How to Reduce Cloud Costs Without Impacting Performance
Cloud technology is the primary way CIOs, CTOs and their departments can generate value in their organizations. Yet more and more eyes are on the expenses associated with cloud computing, according to the Bureau of Labor Statistics’ Producer Price Index (PPI), which cites a 3.7% year-over-year increase (September 2022 to September 2023).
With increased pressure to cut costs, tech leaders need ways to reduce the price of cloud without sacrificing the performance and flexibility the technology is known for.
There are practical ways to reduce cloud costs without sacrificing performance, and it starts with understanding the 3 main drivers.
The 3 Main Types of Cloud Cost Drivers
We like to look at cloud costs by bucketing them into 3 categories: minor, medium, and significant.
- Minor cost drivers: These costs are more commonplace and will add up over time.
- Medium cost drivers: These expenses often require more strategy to mitigate.
- Significant cost drivers: These require the most skill to mitigate.
A Note on Visible vs. Hidden Costs
Within these three categories, you’ll find both visible and hidden costs. Visible costs are those that are billed regularly (such as on a monthly billing statement) and are well known by stakeholders. For example, software licensing fees would be considered a visible cost. They’re typically easier to track and manage as needed.
Hidden costs, on the other hand, are more likely to go unnoticed. They only draw attention when they start to truly impact the budget. An example of a hidden cost would be a logging service with significant verbosity. Capturing more detail than needed for troubleshooting can increase your storage costs over time.
Deciding Where to Start
As you review these categories and consider how your budget may be impacted by these drivers, keep in mind that the effect is often cumulative. So, you may choose to tackle several minor cost drivers that are adding up to significant pressure on your budget first to gain some momentum and buy-in with leadership. Or you may choose to dive into a significant cost driver first to realize savings as quickly as possible.
1. Significant Cost Drivers
| Cloud Cost Driver | Solution | Visibility |
|---|---|---|
| High-Performance VMs | Rightsize; use reserved or spot instances | Common/Highly Visible |
| Database Licensing Fees | Use open-source databases; negotiate licenses | Common/Highly Visible |
| Large-Scale Data Transfers | Use data compression; minimize cross-region transfers | Discreet/Hidden |
| Global Load Balancers | Optimize configurations; reduce regions | Common/Highly Visible |
| High-Availability Clusters | Use cost-effective failover strategies; scale as needed | Common/Highly Visible |
| Big Data Processing | Optimize jobs; use spot instances | Common/Highly Visible |
| Machine Learning Services | Optimize model training; use cheaper instance types | Common/Highly Visible |
| Custom Enterprise Applications | Optimize architecture; migrate to PaaS solutions | Discreet/Hidden |
| Dedicated Servers | Use shared/multi-tenant servers | Common/Highly Visible |
| Advanced Analytics Platforms | Use cost-effective tools; limit data retention | Common/Highly Visible |
| Cross-Zone Data Transfer Fees | Architect for single-zone; use local storage | Discreet/Hidden |
| Licensing Misuse | Regularly audit and consolidate licenses | Discreet/Hidden |
2. Medium Cost Drivers
| Cloud Cost Driver | Solution | Visibility |
|---|---|---|
| Standard VM Instances | Switch to spot or reserved instances | Common/Highly Visible |
| Relational Database Services | Use auto-scaling; implement read replicas | Common/Highly Visible |
| Data Warehousing | Optimize query performance; compress data | Common/Highly Visible |
| Virtual Network Costs | Use smaller subnets; reduce intra-VPC transfers | Discreet/Hidden |
| Content Delivery Networks (CDN) | Optimize caching; use fewer edge locations | Common/Highly Visible |
| Managed Kubernetes Services | Optimize node usage; scale down unused nodes | Common/Highly Visible |
| Enterprise Support Plans | Review and downgrade unnecessary support tiers | Discreet/Hidden |
| Development/Test Environments | Turn off when not in use; use cost-effective instances | Discreet/Hidden |
| Backup Services | Implement incremental backups; delete old backups | Common/Highly Visible |
