AWS Cloud Zero Tutorial #27: Savings Plans and Cost Optimization Strategies

In the previous article, we discussed how to perform a Total Cost of Ownership (TCO) analysis for AWS to gain deeper insight and evaluate the full cost of running workloads on AWS. In this article, we focus on AWS Savings Plans and cost optimization strategies—designed to help you minimize spending and maximize cost efficiency when using AWS services.

Understanding AWS Savings Plans

AWS Savings Plans are a flexible pricing model that offers lower prices in exchange for a commitment to use a consistent amount of compute capacity over a one- or three-year term. Compared to On-Demand pricing, Savings Plans can deliver discounts of up to 72% across multiple AWS services.

Common Use Cases for Savings Plans

1. Compute-Intensive Workloads: For example, long-running EC2 instances or containerized applications—Savings Plans can significantly reduce costs.
2. Stable Production Environments: If your production environment has predictable, steady resource demand, Savings Plans are an excellent fit.
3. Long-Term Projects: For projects expected to run for more than one year, Savings Plans can yield substantial savings over time.

Example: EC2 Instance Savings Plan

Suppose your organization plans to run ten m5.large EC2 instances continuously for three years. The On-Demand price is $0.096/hour. With a three-year Savings Plan, you might secure a discounted rate of$0.057/hour.

Let’s compare annual costs under both models:

On-Demand Cost

[ \text{Annual Cost} = 10 \times 0.096 \times 24 \times 365 = $83{,}160 ]

Savings Plan Cost

[ \text{Annual Cost} = 10 \times 0.057 \times 24 \times 365 = $49{,}845 ]

Annual savings with the Savings Plan:

[ \text{Savings} = $83{,}160 - $49{,}845 = $33{,}315 ]

Choosing the Right Savings Plan Type

AWS offers two primary types of Savings Plans: Compute Savings Plans and EC2 Instance Savings Plans.

1. Compute Savings Plans

This plan type is instance-family agnostic—you commit to a specific dollar amount of compute usage per hour (e.g., $1,000/month). It applies automatically across all supported instance families, sizes, regions, and purchase options (including Spot and On-Demand), making it ideal for dynamic or evolving workloads.

2. EC2 Instance Savings Plans

This plan requires you to commit to a specific instance family (e.g., m5) and region for the duration of the term. It’s best suited for stable, long-term workloads where instance type and configuration remain consistent.

Selection Strategy Example

For a newly developed application with evolving performance requirements, a Compute Savings Plan provides flexibility to switch instance types as needed. Conversely, for a legacy application expected to run unchanged in the same environment for years, an EC2 Instance Savings Plan delivers greater long-term savings.

Monitoring and Optimizing AWS Costs

Beyond selecting Savings Plans, actively monitoring and optimizing your AWS spending is essential. AWS provides several built-in tools to support this effort.

AWS Cost Explorer

With AWS Cost Explorer, you can:

• Visualize historical spending by service, account, or tag.
• Set budgets and configure alerts to proactively respond to unexpected cost spikes.
• Analyze cost trends and identify opportunities for further optimization.

Sample Budget Configuration (YAML)

Here’s an example budget rule that triggers an alert when monthly EC2 costs exceed $1,000:

Budget:
  BudgetType: "COST"
  BudgetLimit:
    Amount: 1000
    Unit: "USD"
  TimeUnit: "MONTHLY"
  BudgetName: "Monthly EC2 Cost Budget"
  CostFilters:
    Service: "Amazon Elastic Compute Cloud"

AWS Trusted Advisor

AWS Trusted Advisor delivers real-time, actionable recommendations to help optimize costs, improve security, enhance reliability, and increase service limits. Examples include:

• Identifying and terminating idle or underutilized EC2 instances.
• Recommending lower-cost, functionally equivalent instance types.

Conclusion

By strategically applying AWS Savings Plans—and complementing them with proactive cost monitoring and optimization tools—organizations can meaningfully reduce cloud infrastructure expenses while improving resource utilization efficiency. In our next article, we’ll explore advanced cost management techniques to help you manage AWS spending at a strategic, enterprise-wide level.