AWS Knowledge

How to Optimize Your AWS Costs: 5 Best Practices

Guillermo Ojeda

Jan 16, 2023

    Table of contents will appear here.
    Table of contents will appear here.
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Navigating AWS costs can be just as complex as building the infrastructure itself. There are many ways to build a cloud architecture, and most of all aren't optimal in terms of cost. The costs can rise quickly if not carefully managed—services left running continuously, high data transfer charges, and costs associated with server locations all contribute to the bill. This article will explore in detail several strategies for effective cost management and optimization on AWS, helping you optimize your AWS bill while leveraging the full potential of the platform.

1. Use Spot Instances

Amazon EC2 Spot Instances are an alternative purchase option for EC2 instances, where you can purchase AWS's spare capacity of EC2 instances for a lower price, up to 90% lower than On-Demand.

Spot Instances are the way in which AWS sells their spare capacity. The drawback is that AWS reserves the right to terminate those instances and reclaim that capacity whenever it chooses to do so, and you only get a 2 minute warning. This makes Spot instances unsuitable for workloads that can't tolerate interruptions.

Spot Instances Pricing

The pricing of Spot Instances fluctuates based on supply and demand for EC2 instances. It's based on long-term trends, so while you may see day to day fluctuations in the price, spikes on supply or demand will average out over the long-term trend, and prices of Spot Instances don't spike as much.

When you purchase a Spot Instance you set a maximum price. You have access to your Spot Instance while the actual price is lower than your maximum price, and if the actual price ever exceeds your maximum price, your Spot Instances will be automatically terminated. In all cases, you only pay for the actual price of the Spot Instances, not the maximum price that you set.

Use Cases for Spot Instances

Spot Instances are great for fault-tolerant and flexible applications. They are ideal for data analysis, batch jobs, background processing, and any tasks that can afford to be paused and resumed without disrupting the functioning of your application.

For example, let's say you're running a media company that processes large amounts of video content. The actual encoding process, which is computationally intensive, can be performed by Spot Instances, helping you save costs without sacrificing performance or speed.

Spot Instances vs. On-Demand Instances

The difference between Spot and On-Demand Instances is the price and the possibility of interruption. Spot Instances offer significant cost savings but can be reclaimed by AWS with a two-minute warning if the demand rises or if the Spot price exceeds your maximum. On-Demand Instances are priced higher, but provide steady, uninterrupted performance.

There are also use cases where the best option is to mix On-Demand and Spot Instances. For example, suppose you need to process a group of files overnight. You can start processing them using Spot Instances, and if they finish processing, you've paid a lot less than the On-Demand pricing. If the Spot Instances are interrupted, you can launch On-Demand instances to have the guarantee that the job will be finished on time.

Best Practices when Using Spot Instances

The volatile nature of Spot Instances requires you to pay attention to best practices to ensure your workloads run smoothly in spite of potential interruptions:

  • Flexible Applications: Ensure your applications can handle interruptions and statelessness.

  • Spot Instance Pools: Spread your Spot Instances across multiple Spot instance pools (different instance types, Availability Zones, etc.) to reduce the chance of simultaneous interruptions.

  • Maximum Price Setting: Set a maximum price close to the On-Demand price to prevent your Spot Instances from being terminated during price spikes.

  • Spot Blocks: If your jobs need to run continuously for a short period, use Spot Blocks which are not interrupted for the duration you select (1 to 6 hours).

2. Utilize Reserved Instances

AWS Reserved Instances (RIs) represent another effective strategy for optimizing your AWS costs, particularly for predictable workloads. They are a different purchase option than On-Demand. When you purchase an RI, you commit to paying for a specific instance type over a defined term. The longer the term, the bigger the discount, with savings that can reach up to 72% compared to On-Demand pricing. Reserved Instances are available for Amazon EC2, RDS, Elasticache, Redshift and Opensearch.

Reserved Instances Pricing

AWS provides three payment options for RIs: All Upfront, Partial Upfront, and No Upfront. The All Upfront option provides the most significant discount, while the No Upfront option offers the lowest initial cost. The other factor that affects the price is the commitment: Either 1 year or 3 years. The price depends on a combination of these factors, with a Reserved Instance for 1 year with No Upfront costing around 30% less than the On-Demand price, and a Reserved Instance for 3 years with Full Upfront around 70% less than the On-Demand price.

Reserved Instances are a commitment that's billed at the beginning of the month, and it's independent of actual usage. If you have instances running that match a Reserved Instance, their cost will be covered by that Reserved Instance. If you don't, you'll still be billed for the Reserved Instances.

Use Cases for Reserved Instances

RIs are best suited for steady-state workloads, where you have predictable usage and require a defined capacity consistently available. They're excellent for production environments that can be predicted to not change much in the next 1 or 3 years, where workloads are stable and predictable.

Suppose you're running an e-commerce website that operates around the clock. It's crucial that the website remains live and responsive at all times. In this case, Reserved Instances would be the ideal choice for your production servers due to their cost-effectiveness for long-term, continuous usage.

Reserved Instances vs. On-Demand Instances

While On-Demand Instances offer flexibility, letting you pay for compute capacity by the hour with no long-term commitments, Reserved Instances provide cost savings for long-term, predictable workloads. The decision to use one or the other depends on your specific use case.