| Logging Services | Reduce log verbosity; archive old logs | Discreet/Hidden |
| Underutilized Reserved Instances | Monitor and reassign underutilized instances | Discreet/Hidden |
| Unattached Volumes | Regularly audit and delete unattached volumes | Discreet/Hidden |
| Misuse of Public IPs | Use private IPs; reduce public IP allocations | Discreet/Hidden |
| Main Storage Costs | Leverage tools such as AWS Cost Explorer, AWS Trusted Advisor, AWS Resource Explorer | Common/Highly Visible |
| Secondary Storage Costs | Consolidate data storage; use cheaper storage tiers | Discreet/Hidden |
| Hidden Transaction Fees | Optimize transaction-heavy operations; review pricing models | Discreet/Hidden |
3. Minor Cost Drivers
| Cloud Cost Driver | Solution | Visibility |
|---|---|---|
| Idle Cloud Storage | Regularly delete/archive unused data; use lifecycle policies | Common/Highly Visible |
| Egress Data Transfer Costs | Minimize data transfer; use CDNs | Common/Highly Visible |
| Snapshots | Limit snapshot frequency; delete old snapshots | Common/Highly Visible |
| Low Utilization VMs | Rightsize VMs; schedule automatic shutdown | Common/Highly Visible |
| DNS Queries | Optimize DNS query usage; use caching | Common/Highly Visible |
| Log Storage | Set retention policies; export logs to cheaper storage | Discreet/Hidden |
| Reserved IP Addresses | Release unused reserved IP addresses | Discreet/Hidden |
| API Gateway Requests | Optimize API usage; reduce unnecessary API calls | Common/Highly Visible |
| Monitoring Costs | Tune monitoring; reduce data retention periods | Common/Highly Visible |
| Low-traffic Load Balancers | Consolidate services; turn off during low traffic | Discreet/Hidden |
| Expired Discounts or Credits | Monitor and renew discounts; apply for new credits | Discreet/Hidden |
| IAM Policies Misconfigurations | Regularly audit and refine IAM policies | Discreet/Hidden |
| Service Endpoints | Optimize endpoint usage; consolidate services | Discreet/Hidden |
3 Strategies to Reduce Cloud Costs
Now that you know which categories your cloud cost drivers fall into and have some practical ideas for addressing them, let’s take a look at some best practices for cloud cost optimization across the board.
1. Don’t Stop at Rightsizing
Rightsizing is key to cutting waste and reducing costs. Over-provisioned resources can quickly inflate a budget, but that’s just the start. Bilal Hasan Khan, Associate Director at 3Pillar, notes, “Tech leaders often underestimate cloud cost management, thinking rightsizing is enough. Hidden costs, however, can significantly impact budgets.” A holistic approach—including audits, FinOps, and automation tools—helps reduce expenses while improving performance without compromising quality or service.
2. Set and Monitor Your Budget for Each Cloud Service
If you don’t have a visible budget for each cloud service, that’s your starting place. Each cloud service should have financial guardrails with stakeholders held accountable for monitoring related expenses against those budgets.
This is one area where automation can help with optimization. Consider tools that will flag costs outside your budgeted range, adjust resource allocation, and identify any idle resources.
3. Build a FinOps Culture
Unite your finance and technology teams under a Financial Operations (FinOps) framework. This cultural and operational approach maximizes the value of cloud investments. Building a FinOps culture requires a roadmap, clear roles, best practices, and strong collaboration. The FinOps Foundation outlines three maturity stages: Crawl, Walk, and Run
Optimizing cloud costs often leads to better performance. Instead of just cutting costs, you’re ensuring cloud investments add value. This boosts efficiency by preventing over-provisioning, increasing scalability, reducing waste, and shifting focus to innovation.
At 3Pillar, we offer tailored solutions to help organizations maximize the impact of their cloud investments. As a trusted software development partner, we specialize in digital product development, cloud cost management, and optimization. Our expert team has successfully implemented cost-saving strategies for clients across many different industries. Contact us to learn how we can help optimize your cloud costs.
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