggling multiple tools for visibility, optimization, and commitment management?

nOps is an automated AWS cloud management tool that can reduce your AWS costs by 30-60%. It is an end-to-end platform with automated tooling for each of the cloud optimization strategies we discussed in this article. That means:

  • One contract instead of multiple

  • One source of truth for engineers and finance, eliminating metric conflicts and tool fatigue

  • Coordinated automation that compounds savings across rightsizing, Spot, and commitments

nOps is rated 5 stars in G2 and optimizes $2 billion in cloud spend.  Book a demo to connect your AWS account and see how much you can save in just 15 minutes.   

Frequently Asked Questions

What is the cost analysis of cloud computing?

A cloud computing cost analysis involves evaluating how much you’re spending on compute, storage, networking, and managed services. It helps identify waste, optimize usage, and align spend with business value. Cloud cost analysis often includes tracking hourly usage, understanding pricing models (like on-demand vs. reserved), and analyzing trends with cost analysis cost metrics. 

What are the 5 steps of cost-benefit analysis?

  1. Identify the problem or decision to be analyzed.

  2. List all potential costs and benefits.

  3. Assign monetary values to each cost and benefit.

  4. Calculate net benefits (total benefits minus total costs).

  5. Make a decision based on the results.
    In cloud computing, this might include estimating infrastructure costs, migration effort, and operational savings, then comparing them to the expected performance, scalability, and innovation benefits.

How to calculate cloud costs?

To calculate cloud costs, start by creating a cloud cost assessment of all services used—compute (e.g., EC2, Lambda), storage (e.g., S3, EBS), and data transfer. Multiply usage (hours, GB, requests) by the unit price for each service. Consider additional charges like load balancers, backups, or licensing. Use tools like the AWS Pricing Calculator or built-in dashboards like AWS Cost Explorer to automate calculations and forecast future spend. Tagging resources helps map costs to projects, teams, or environments for better tracking.

What is the cost model of the cloud?

The cloud operates on a pay-as-you-go model, meaning you’re charged based on actual resource consumption rather than upfront hardware investment. Key pricing models include on-demand (no commitment), reserved instances or Savings Plans (commitment-based discounts), and Spot pricing (unused capacity at reduced rates). Costs typically vary by region, resource type, usage volume, and performance tier.