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The path to AWS costs savings leads to reserved instances

Once the cloud is running, you may not be able to keep an eye on capacity. Match supply to demand with reserved instances – and lower your bill.

Companies look to build in the cloud because it offers rapid deployment and scalability. And many companies are looking to Amazon Web Services because it also offers a depth of services. But when provisioning AWS infrastructures, many of those companies mistakenly make capacity planning practices an afterthought -- and they end up overpaying for services.

The first mistake many newbie cloud adopters make is to overprovision services in anticipation of need, which defeats the purpose of using a platform that lets you to scale up and down on demand. Renting an AWS infrastructure allows you to match supply to demand.

Another mistake companies make is keeping an eye on service utilization over time against cost, leading them to pay for underutilized services. When spinning up their first instances in AWS, many cloud architects carefully consider costs. But, once the technology is installed and services are humming along, watching costs often falls by the wayside as other things take priority. 

As enterprises start to question why costs are piling up, a small industry has developed to address these issues. Third parties such as Cloudability, Cloud Cruiser and 6Fusion offer services to help companies identify areas for cost reduction. Amazon also released its AWS Simple Monthly Calculator, which shows anticipated costs for a proposed configuration to the AWS Cost Explorer reporting tool that reveals historical cost information across leased services. Together, these tools help companies get a handle on outgoing cash flow. Enterprises paying for business-level support can use the AWS Trusted Advisor, which compares billing to account activity and recommends cost-reduction steps. 

How to save a buck with reserved instances

One way to save money in AWS without having to pay a third party to help you do so is by using AWS reserved instances (RI). These instances are the same as regular, on-demand instances, except for the pricing structure. Depending on the term (one year or three years), public cloud usage costs can run 9% to 69% less per hour than with on-demand instances.

There are three types of reserved instances: light, medium, and heavy utilization. All three require upfront payments, plus hourly charges, but they're all less expensive than on-demand instances (Table 1). You choose a version based on anticipated use.


There’s a larger initial payment for the heavy reserved instance, but it has a lower hourly cost. The other end of the spectrum is the light reserved instance, which requires a smaller upfront payment but bigger hourly cost. As with on-demand instances, the light and medium types don't need to be in a running state, so turn them off when not in use. Heavy reserved instances are billed every hour during the entire term. Use CloudWatch to turn off your instances when not needed.

So how do you know which to choose? Here's one rule of thumb: If you’re running at 80% capacity or more, use heavy reserved instances; 20% to 80% uptime would require a medium reserved instance; and 20% or less uptime calls for a light reserved instance.

You don't lose if you don't use 

You can stop running AWS on-demand instances at any time to save money, but you also aren’t left holding the bag with reserved instances after your upfront payment. If you don't need the instance, set a price and resell it in the Amazon EC2 Reserved Instance Marketplace

To sell an unused reserved instance, register as a seller by clicking Sell Reserved Instances button in the EC2 RI instance section of the AWS console. First-time sellers will be prompted to enter company name and banking details. Once registration is complete, select the instance(s) you want to sell, set a price (AWS pre-populates this with a recommended amount based on remaining reserved instance lifespan) and click the List Reserved Instances button. Reserved instances listed in the Marketplace are based on region, instance type, duration, term remaining and hourly price.

Keep in mind that AWS takes a 12% cut on RI sales and, depending on the region and reserved instance type, the pool of available instances for sale could be quite small. Reserved instance buyers can also purchase instances for time periods that differ from the standard AWS yearly terms. To buy a used reserved instance, access the EC2 from the AWS console and navigate to Instances, then select Purchase Reserved Instances. Choose your desired instance type, offering type and duration, and then click the search button to see what’s on the block. If you find a RI that catches your eye, add it to your shopping cart and complete the transaction.

About the author: 
Russ Vanderpool, MSCS and MBA, is a technologist interested in using cloud technology to deliver solutions, help companies better serve customers and to identify new businesses. He has hands-on experience as an architect/developer and a business adviser across the finance, energy, education, technology and nonprofit sectors. Russ has architected and built a cloud infrastructure for a green tech company, and while working for Japan's largest system's integration firm, he developed proprietary object-oriented database visualization software for that market.

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