Cloud Pricing Model: How to Budget and Forecast Cloud Computing Cost

March 27, 2025 7:32 pm |

min

Cloud computing has a global market size of over $753 billion, in large part because of the unparalleled flexibility and scalability it provides. According to Precedence Research, that market could explode to over $5 trillion by 2034, so the industry isn't going anywhere.

Cloud services help organizations of all sizes innovate faster, streamline operations, and adapt to changing demands. These services make it easier to communicate and share information, eliminating bottlenecks that could slow operations.

However, with this power comes the responsibility of managing costs. Understanding and controlling cloud computing costs is a significant part of maximizing the value of your investment. Without a clear strategy, expenses can spiral out of control, deteriorating the financial benefits of cloud adoption.

Whether you're a small business owner or an IT professional, mastering the art of budgeting and forecasting makes it possible to optimize your cloud usage. This article will take you through the basics of cloud pricing models, practical budgeting techniques, and forecasting strategies.

Quick Takeaways:

Understanding the different cloud pricing models helps you choose the best option for your needs, balancing flexibility and cost savings.
Setting clear goals, creating usage estimates, and using monitoring tools make it easier to manage your cloud costs.
Using historical data and planning for business growth, seasonal fluctuations, and unexpected surges helps you forecast your cloud costs accurately.
Cloud-native tools like AWS Cost Explorer and third-party solutions like NCM Cost Governance help track, optimize, and forecast cloud spending, giving you more control over your expenses.

The Basics of Cloud Computing Costs

Using cloud services to store, process, and manage data and applications over the internet costs money. However, unlike traditional IT infrastructure, where costs are primarily upfront, cloud costs are typically pay-as-you-go, meaning you pay only for what you use.

The primary components of cloud computing costs include:

Compute: Charges for using virtual servers or containers to run applications.
Storage: Fees for storing data, including backups and archives.
Data Transfer: Costs incurred when moving data between cloud regions or to and from users.
Additional Services: Expenses for value-added features like AI tools, databases, and security enhancements.

While the pay-as-you-go model is convenient, costs can accumulate unexpectedly. For example, unmonitored usage, data transfer fees, or over-provisioned resources can lead to higher bills than anticipated.

Managing these costs requires a clear understanding of what drives expenses and a proactive approach to monitoring usage.

Overview of Cloud Pricing Models

Understanding the various cloud pricing models can help you manage your cloud computing costs. Different models cater to varying needs, offering flexibility, cost savings, or predictability based on usage patterns and business goals.

Pay-As-You-Go

A pay-as-you-go model charges you only for the resources you use, making it highly flexible and suitable for businesses with fluctuating demands. Whether you're running temporary workloads or scaling up during peak times, pay-as-you-go prevents you from paying for unused capacity. However, costs can add up if you don't monitor usage, so you'll want to invest in a tool that monitors it for you.

Reserved Instances

Reserved instances allow you to make a committment to a set amount of resources for a longer period, usually one to three years. This commitment often results in significant discounts compared to pay-as-you-go pricing. This model delivers cost predictability while optimizing resource allocation, making it a preferred option for companies with stable workloads.

Spot Instances

Spot instances utilize spare capacity from cloud providers at a reduced cost, sometimes up to 90% less than on-demand prices. This model is perfect for non-critical, flexible tasks like data analysis or testing. However, these instances can be interrupted if demand increases, making them unsuitable for critical applications.

Subscription-Based Models

Subscription-based models offer fixed pricing for a predefined period, making them perfect for businesses with predictable workloads. These plans provide stability as you fit cloud computing into your budget and often come with bundled features to help with management and cost control.

The right pricing model for your business depends on your workload characteristics, cost priorities, and operational flexibility.

Tips for Budgeting Cloud Computing Costs

You'll need to fit your cloud computing costs into your budget. Here are practical tips to help you manage expenses:

1. Start with Clear Goals and Usage Estimates

Before you deploy any resources, you'll have to define your objectives and estimate your usage needs. It helps to consider factors like storage, compute power, and data transfer requirements. This clarity enables you to choose the right services and avoid overspending.