Reserved Instances aren't compatible with Spot Instances. They're another purchase option, which is available for Amazon EC2, RDS, Elasticache, Redshift and Opensearch. Spot Instances are only available for Amazon EC2.

Best Practices when Using Reserved Instances

To maximize the benefits of RIs, consider the following best practices:

  • Right-Sizing: Before purchasing an RI, analyze your instance usage to ensure you're not over-provisioning.

  • RI Families: AWS allows RIs to be applied across all sizes of instances within a particular instance family in a region.

  • Convertible RIs: If you want additional flexibility in your instance type and still want to benefit from cost savings, consider Convertible RIs.

  • Use RIs for Baseline: Consider purchasing RIs to cover the baseline and use On-Demand Instances or Spot Instances to handle peaks.

An alternative to Reserved Instances are Savings Plans, which also require a commitment, but offer much more flexibility. Savings plans are only available for EC2, Fargate and Lambda. Before deciding for Reserved Instances, read through our article about Savings Plans vs Reserved Instances.

3. Take Advantage of AWS Free Tier

Amazon Web Services (AWS) Free Tier is an excellent entry point for those new to the AWS ecosystem, start-ups with a limited budget, or developers wanting to experiment and learn. It allows you to explore AWS services without incurring significant costs, and usually without spending any money at all.

Understanding the AWS Free Tier

The AWS Free Tier includes over 60 services and is split into three different types: "Always Free," "12 Months Free," and "Short Term Trials". The "Always Free" offering includes limited amounts of certain services that are free indefinitely. "12 Months Free" provides access to a range of AWS services for free, with usage restrictions, for the first year after signing up. The "Short Term Trials" are free trials for certain services that start from your AWS sign-up date and typically last between 7 and 90 days.

You can consult the entire list of AWS services included in the free tier on this link.

Benefits of Using AWS Free Tier

The AWS Free Tier allows you to gain hands-on experience with AWS services without spending money. It's ideal for experimenting with new ideas, learning about AWS services, or building prototypes at no cost. This model can save start-ups and small businesses a substantial amount of money while they test and develop their applications, and grant them the freedom to explore AWS without excessive charges.

The free resources offered by the free tier are often more than enough for learning and experimenting, but won't be suitable for production workloads. Also, if your usage exceeds the Free Tier limits, AWS will charge you at standard, pay-as-you-go service rates.

For example, under the Free Tier, Amazon EC2 provides 750 hours per month of t4g.small instances for the first 12 months. If you run one t4g.small instance for a full month, you'll stay within the Free Tier. However, if you were to run a second t4g.small instance for that same month, you would be charged for the additional instance hours.

4. Monitor Usage and Estimate Costs

Successful cost optimization on AWS isn't just about using the right instances or services; it's about continually monitoring and managing your usage and costs. AWS Cost Explorer is a tool that will help you monitor your costs and identify where cost-saving strategies will be most effective.

Analyzing Costs with AWS Cost Explorer

Cost Explorer's filtering and grouping mechanisms let you break down your AWS costs in the way that makes the most sense for your business. For example, you can filter by Service to see how much you're spending on Amazon EC2 versus Amazon S3. Or, filter by Usage Type to understand your costs for different instance types.

Another key feature of Cost Explorer is cost forecasting. This tool uses Machine Learning algorithms to predict future costs based on historical data. It can be useful for budgeting purposes or for cost planning of new projects.

Best Practices for Monitoring Usage and Estimating Costs

  • Regularly check your costs in Cost Explorer.

  • Set up detailed budgets and ensure you have alerts in place for any unexpected cost increases.

  • Use tagging effectively to allocate costs and get granular insights into your spending.

  • Regularly review and update your budgets and cost forecasts to align with your changing business needs.

If you're interested in learning more about Cost Explorer, read our guide on How to use AWS Cost Explorer to understand AWS costs.

5. Automate Savings in AWS

Controlling costs and finding savings opportunities in AWS is a continuous process. You need to constantly review your expenses, analyze your workloads, and stay up to date with the latest cost-saving strategies.

A better way to reduce your AWS costs is to use Pump. Our tool will forecast your individual spend and automatically apply cost-reduction strategies, removing the need to manually forecast and analyze all the pricing alternatives. We use best-in-class algorithms to perform these calculations and forecasts, so you always get the most savings. Pump is free to use, there are no upfront, monthly or hidden costs or fees, and we offer a 30-day money back guarantee. Read here on how pump finds 60% savings on AWS.


Reducing your AWS costs requires a combination of understanding the service offerings, selecting the appropriate pricing models for your workloads, continuously monitoring usage, and adjusting your approach based on your evolving business needs. The strategies outlined in this article will help you significantly reduce your AWS costs.

AWS is continuously evolving with new features and services. These changes can open up new avenues for cost optimization, either with new purchase options, new services or reductions in pricing. Remember, cost optimization in AWS is not a one-time activity, but a continuous process of monitoring, analyzing, and optimizing. If it seems daunting, or if you can't find the time to analyze all the options, try automating your AWS cost savings with Pump. It's free forever, no hidden costs.

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1550 Mission Street, San Francisco, CA 94103

Made with

in San Francisco, CA

© All rights reserved. Pump Billing, Inc.

1550 Mission Street, San Francisco, CA 94103

Made with

in San Francisco, CA

© All rights reserved. Pump Billing, Inc.