Cloud storage and cloud computing background. Data processing technology. Blue integrated circuit on background.

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. 

  1. Minor cost drivers: These costs are more commonplace and will add up over time. 
  2. Medium cost drivers: These expenses often require more strategy to mitigate. 
  3. 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 DriverSolutionVisibility
High-Performance VMsRightsize; use reserved or spot instancesCommon/Highly Visible
Database Licensing FeesUse open-source databases; negotiate licensesCommon/Highly Visible
Large-Scale Data TransfersUse data compression; minimize cross-region transfersDiscreet/Hidden
Global Load BalancersOptimize configurations; reduce regionsCommon/Highly Visible
High-Availability ClustersUse cost-effective failover strategies; scale as neededCommon/Highly Visible
Big Data ProcessingOptimize jobs; use spot instancesCommon/Highly Visible
Machine Learning ServicesOptimize model training; use cheaper instance typesCommon/Highly Visible
Custom Enterprise ApplicationsOptimize architecture; migrate to PaaS solutionsDiscreet/Hidden
Dedicated ServersUse shared/multi-tenant serversCommon/Highly Visible
Advanced Analytics PlatformsUse cost-effective tools; limit data retentionCommon/Highly Visible
Cross-Zone Data Transfer FeesArchitect for single-zone; use local storageDiscreet/Hidden
Licensing MisuseRegularly audit and consolidate licensesDiscreet/Hidden

2. Medium Cost Drivers

Cloud Cost DriverSolutionVisibility
Standard VM InstancesSwitch to spot or reserved instancesCommon/Highly Visible
Relational Database ServicesUse auto-scaling; implement read replicasCommon/Highly Visible
Data WarehousingOptimize query performance; compress dataCommon/Highly Visible
Virtual Network CostsUse smaller subnets; reduce intra-VPC transfersDiscreet/Hidden
Content Delivery Networks (CDN)Optimize caching; use fewer edge locationsCommon/Highly Visible
Managed Kubernetes ServicesOptimize node usage; scale down unused nodesCommon/Highly Visible
Enterprise Support PlansReview and downgrade unnecessary support tiersDiscreet/Hidden
Development/Test EnvironmentsTurn off when not in use; use cost-effective instancesDiscreet/Hidden
Backup ServicesImplement incremental backups; delete old backupsCommon/Highly Visible
Logging ServicesReduce log verbosity; archive old logsDiscreet/Hidden
Underutilized Reserved InstancesMonitor and reassign underutilized instancesDiscreet/Hidden
Unattached VolumesRegularly audit and delete unattached volumesDiscreet/Hidden
Misuse of Public IPsUse private IPs; reduce public IP allocationsDiscreet/Hidden
Main Storage CostsLeverage tools such as AWS Cost Explorer, AWS Trusted Advisor, AWS Resource ExplorerCommon/Highly Visible
Secondary Storage CostsConsolidate data storage; use cheaper storage tiersDiscreet/Hidden
Hidden Transaction FeesOptimize transaction-heavy operations; review pricing modelsDiscreet/Hidden

3. Minor Cost Drivers

Cloud Cost DriverSolutionVisibility
Idle Cloud StorageRegularly delete/archive unused data; use lifecycle policiesCommon/Highly Visible
Egress Data Transfer CostsMinimize data transfer; use CDNsCommon/Highly Visible
SnapshotsLimit snapshot frequency; delete old snapshotsCommon/Highly Visible
Low Utilization VMsRightsize VMs; schedule automatic shutdownCommon/Highly Visible
DNS QueriesOptimize DNS query usage; use cachingCommon/Highly Visible
Log StorageSet retention policies; export logs to cheaper storageDiscreet/Hidden
Reserved IP AddressesRelease unused reserved IP addressesDiscreet/Hidden
API Gateway RequestsOptimize API usage; reduce unnecessary API callsCommon/Highly Visible
Monitoring CostsTune monitoring; reduce data retention periodsCommon/Highly Visible
Low-traffic Load BalancersConsolidate services; turn off during low trafficDiscreet/Hidden
Expired Discounts or CreditsMonitor and renew discounts; apply for new creditsDiscreet/Hidden
IAM Policies MisconfigurationsRegularly audit and refine IAM policiesDiscreet/Hidden
Service EndpointsOptimize endpoint usage; consolidate servicesDiscreet/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.

About the author

Bilal Hasan portrait

Bilal Hasan

Associate Director, Global Head Automation Practice

Read bio
BY
Bilal Hasan
Associate Director, Global Head Automation Practice
SHARE