2. Use Cloud Cost Calculators

Cloud providers like AWS, Azure, and Google Cloud have cost calculators that let you simulate expenses based on your anticipated usage. These tools show you the potential costs so you can plan your budget accordingly.

3. Understand and Monitor Your Usage Patterns

Regularly reviewing your cloud usage helps you identify trends and anomalies. Monitoring tools can pinpoint inefficiencies, such as idle resources or spikes in demand, so you can make adjustments and optimize your costs.

4. Allocate Budgets to Teams or Projects

It's possible to tag resources by team or project to track spending accurately. This practice holds these teams accountable for their resource use and provides insights into which areas may require more attention.

5. Avoid Over-Provisioning and Underutilization

Of course, it's a good idea to only provision what you need and scale up or down as necessary. Over-provisioning wastes money on unused resources, while underutilization can lead to inefficiency. Auto-scaling, which can dynamically match demand, is an option in this scenario.

These tips will help you create a cost-effective budget that maximizes the value of your cloud investment.

Best Practices for Forecasting Cloud Costs

Accurately forecasting your cloud computing costs can reduce expenses while giving you the resources your organization needs. Here are some best practices to help you predict future expenses:

Use Historical Usage Data

First, you'll want to analyze past usage data to identify patterns and trends. This information provides a solid foundation for estimating future needs, helping you anticipate costs based on historical demand.

Plan for Seasonal Fluctuations or Business Growth

You can also consider how seasonal sales peaks or planned expansions could impact your cloud usage. Forecasting for these scenarios guarantees you have adequate resources while avoiding unexpected cost overruns.

Incorporate Cost Buffers

Including a buffer in your forecast to account for unexpected surges, such as traffic spikes or emergency workloads, can work wonders. This safety net helps avoid budget shortfalls and provides business continuity.

Leverage Tools Like FinOps and Cloud Analytics Platforms

Tools like FinOps frameworks and cloud provider analytics platforms (e.g., AWS Cost Explorer, Azure Cost Management) offer insights into current spending and future cost trends. These tools help you identify inefficiencies and refine your forecasts.

Consider Multiyear Contracts or Savings Plans

For predictable workloads, explore long-term commitments or savings plans offered by providers. These options often come with significant discounts, reducing overall costs while simplifying forecasting.

These best practices make it possible to develop accurate forecasts that align with your goals and minimize financial surprises.

Tools and Resources for Cost Management

Managing your cloud computing costs requires the right tools to monitor, optimize, and forecast expenses. Here are some popular resources to help you stay in control:

Cloud-Native Tools

Cloud providers offer built-in tools designed for cost management. For instance:

AWS Cost Explorer: Helps visualize and analyze your spending trends, offering insights to identify inefficiencies.
Microsoft Cost Management: Enables tracking, budgeting, and optimizing costs within Azure environments.

These tools provide detailed usage data and actionable recommendations within their platforms.

Third-Party Solutions

Third-party platforms offer advanced features for more comprehensive cost management:

CloudHealth: Centralizes cost tracking across multiple providers and offers optimization recommendations.
Spot.io: Focuses on reducing costs by automating the use of discounted spot instances.
NCM Cost Governance: A specialized tool for monitoring, budgeting, and rightsizing cloud resources across environments.

a graphic showing how NCM Cost Governance monitors resource usage across multiple environments.

Benefits of These Tools

These tools simplify cost tracking, identify unused or underutilized resources, and forecast future spending based on historical data. Businesses can then use this information to make informed decisions and optimize their cloud investment.

Save Money on the Cloud

Learning as much as possible about cloud pricing models can be helpful as your business takes full advantage of cloud computing while keeping costs in check. Budgeting and forecasting are a significant part of this process because they minimize overspending and help you allocate resources wisely.

Ready to take control of your cloud costs? Contact Nutanix today to learn how our solutions can help you manage your cloud investments.

Learn more about Nutanix Cloud Manager and NCM Cost Governance.

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